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Key insights

  • 83% of manufacturing businesses experienced a supply chain-related loss in the last year, yet only 33% reported that those losses were fully insured.
  • Rising material costs, tariffs and geopolitical tensions have become structural pressures for this sector.
  • Manufacturers are actively investing in improving supply chain visibility, supplier diversification and nearshoring or alternative sourcing strategies to strengthen continuity under sustained cost and disruption pressures.

the logistic business owner is wearing a white safety helmet and using the digital tablet in a Cargo freight ship for import export container yard with airplane on sky background . planing engineer.

Manufacturing facilities may sit firmly on US soil, but not all the components, materials and inputs that go into those products do. Modern manufacturing depends on supply chains that stretch far beyond factory walls. Trace the origin of a finished product and the journey can quickly span regions and continents.

COVID‑19 lockdowns exposed just how vulnerable manufacturers had become when production was too heavily outsourced. Nearshoring and supplier diversification have reduced some exposures but also introduced some trade-offs.

At the same time, manufacturers are operating in a far more challenging geopolitical and economic environment.

Recent events, such as disruptions to traffic through the Strait of Hormuz, illustrate how quickly global shocks can affect US manufacturing systems. As shipping slows and energy prices rise, factories abroad face rising operating costs, particularly in energy‑intensive production. In response, many manufacturers ration output and divert limited energy and capacity toward higher‑value goods that can better absorb rising fuel, transportation and input costs.

This can mean prioritizing production of finished or high-margin items — such as advanced electronics, specialized components, industrial machinery or premium consumer goods — where price increases can be passed on more readily. Lower-margin products, including basic materials, commodity components or energy-intensive inputs, are more likely to see production scaled back or delayed.

As shipping routes are diverted and transportation options narrow, lead times lengthen and availability tightens, increasing cost pressure across downstream manufacturing sectors.

Widespread disruptions are a part of the new operating reality

According to Gallagher's Redrawing Global Supply Chains survey, 83% of manufacturing organizations reported experiencing a supply chain loss in the past year. The research, conducted before the latest disruption due to the closure of the Strait of Hormuz, highlights how ongoing volatility in global trade is impacting day-to-day operations.

Source: Gallagher Redrawing Global Supply Chains Survey

These supply chain losses extend well beyond late shipments or temporary inefficiencies. Manufacturers report direct financial impacts, production slowdowns, missed customer commitments and longer‑term erosion of competitiveness.

What makes these losses particularly difficult to manage is that they rarely stem from a single point of failure. Instead, manufacturers are navigating cascading pressures across suppliers, logistics networks, energy markets and trade corridors — often unfolding simultaneously and amplifying one another.

Compounding risks reshape manufacturing strategy

As Michael Burg, executive vice president and managing director, Manufacturing practice at Gallagher, observes: "Major supply chain risks — economic, geopolitical, labor and technology — are now deeply intertwined. Shifts made to mitigate one exposure can quickly introduce new ones elsewhere in the system."

This interdependence is increasingly visible in day‑to‑day manufacturing operations. Geopolitical tension is reshaping trade flows and sourcing decisions, sometimes with little notice.

"At the same time, we have seen organizations becoming more reliant on technology within their production processes. While technology can create tremendous efficiencies, reduce costs and alleviate some labor market challenges, it also introduces risks," explains Burg. "For instance, in the event of a technological disruption — whether from malicious hacking or interruptions to utility services — production capabilities and, ultimately, supply chains can be severely impacted."

Cost pressure dominates the manufacturing risk landscape

Among all the risks identified by manufacturing leaders, cost volatility stands out as the most immediate and material threat to supply chain stability.

Source: Gallagher Redrawing Global Supply Chains Survey

Cost pressure is being reinforced by an increasingly uncertain trade environment. More than half of manufacturing businesses say tariffs and trade disputes are already affecting their supply chains, and 61% report that tariff uncertainty has accelerated investment decisions

In practice, this often means committing capital sooner than planned — whether to adjust sourcing strategies, lock in suppliers, shift production locations or build inventory — before policy direction and cost structures are fully clear.

