Resilience is optionality, and optionality has a price

The period of disruption that began in 2020 produced a broad corporate commitment to supply-chain resilience: second sources, nearer sources, inventory buffers, regional duplication of capacity. A good deal of that commitment has since been quietly reversed, and the reversal is usually explained as short-termism.

It is better explained as a pricing failure at the outset.

What was actually bought

A second supplier in a different jurisdiction is not a reduction in risk in the way a hedge reduces risk. It is a call option on an alternative route, purchased by paying a premium on every unit bought through the primary route. Inventory is the same structure with a different premium — carrying cost and obsolescence in exchange for the right to keep operating when supply stops.

Options have a value, and it depends on volatility. When disruption probability is high, the option is cheap relative to what it protects. When conditions normalise, the premium continues to be paid while the perceived value of the protection falls. At that point the finance function observes a persistent cost with no visible benefit and removes it.

This is entirely predictable, and it is the reason resilience programmes are abandoned at roughly the worst moment — after volatility has fallen but before it has stopped mattering.

The consequence for how it is justified

A resilience programme presented to a board as insurance invites the question "what has it saved us?", which has no good answer in a calm year.

Presented as an option position, it invites better questions: what is the premium as a share of landed cost, what volatility does that premium imply, and is that above or below our own estimate of disruption probability? Those can be answered, revisited, and argued about on the evidence.

Where it holds without a subsidy from conviction

The resilience arrangements that have survived are largely the ones that were not purely resilience. A second source that also shortens lead time into a growing market, or qualifies the firm for procurement it was previously ineligible for, or changes the origin of the finished good, earns its premium in ordinary conditions as well as disrupted ones.

That is the design principle worth extracting. Duplication justified only by tail risk is structurally fragile inside an organisation. Duplication that also buys market access, tariff treatment or customer qualification tends to persist, because someone can point to what it does when nothing is going wrong.

For an investor screening industrial assets, this is a useful discriminator. A business whose second-source capacity is commercially productive holds a genuinely more robust position than one carrying redundancy as a cost centre awaiting the next cost-reduction cycle.