The Death of Cheap Supply Chains: What CFOs Now Pay for Resilience

A 56% rise in the number of public-company suppliers rated High or Very High Risk — that is what Rapid Ratings International found when it modeled country-specific tariff rates and assumed suppliers could pass through only about half the added cost. Among privately held suppliers, the number struggling dangerously more than doubled. The arithmetic of cheap global sourcing has stopped working, and finance chiefs are now pricing insurance against a world that keeps delivering shocks.

How much inventory is too much?

The question landed squarely on SIG Group's first-half call in July, when a Citi analyst asked CFO Ann-Kristin Erkens whether the Swiss packaging maker's €80 million inventory build would become permanent. Part of the increase came from valuing stock at higher input costs, and part was deliberate, said Erkens, who has since been promoted to CEO. "There is an element of safety stock in there," she said; whether the company works it down by year-end will depend on market volatility.

Inventory is usually the quickest lever, and the first pulled. At Authority Brands, a consumer services company, larger franchisees and company-run locations bought extra HVAC compressors and outdoor units in the first quarter of 2025, ahead of tariff-driven price increases, CFO Josh Greear said. In a normal year those operators carry "weeks of inventory, not months." Authority Brands negotiated with distributors on behalf of the whole system to lock in stock at existing prices. Manufacturers raised prices anyway, including those building in the U.S., because every competitor's costs had risen.

Trane Technologies absorbed the same whiplash on a larger balance sheet. On its second-quarter 2026 earnings call, CEO Dave Regnery said the company had added four times the capacity to its applied HVAC business over the past three to four years, and guided 2026 capex (capital expenditure) to 2% to 3% of revenue. Part of that build-out runs through the P&L as production ramps up, CFO Chris Kuehn added, and may weigh on operating leverage in the near term. Trane is "not going to get behind" and is "not turning away any orders," Kuehn said.

Who pays for resilience?

Francois Motte, CFO of rare-earths developer Aclara Resources, has worked through how to split that bill with customers and governments. Aclara, which operates in Brazil, Chile and the U.S., has operating costs close to Chinese companies', he said; its disadvantage is the cost of capital. Governments in the U.S., Japan, South Korea and Brazil are narrowing that gap with long-dated finance — often 10 to 12 years, in some cases up to 20. Their backing also tells customers a supplier has survived due diligence, said Motte, which can matter as much as the money.

Aclara pairs take-or-pay offtake agreements (contracts obliging buyers to purchase fixed volumes) with a minimum price that lasts until its construction debt is repaid. In return, it offers customers a price cap that protects them when supply tightens. After payback, Aclara is willing to move to index pricing. Gas turbine makers sitting on years of backlog are paying up for yttrium, a rare earth making up about 8% of thermal barrier coatings, and yttrium now accounts for roughly 30% of the value of Aclara's output, Motte said. Carmakers competing with Chinese electric vehicles have far less room to pay.

What happens when suppliers fail?

Costs customers refuse to absorb land on suppliers — and, eventually, on their customers. RapidRatings CEO Charlie Minutella described a manufacturer that learned a critical component supplier was heading into financial restructuring. Qualifying a replacement, with new tooling and a production ramp, would take several quarters, and by the time distress became visible that window had closed. The manufacturer paid a sum in the mid-tens of millions of dollars to keep the supplier operating. "Wait for headlines or disruptions to emerge, and the only option left is writing the check," Minutella said.

Late discoveries reach the plant floor too, observed Catherine Cormier, chief innovation officer at supply chain software firm Assent. Manufacturers must retool entire factories and halt production to change a product's composition for regulators — and some must destroy finished goods they can no longer sell.

Is blanket inventory the answer?

No, and the numbers say why. Supply chain consultancy Miebach Consulting reviewed a consumer goods manufacturer's sprawling production footprint, including actual and projected P&L for the previous few years; in each year an outside event knocked results off plan. "Find me a year we've had a white swan," quipped Nick Banich, Miebach's chief revenue officer for the U.S. and Canada.

Some shocks had hit more than once, so the manufacturer built them into its long-term plan. That made shifting some production from Southeast Asia to Mexico more attractive: labor costs would rise 15% to 20%, and unit costs 7% to 14%, depending on the product. But cutting roughly 20 days of ocean transit would free up working capital and reduce exposure to another round of tariffs.

Blanket stockpiling, Banich argued, is the easy and most expensive response. After Covid-19, many organizations "beefed up inventory, and it didn't really solve a lot of the service issues," he said. He argues for segmenting by SKU (stock-keeping unit) and by supplier: "It's not going to make sense to have committed capacity with an additional supplier with machines running at 40% utilization for everything." Life sciences companies already hold strategic stock against low-probability, high-damage events, and Banich expects other industries to borrow the approach. The verdict writes itself: resilience is now a line item, and CFOs who leave it unbudgeted will meet it later as a check.