Today, energy costs, shipping prices and raw material availability fluctuate simultaneously, limiting manufacturers' ability to offset increases through efficiency gains or price adjustments, particularly for businesses operating on thin margins.

Visibility fades where risk often concentrates

While many manufacturers have reasonable insight into their direct suppliers, transparency drops sharply beyond Tier 1, making multi-tier exposure difficult to model and even harder to predict when disruption cascades across regions or industries.

Manufacturing businesses report concerns about their suppliers:

Source: Gallagher Redrawing Global Supply Chains Survey

For finished‑goods manufacturers, these blind spots can be especially consequential. As Alush Garzon, vertical leader for Gallagher's Manufacturing practice, explains, issues do not need to arise at the factory gate to interrupt operations.

"If, for whatever reason, a supplier might not be able to deliver, operations stop. It doesn't necessarily have to involve an incident affecting them directly, but could be further down the line. This creates a gap, and if they can't get what they need to continue operations, it leads to business interruption."

Business continuity planning can help prepare for and mitigate the impact of these disruptions on the business. "From a manufacturing perspective, supply chain health is critical. That's why we're always discussing supply chain health with our clients and emphasizing the importance of having backups. Different from standard business interruption, this is something that's frequently overlooked," Garzon adds.

Despite the complexity, manufacturers are steadily improving their ability to map.

97% of manufacturing businesses actively monitor their supply chains, using a mix of real‑time monitoring, supplier risk assessments, forecasting tools and geopolitical analysis. These efforts reflect a high level of risk awareness and a clear commitment to anticipating pressure points before they escalate.

The challenge, however, remains in the integration. Only 32% connect operational insight to financial exposure, and just 25% rely on advanced asset-tracking systems. As a result, many can identify emerging strain in their supply chains but still struggle to quantify its downstream financial impact or ensure coverage aligns with how their operations function today.

Losses expose a persistent protection gap

This disconnect has tangible consequences. While most manufacturers carry some form of insurance, coverage does not always reflect where risk concentrates within modern supply chains. Survey findings show that only one-third of supply chain-related losses in manufacturing were fully covered, indicating a persistent protection gap.

This protection gap is particularly evident around contingent business interruption. As Garzon notes, manufacturers often focus on protecting their own facilities, while underestimating the financial exposure created by dependence on critical suppliers, specialized equipment or single‑source inputs.

Underinsurance is not necessarily the result of inattention. Instead, it reflects how quickly supply chains have evolved. Sourcing strategies, production footprints and inventory models have changed faster than traditional insurance structures, creating mismatches between exposure, policy terms and real-world interruption scenarios. As a result, losses increasingly expose gaps that only become visible once operations are already under strain.

In response to persistent disruption, many business leaders are prioritizing structural resilience over short‑term fixes.

"Organizations are now more cognizant of their exposure to single-source suppliers and to suppliers located in regions marked by geopolitical uncertainty, as well as those potentially affected by tariffs," describes Burg. "This awareness is crucial, as it allows companies to identify risks, even though there may be limited options for addressing them."

Survey findings show widespread momentum behind actions such as deeper supplier collaboration, structural changes to bring production closer, expanded storage and inventory management, and greater use of insurance and alternative risk‑transfer solutions.

Manufacturers are redesigning how supply chains are built, monitored and protected, aiming to improve continuity under sustained pressure rather than simply absorb the next shock.

Nonetheless, resilience strategies are rarely risk‑free. Supplier diversification can reduce geopolitical concentration risk but often increases integration complexity and cyber exposure. Nearshoring may improve control and responsiveness, while introducing new labor availability and cost challenges. Stockpiling can strengthen short‑term continuity, yet it creates higher concentrations of risk that can be exposed to natural and man-made hazards.

