The Strait of Hormuz, a narrow sea passage that acts as one of the world’s most critical transit choke points for oil, remains closed during the Summer of 2026, largely blocking oil shipment due to conflict in the bordering country of Iran and disrupting 80% of Asian oil transport and 25% of the global oil shipments.  

Amidst this oil price volatility, consumer packaged goods (CPG) companies are being forced to adjust their supply chain network design as transportation and logistics expenses continue to spike. Companies are adopting risk management strategies centered on anticipating risk, including investing in co-manufacturers, co-packers, and leveraging end-to-end visibility tech like digital twins to proactively prepare for future supply chain disruptions. 

This Isn’t a One-Time Thing 

This is the new norm; supply chain disruptions like those caused by the conflict in Iran have become more ordinary occurrences in recent years and will continue to grow in commonality. In response, CPG companies need to adopt a nature of proactivity to adapt as future supply chain disruptions occur.  

From shifting raising conversions from air freight to ocean shipping, to navigating volatile oil prices (with a disruption of 30% of global seaborne oil trade), to shortening key manufacturing components like naphtha and petroleum-derived ingredients – the supply chain shock from the conflict in Iran stretches wide, and so will future disruptions. 

Operating Models are Changing 

To be proactive about future disruptions, CPG companies must adapt operating models to be flexible and anticipate risk rather than solely relying on optimizing costs. For decades, lowest-landed costs were the hallmark of an optimized operating model, but flexibility is becoming more important as disruptions grow in prevalence.  

Think about it like this: Imagine there are two companies, one with offshore production that prioritizes lowest-landed costs, and the other with more domestic production and a focus on flexibility. The company that prioritizes the lowest-landed costs might have the lower cost per unit, but as disruptions arise, the slightly costlier, flexibility-focused company is better positioned to respond. This is because the flexible company holds the privilege to adjust production in the face of disruption whereas the company prioritizing the lowest-landed costs would have fewer options. 

A Backup Plan 

CPG companies need backup plans; diversified sourcing and targeted inventory buffers that power flexibility. By diversifying sourcing across multiple suppliers, companies massively reduce the risk of failures in delivery.  

One company, Havertys Furniture, has seen cascading supply chain costs due to the Iran conflict, and the effects of the disruption are impacting other furniture companies too. Bob’s Discount Furniture is being forced to handle additional supply chain disruptions stemming from global trade pressures and upholstery tariffs. To mitigate these rising costs, the company is leveraging a private-label model and foregoing sales to third-party brands, instead working directly with suppliers. 

Another company, Proctor & Gamble, was forced into sourcing changes that have resulted in less efficient routes for getting materials, leading to higher transport costs, longer lead times, and elevated inventories because of Iran-conflict-derived supply disruptions. Their answer? Reformulating products and diversifying their supply base to soften the blow from price volatility and disrupted petrochemicals supply, enabling rerouting capability to avoid concentrated geopolitical exposure. 

Additionally, Proctor & Gamble invested in targeted inventory buffers – surplus inventory kept on hand as a strategic cushion – that allows them to absorb inventory impacts of supply chain disruptions to avoid shock-induced costs.  

Comparing this to the concept of lean inventory, targeted inventory buffers provide a proactive backup plan for global disruptions, while a heavily stripped lean inventory strategy might be too constrained to survive a global supply chain disturbance, even if it might reduce carrying costs and dead stock. Lean inventory itself is typically a byproduct of following a Just-In-Time delivery model, which assumes a highly stable and predictable supply chain – an approach that becomes especially sensitive to any periods of volatility. 

Geographic Flexibility Through Regionalization 

Supply chain disruptions, like the Iran oil crisis, push oil prices upwards, forcing CPG companies to regionalize supply chains. Moving away from global distribution and focusing on regionalized production allows CPG companies to mitigate rising transport costs and material shortages – particularly things like plastics and resins derived from petroleum – and instead grants them geographic flexibility. 

Product and Packaging Adaption 

CPG companies are shifting network designs to adapt to oil price volatility and shortages, with some brands transitioning toward packaging made of recycled plastics and paper in place of traditional plastic packaging. Calbee, a snack food maker, is working with co-packers and pivoting to locally sourced alternatives. This comes as the Iran oil crisis has induced petrochemical constraints leading to shortages of naphtha, a key raw material in plastic packaging and products. 

Continuous Optimization vs Infrequent Analysis 

Leveraging end-to-end visibility tech like digital twins allows CPG companies to model and simulate operations under stress proactively before any consequences actually happen. This mitigates disruption-rooted shock by allowing companies to digitally recreate their operations and stress-test real-world disruption scenarios ahead of time without affecting live operations. Digital twins enable continuous optimization of network design, helping companies minimize time-to-market in addition to simulating inventory and transportation rerouting.  

By comparison, infrequent analysis of risk in network design can lead to potential supply chain issues floating under the radar between assessment periods. For example, Mattel’s recall of 20 million units in 2007 after infrequent risk assessment blocked real-time visibility into manufacturing and led to contract manufacturers bypassing safety procedures right under Mattel’s nose. 

The Bigger Picture 

So, what should organizations do? CPG companies need to design supply chains that prioritize adaptability built around strategic optionality and cost optimization. Modernizing your supply chain strategy and capabilities by utilizing advanced planning systems, digital twins, diversifying sourcing, regionalizing manufacturing, and more adaptable product packaging all drive flexibility for successful CPG as they navigate an environment where supply chain disruption is increasingly becoming the new norm. 

At Clarkston, our team of experts in supply chain strategy, network optimization, and digital enablement, as well as risk management, can help your organization accelerate up to speed with the new norm in CPG. 

Contributions from Spencer Simco