The Great Recalibration

Over the last month, I’ve been privileged to participate in a couple dozen Supply Chain Top 25 company briefings with some of the world’s leading companies. Looking across them, it's evident that these leaders are undergoing significant shifts in their approach to sustainability, diversity, equity and inclusion (DEI), and in how they’re positioning operations for success in the face of persistent global trade volatility.

These shifts aren't merely a reaction to disruptions but a fundamental recalibration of priorities and strategies. Let’s explore a few of them, then discuss a best practice for decision making that addresses volatility in the business environment.

Sustainability for the triple win. In the last two years, we’ve increasingly seen the environmental aspect of ESG move toward more pragmatic strategies that focus on delivering tangible business results. Success measures have shifted from just making progress against corporate ESG goals, such as net zero emissions, to “triple wins” that increase business profit and continuity (such as water stewardship), while also improving sustainability in support of people and the planet. Innovation has become a critical enabler of this work, as the quick wins are exhausted.

Navigating DEI in a complex landscape. DEI, a key pillar of the social portion of ESG, has become a polarized term and strategy, particularly in the U.S. Many global companies with DEI embedded in their culture have adapted their narratives to focus on business outcomes (such as, “we want a workforce that looks like our customers”) and have shifted messaging to focus on inclusion and belonging. We are not hearing about any reduction in spending on “diverse” suppliers. More generally, though, there has been less explicit external communication (AKA “hushing”) tied to people-related initiatives, indicating a more subtle approach to DEI in a sensitive environment.

We are witnessing history in the making: Long-established geopolitical blocs and alliances are shifting. Economic nationalism and resulting trade barriers are intensifying. “Friend-shoring” and/or “neutral-shoring” may not guarantee free trade and cost-effective flows in the current trade environment.

At the same time, there is a record level of economic uncertainty in the environment as is tracked by the Economic Policy Uncertainty Index published by Professors Scott Baker, Nick Bloom and Steven Baker from Northwestern University, Stanford and the University of Chicago, respectively.

To measure ongoing policy-related economic uncertainty, the professors construct an index from three underlying components. The first quantifies newspaper coverage of policy-related economic uncertainty, and the other two relate to the amount of tax code provisions set to expire in the near-term and the level of disagreement among economic forecasters.

The last published reading of this index for January 2025 is at a level comparable to May 2020, when we were neck-deep in the pandemic with all its border closures and economic dislocations. This reading is, of course, prior to any tariffs being enacted, proposed or retracted since the end of January, so we see potential for this index to break new records before the end of the first quarter.

Resilience used to be defined, in part, by the “time to survive and recover” when capacity was disrupted. New non-physical risks, such as tariffs that can suddenly and unexpectedly spike, drive the need for “antifragility” where businesses and supply chains can quickly pivot across business options, leveraging adaptive processes and agile operations. I spoke to some of the best practices we’re seeing leaders employ in my last blog post: “Supply Chain as a Safe Harbor Amid Trade Volatility.”

There is a lot of open discussion and debate about the end game of the current trade volatility. Are we heading toward more “local for local” supply chains? And tariffs aside, can manufacturing make a significant return to the U.S. and other developed countries based on the availability and cost of the skilled labor required?

More pressing questions to answer in the near term are: “How quickly can your supply chain pivot?” and “What is your cost to pivot?” This second question ties to the concept of reversible decision-making. There is a great summary of this concept in Shane Parrish’s Farnam Street blog. The gist is that some decisions are more permanent or expensive than others to overturn and this is a critical factor for segmenting decision making.

In the spirit of the recent St. Patrick’s Day holiday, I’d like to extend a new Irish blessing to our Supply Chain community: “May your options be plenty and may your pivot costs stay low.”

Stan Aronow
VP Distinguished Advisor
Gartner Supply Chain
Stan.Aronow@gartner.com

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