By Freddy Jönsson Hanberg
In a world where supply chains are repeatedly disrupted by crises—from pandemics and geopolitical conflicts to climate disasters and trade wars—it is no longer enough to be reactive. To face the future, risk management must be integrated into business strategy in a completely different way than before. That is why more and more companies are now dusting off a classic tool from the world of finance: Value at Risk. Value at Risk, or VaR for short, has long been used in the financial sector to estimate potential losses on investments.
Interest is now growing rapidly in the field of supply chain management as well. And it’s not hard to see why. The ability to assign a monetary value to risk is crucial for making the right decisions about investments in robustness and resilience.
Focus resources
Take an example: a company has 1,000 suppliers, but only 50 of them are assessed as posing an elevated risk. Even more interesting is that perhaps only five of these account for 75 percent of the company’s revenue risk. With Value at Risk, you can focus resources where they really make a difference—not by reducing risk at any cost, but by understanding which risks are worth taking. The pandemic exposed the weaknesses in today’s global logistics system, but the problems were there long before COVID-19. The semiconductor shortage, the container crisis, the Suez Canal blockage, customs disputes, cyberattacks, port strikes in the U.S., and the war in Ukraine have all shown that supply chains are no longer merely an operational issue—they are a core financial and strategic issue.
Use the available data
At the same time, access to data has improved dramatically. Today, companies—using financial health metrics, risk models, and internal business systems—can perform accurate VaR calculations that guide decisions regarding procurement strategy, diversification, inventory management, and investments in redundancy. Tariff disputes are a particularly telling example. They not only cause price increases but can also destabilize entire industries. When suppliers face financial pressure, there is a risk that quality, on-time delivery, employee conditions, and regulatory compliance will suffer. Here, VaR provides a framework for simulating scenarios, identifying sensitive dependencies, and steering investments toward alternative production or new sourcing channels.
Performs better
Moody’s has shown that companies that use VaR are better able to manage both direct and indirect risks in their value chains. Instead of groping in the dark, they can answer critical questions: How much risk is acceptable? Where are we most vulnerable? And where are risk-mitigation measures most effective? Managing a global supply chain in 2025 means navigating a landscape marked by great uncertainty. It’s a task that requires more than just experience and gut instinct. It requires tools that translate complex risks into concrete decision-making criteria. Perhaps, therefore, Value at Risk should become a standard part of every supply chain leader’s toolkit. Because in a world where chaos has become the new normal, we must put a price tag on it—and be prepared to act accordingly.
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Freddy Jönsson Hanberg is Director of the Security of Supply Center of Excellence, a member of the Royal Swedish Academy of War Sciences, and a strategic advisor.