This dynamic can trigger the so-called bullwhip effect, explains Garzon. This occurs when manufacturers sharply increase orders for components or materials in response to uncertainty, then pull back just as quickly, pushing volatility upstream to suppliers.

Production plans become misaligned, capacity is over- or under-utilized, and instability spreads across the manufacturing ecosystem. In long, complex supply chains, even small shifts in end-customer demand can create outsized swings in upstream orders, driving higher costs, inefficiencies and reduced flexibility for manufacturers and their suppliers alike.

As supply chains grow larger and more technologically interconnected, these ripple effects become harder to control. Without coordinated planning and clear visibility across tiers, efforts to build resilience can unintentionally magnify volatility rather than smooth it.

More than seven in ten manufacturing leaders say the disruptions they've experienced have revealed weaknesses that need to be addressed — and made the case for action clearer than ever.

Stockpiling: Awareness exceeds preparedness

Stockpiling inventory remains a widely used resilience lever, a "just-in-case" approach that prioritizes resilience through contingencies, and most manufacturers are well aware of its trade‑offs. Nine in ten businesses acknowledge the higher operating costs, increased exposure to natural catastrophes and insurance implications associated with this strategy.
Yet awareness does not always translate into execution. Roughly one‑quarter of manufacturers say they understand these risks but are not fully prepared to manage them in practice.
Closing that gap requires shifting the focus from how much inventory is held to how it's managed.
Practical steps include spreading stock across multiple locations to reduce concentration risk, upgrading storage facilities to better protect longer‑held inventory and regularly reviewing insurance assumptions as holding periods extend and goods move between warehouses, ports and transit points.
Aligning inventory strategy with transportation, storage and risk‑transfer decisions helps ensure that stockpiling strengthens continuity without quietly introducing new vulnerabilities.

However, turning intent into sustained progress remains a challenge. Nearly one-third of manufacturers cite high implementation costs or limited access to capital as factors slowing their resilience efforts.

Likewise, slow adoption of new technologies and limited visibility across multi-tier supply chains make it harder for leaders to prioritize investments with confidence. Decision-making is further complicated by the uncertainty around tariffs, economic conditions, supplier reliability and actual logistics capacity.

At the same time, fatigue is real. The majority report that risks feel increasingly difficult to control, and that supply chain complexity makes weak points harder to isolate. While business leaders agree on what needs to change, there is still doubt about how quickly and how far transformation can realistically go. Within that tension, organizations that can see resilience as an investment have the opportunity to lead.

Integrating supply chain strategy, risk and insurance

Rather than relying solely on redundancy or cost efficiency, leading organizations are taking a more deliberate approach by identifying critical dependencies across suppliers, equipment, technology and workforce expertise, and aligning risk mitigation and coverage accordingly. Resilience, in this sense, combines intentional backup, informed trade‑offs and continuous reassessment as supply chains evolve.

This is where partnership matters. Gallagher works with manufacturing businesses to go beyond traditional insurance placement — helping leaders understand where risk truly concentrates, how operational decisions reshape exposure and how insurance and alternative risk‑transfer solutions can be structured to reflect how their supply chains actually operate today.

"Our Core 360 approach aims to identify risks comprehensively and explore various potential solutions. While risk transfer — primarily through insurance — is one option, it's not the only solution we offer. We position ourselves as an extension of an organization's team, providing support where they may lack the necessary infrastructure to address more abstract risks on a daily basis," explains Burg.

As supply chain interruption becomes part of the operational baseline, resilience is no longer a simple choice between efficiency and protection. Manufacturing leaders are navigating rising cost pressures, limited visibility across supply chain tiers and faster decision-making amid trade and geopolitical uncertainty.

The challenge is whether risk and insurance strategies have evolved quickly enough to keep pace with how supply chains operate today. In this environment, supply chain resilience in manufacturing depends on aligning visibility, risk management and insurance with real‑world operational decisions.

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