What permanent supply chain disruption means for engineering

Supply chain volatility is now a permanent feature rather than a cyclical shock, according to a new World Economic Forum (WEF) report, forcing companies and governments to rethink how and where they invest and produce.

Based on insights from more than 400 industry, government and academic leaders, the report argues that the assumptions that once made global supply chains efficient – institutional stability, network predictability and open trade – have become sources of fragility.

“In 2025 alone, tariff escalations between major economies reshuffled over $400bn in trade flows, while disruptions in the Red Sea and Panama Canal have driven container shipping costs up 40% year on year,” says Kiva Allgood, managing director of WEF.

These are not isolated shocks, Allgood says, but evidence of a “structural rewiring of globalisation” that has fractured the legacy linear model of “produce anywhere, deliver everywhere”.

For Henrik von Scheel, a professor of strategy management and economics best known as the originator of the ‘Fourth Industrial Revolution’ (Industry 4.0) concept, the new norm of permanent volatility leaves boardrooms grappling with a central question: how do you plan when the assumptions change faster than the planning cycle?

The answer, according to von Scheel and WEF, is to stop trying to forecast disruption. “No company could have been fully prepared for the disruptions witnessed over the last five to 10 years,” the report notes. Competitive advantage now lies in building flexible, adaptive systems capable of pivoting as quickly as disruption unfolds.

The report points to Ford’s response to the 2020-22 semiconductor shortage as an example. Rather than waiting for chip supplies to normalise, the company shifted from inventory-heavy dealership sales to a build-to-order model. Scarce chips were prioritised for high-margin and new-launch vehicles, while designs were simplified by removing non-essential features. By aligning production to constrained inputs rather than speculative forecasts, Ford expanded its US order bank to seven times that of pre-pandemic levels, turning a major structural constraint into a competitive advantage.

Richard Wilding OBE, emeritus professor of supply chain strategy, has been advocating this shift since 1998, when he helped establish the Agile Supply Chain Research Club at Cranfield University. He characterises it as the transition from ‘Mode 1’ to ‘Mode 2’ supply chains.

Mode 1 – the “old normal” – was built for stability, he tells Professional Engineering. “Just-in-time and lean approaches were predominant, with efficiency and cost reduction the focus, facilitated by frictionless global trade of people, products and materials. Mode 2 supply chains, by contrast, require speed, adaptability and continuous adjustment.”

The strongest performers, Wilding says, are those able to operate both modes simultaneously, running lean when conditions allow, but switching rapidly to adaptive mode the moment disruption hits.

A crucial step for both industry leaders and governments, Wilding says, is recognising the interdependence of supply networks. He points to disruption in the supply of batteries for defence equipment, which was ultimately caused not by a shortage of batteries but by a lack of cardboard packaging following a surge in online shopping.

It is a lesson the UK Ministry of Defence (MoD) has taken seriously. Wilding was involved in the “radical redesign” of the MoD’s Defence Supply Chain Strategy, aimed at embedding resilience and adaptability across defence networks. The strategy, now being implemented, seeks to balance reliability, service and cost with a greater capability to anticipate disruption, respond decisively and recover quickly.

The strategy’s case for change will likely ring true for most engineering companies: “The defence supply chain is currently rated as reactive rather than proactive, as well as siloed. Current governance models, processes, behaviours, culture, platforms and tools are contributing to an organisational inertia, which limits the speed at which decisions can be made.” The proposed solution has equally broad relevance for industry.

First, supply chains must no longer be optimised primarily for cost. The strategy introduces a ‘resilience by design’ framework that forces explicit trade-offs across four dimensions – cost, reliability, service and environmental sustainability.

Every major supply chain decision is assessed against all four criteria. A cheaper component from a sole-source supplier in a geopolitically unstable region may optimise cost but undermine reliability. A just-in-time delivery model may perform well on cost and service, but fail when transport routes are disrupted. Over-optimising one dimension weakens the system as a whole, the strategy warns.

Second, adaptive supply chains require alternative suppliers, manufacturing locations and logistics routes to be pre-qualified before disruption strikes. While this carries higher upfront costs, it avoids panic buying and surge pricing when supply chains come under stress.

Third, resilience depends on a supplier’s ability to respond. Inconsistent demand signals and limited visibility of future orders often prevent suppliers from maintaining capacity, investing in equipment or retaining skilled workers.

The Ukraine conflict exposed this weakness. Sudden surges in defence demand hit suppliers that had been operating under cost-optimised, just-in-time assumptions. The expectation that production could be ramped up within 30 days proved operationally unrealistic. Addressing this requires a shift away from purely transactional purchasing towards providing suppliers with longer-term visibility and transparency around future programmes.

Get it right, and the business case is compelling. Marc Engel, who spent six years as chief supply chain officer at Unilever, is quoted in the WEF report as saying: “Every dollar we spent on agility has likely delivered a tenfold return on every dollar spent on forecasting or scenario planning.”