The hidden cost of resilience: What supply chain redesign means for working capital

When Dick Schoof, the former Prime Minister of the Netherlands, took to the stage at Davos earlier this year, his message was clear: Supply chains need to be put on the political table. Just-in-time may have made economic sense, he argued, but from a resilience and security standpoint, it didn't. His call to action – to invest and build back redundancy, increase autonomy and decrease dependency – captured a shift already well underway. The future, he said, needed to focus on agility versus fragility.

That resilience costs, a topic we explored in our recent Trade Trends webinar.

Trade is being rewired, not reversed

Trade volumes are not declining; they are growing with trend. What is changing is the architecture. Since Russia's invasion of Ukraine, there is a higher probability that trade now occurs within geopolitically aligned blocs than between them. That’s a stark reversal of what came before. Regionalisation, friend-shoring, and the roles played by connector countries are structural features of a new landscape where geopolitics sits over economics, and where trade restrictions, subsidies, tariffs, and non-tariff barriers are in the news constantly. The result is a resilience agenda: resilience over efficiency, supply chain redesign in a post-COVID world. And it has a direct working capital implication.

Four ways resilience ties up cash

The geography of supply chains and the geography of cash move together. Supply chain design decisions change where inventory, receivables, payables and liquidity sit across a corporate ecosystem. When companies redesign for resilience, the working capital implications emerge across four areas. 

• Multi-sourcing replaces one strategic supplier with several alternatives, reducing concentration risk but increasing fragmentation of payment terms, currencies and documentation. 
  
   
• Longer lead times – the shift from just-in-time to just-in-case – lengthen the period between cash leaving a company and finished goods generating revenue, appearing primarily in inventory days.
  
   
• Regionalisation may improve availability, but inventory can be duplicated across warehouses and legal entities, making an organisation safer operationally while becoming more capital-intensive.
  
   
• Friend-shoring means moving from the cheapest supplier to the safest. That supplier may not offer the same payment terms or have the same access to efficient funding in the market.

The cost of resilience may appear on the balance sheet before it appears in procurement pricing.

Putting numbers to the decision

To illustrate, consider a fictitious €5 billion multinational manufacturer with a baseline cash conversion cycle of 50 days and a 15% disruption probability. Under a resilience-first scenario, the cash conversion cycle extends to 90 days, tying up approximately €345 million in additional working capital through a combination of increased inventory and safety stock, shorter payment terms due to new or smaller suppliers and longer sourcing routes. The upside: disruption probability falls to 8%. An optimised resilience model retains the same inventory posture and the same 8% disruption protection, but applies term discipline and a mix of working capital solutions, reducing the net funding requirement to €67 million, mitigating approximately 74% of the gross increase.

The strategic imperative

You cannot redesign the physical supply chain without redesigning the financial supply chain. Treasury needs to be involved when the supply chain architecture is designed, not after procurement and operations have already created the working capital requirement. 

Resilience has a price. The strategic opportunity is to decide deliberately where that price sits, rather than allowing it to accumulate by default on the balance sheet.