Adapting to Supply Chain Disruptions in the 2025 Investment Landscape, and Beyond

In the past, achieving returns on physical asset investments often came down to financial manoeuvres and leadership reshuffles. But the second wave of supply chain shocks of 2022- 23 transformed the playing field, thrusting resilience and operational agility into the spotlight. Now, in 2025, the stakes are even higher with persistently high inflation, continued geopolitical turmoil and challenging regulatory shifts - all furthering the intensity of global supply chain disruptions. Unsurprisingly, generating returns from physical assets has become more complex, especially in the advanced economies which are stagnating with a mere 1.8%¹ growth. Faced with these realities, navigating this relentless test of business resilience has become defining for asset managers. Weathering the storm with a creaking ship is possible if the owners (investors) make the necessary reinforcements in the dock and the crew (management team) is equipped to handle the rogue waves. Here are five lessons with practical strategies that can help investors steer the turbulent waters.

1. Prioritising Prevention through Operational Due Diligence (Pre-Investing)

While mitigating disruptions is costly, the rewards of pre-emptive risk management are immense. Yet, many investors still overlook comprehensive operational due diligence, focusing instead on traditional financial and legal evaluations with operational tick-offs. This oversight can have catastrophic consequences, as illustrated by the $5 billion write-down³ in Europe’s largest green loan to Northvolt. Plagued by planning, production, and logistics issues, the investment’s flaws were evident at its approval in January 2024. To avoid such pitfalls, investors should integrate detailed operational due diligence into their strategies, examining supplier arrangements, pricing mechanisms, customer contracts, and more. This approach not only mitigates risks but also yields more accurate asset valuations and growth forecasts. Since the pandemic, creditors delivering consistent returns have embraced supply chain resilience as a cornerstone of their credit selection processes. Perhaps 2025 is the year when Private Equity investors will emphasise the same.

2. Strengthening Capital Resilience for Operational Flexibility (Deal Structuring to Post-Investment)

Historically, capitalisation strategies for physical asset investments followed conventional balance sheet bucketing, not accounting for investments needed to build resilient supply chains. When disruptions struck, companies often resorted to expensive short-term liquidity solutions and negotiating on covenant adjustments. But what happens when disruptions become the norm?

Management teams frequently fall into the trap of overstocking inventory or deploying other cash-intensive measures, which can stifle trading capabilities and shrink operating income. Alternatively, resilient companies excel by integrating reliable economic, demand, and supply forecasts into their Sales & Operations Planning. This approach allows for proactive strategies such as strategic sourcing, consignment stocking, and customer financing.

Prospective investors should evaluate the maturity of a business’ planning function built around resilience before committing capital, while current investors should actively encourage the adoption of such processes. These measures safeguard against downturns whilst providing liquidity backstops, enhancing platform value, and ultimately delivering stronger returns.

3. Identifying and Mitigating Single Points of Failure (SPOF) (Post-Investment)

Single Points of Failure (SPOF) are critical dependencies within supply chains that, when disrupted, can cause severe financial and operational damage. Despite lessons from the pandemic, businesses continue to neglect the frequent identification and mitigation of SPOFs. Why? Because the upfront cost of de-risking often appears less appealing than achieving attractive P&L figures. A recent cautionary tale is Thornton & Ross, which discontinued its popular Metanium Yellow² baby ointment due to the failure of a single critical supplier, despite the product’s strong market position.

To ensure consistent performance, companies must routinely and proactively identify SPOFs within their supply chains and operational footprints. Addressing vulnerabilities in areas such as specific suppliers, logistical bottlenecks, geographic overreliance, key-customers overreliance, critical equipment, and cybersecurity is essential. Through board mandates, investors should pay attention to periodic updates on SPOF mitigation strategies, which provide downside protection and empower bold growth initiatives—particularly valuable in roll[1]up scenarios.

4. Proactive Communication by the Management with Customers (Post-investment to Exit-Planning)

Encouraging management teams to engage in transparent and proactive communication with customers can mitigate these risks. Such dialogues enable healthier inventory turnover and set the stage for inflation-linked price adjustments, a crucial but underdeveloped strategy for many firms. Investors can play a pivotal role by examining these practices through board oversight and supporting management teams in fostering sustainable customer relationships—a critical component for profitability in an inflationary environment.

5. Enhancing Portfolio Management with Collaborative Teams (Post-investment to Exit Realisation)

Traditional portfolio management in physical asset investments is often limited to risk oversight, asset allocation, and performance monitoring. For operational oversight, funds typically deploy Operating Partners in executive roles to drive results, this approach has limitations. Expecting a single Operating Partner to manage tasks spanning from diagnostic to repair whilst managing everyday aspects is unrealistic. Moreover, their “investment mandates” can strain relationships with existing management teams. Such tensions can lead to cultural challenges, as evidenced by J.Crew’s⁴ struggles between 2017 and 2020, where aggressive cost-cutting and leadership instability undermined efforts to revitalise the brand.

A more balanced approach involves seconding interims alongside Operating Partners to execute critical projects while fostering positive stakeholder relationships. This model has been successfully implemented by funds such as Blackstone, Aurelius and Endless, demonstrating that strategic investments in portfolio management capabilities can significantly enhance exit outcomes.

Looking ahead

Navigating through the persistent supply chain and economic volatility, achieving success in physical asset investments demands a relentless focus on supply chain resilience to build operational flexibility. Little patience, some investment and a lot of consistency are the key to weathering the storm and delivering stronger returns.

Sources:

¹Real GDP growth figures for advanced economies: IMF’s 2025 outlook

²Thornton & Ross’ failure to identify and address SPOF: Metanium website - “Thornton & Ross has taken the decision to discontinue Metanium Nappy Rash Ointment. This is due to constraints that have impacted our ability to guarantee consistent supply and maintain the high standards of excellence we strive for in all our products.”

³The consortium of 25 European banks, including the European Investment Bank and Nordic Investment Bank, not being thorough in their due-diligences amidst supply chain issues: Reuters

³Write down of Europe’s largest green loan whilst wiping out equity investors: Financial Times, Morning star

⁴J.Crew leadership changes: The Wall Street Journal

Vikram Shankar with additional commentary from Adam Keasey and Rachel Seeley