Furthermore, the geopolitical risk indicator of the U.S. investment company BlackRock, which tracks market attention to geopolitical risks, has shown significant increases since 2019.4 Overall, the frequency and severity of geopolitical risks have escalated, convincing companies to adopt more robust risk management and resilience strategies. This trend is expected to continue, making geopolitical risk a critical factor for businesses worldwide. Consequently, resilience — the capacity to thrive in change — has become a priority for many business leaders.
Nevertheless, companies frequently lose focus on resilience once crises subside. Few organizations have systematically documented their lessons learned and integrated resilience into their operational frameworks. The reason for this is simply that many organizations have a narrow view of resilience and focus primarily on maintaining short-term operational continuity in times of crisis.1
It is therefore not surprising that an inadequate resilience strategy can lead to enormous losses. This is proved by losses due to geopolitical disruptions such as at a world-renowned company in the consumer electronics industry with an estimated loss of more than US$10 billion. Various retail companies report assessed losses of approximately US$500 million due to geopolitical disruptions. Some companies in the aerospace industry have suffered annual financial losses of more than US$7 billion due to geopolitical consequences.
But why are the losses due to geopolitical risks so high? Simply because geopolitical risks affect the entire company and its numerous departments. This includes:
- Procurement, due to delivery and logistics risks
- Manufacturing and production, due to international locations and geographical interdependencies
- Finance, due to sanction risks, loss of goods manufactured (LOGM), or trapped cash
- Research and development, due to its strong influence by the geopolitical race for technological leadership
- Human resource management, due to the importance of protecting employees and the corporate culture, even in high-risk areas
- Sales departments, due to the dependency of political and legislative decisions with regard to restrictions and sanctions in terms of domestically produced goods and utilized spare parts
More than just troubleshooting
Resilient supply chains enable companies to avoid crisis-related costs by preemptively addressing potential disruptions. For instance, by having alternative sourcing strategies and buffer stocks in place, companies can avoid the expenses associated with emergency task forces and expedited shipping, which are often not considered in total cost of ownership (TCO) calculations. This proactive approach can prevent significant financial losses during crises. In fact, half of the survey participants reported that they could have saved substantial amounts on crisis management costs through better resilience planning.
Supply shortages triggered by the war in Ukraine, for example, plus the recent COVID-19 pandemic have both demonstrated that more resilient companies achieve superior outcomes, including faster recovery from crises, significantly less downtime, better financial performance with maintained revenue, and a more stable supply chain without notable disruption to production or distribution. This was also proved by the previously mentioned survey, according to which most of the organizations are most likely to agree with the statement that resilient supply chains ensure delivery reliability and followed by the statement that they increase overall corporate profitability as well.
A resilient supply chain not only mitigates risks and prevents financial losses during crises. The transparency gained and measures taken can lead to significant cost savings, increased market share, and enhanced agility in responding to sudden demand spikes. According to the previously mentioned survey, 50 percent of participants indicated that they could have avoided half or more of the costs associated with "task force" activities during crises by means of a resilient supply chain.
Advantages during stable times as well
All these facts emphasize that true resilience is more comprehensive and includes, among other things, a company's ability to absorb stress, restore crucial functions, and then thrive again under new conditions. This clearly indicates that resilience extends beyond operational concerns and represents a strategic advantage, enabling companies to exploit opportunities while competitors remain surprised and unprepared.
Besides cost avoidance and efficiency gains, a resilient supply chain also positions companies to seize market opportunities during disruptions. Companies with robust supply chains can continue to meet customer demands when competitors face shortages or delays. This ability to maintain operations not only preserves customer satisfaction but also allows companies to capture market share from less prepared competitors. The recent survey from Porsche Consulting and the BME highlighted that 30 percent of participants were able to generate additional sales during crises by leveraging their resilient supply chains.