Suzie Petrusic, Director of Research at Gartner’s Supply Chain Practice, outlines the significant changes in the risk environment for supply chains:
Global Pervasiveness of Risk: Supply chain operations now face widespread risks, including trade wars and severe climate events like the U.S. West Coast fires, flooding in China, and droughts in Asia. The cost of natural disasters has increased substantially since the mid-2000s.
Constant Presence of Risk: Supply chain leaders report a persistent risk presence, with a 4% average increase in cost to serve after each unfamiliar disruption. This increase often seems permanent due to the frequency of risks.
Increased Costs to Manage Risk: Managing these risks incurs higher costs.
In response, supply chain leaders are reevaluating their risk strategies. Previously, the focus was on improving responses through agility, resilience, and visibility. While effective in reducing the impact of individual disruptions, this response-driven strategy struggles under the current rate of continuous disruption.
Gartner’s research highlights a different approach: becoming “disruption shapers.” These organizations strategically shape their risk events, reducing the number of disruptions experienced. Disruption shapers encounter less than one-third of the disruptions compared to their peers, mainly due to a smaller physical footprint and fewer third-party providers, shipping modes, and lanes.
Disruption shapers implement two key tactics:
- Embedding Awareness: They integrate the awareness of higher disruption rates into their overall supply chain strategy, ensuring it aligns with strategic business objectives like cost optimization and innovation.
- Optimizing Movement and Physical Footprint: Balancing exposure to single catastrophic events with overall risk exposure, they manage their supply chain’s surface area effectively.The benefits of this strategy include reduced disruption-related costs and enhanced use of visibility, resilience, and agility. Disruption shapers can recover more quickly and are prepared to service customers that competitors, preoccupied with risk response, may lose.To implement this approach, supply chains need to consider the actual costs of risk in their budget planning, using historical data rather than hypothetical analyses. CSCOs should engage enterprise partners, encouraging them to consider risk in decisions affecting supply chain design. This strategy not only addresses supply chain needs but also resolves concerns of partners.
The competitive advantage gained from this approach is significant, as disruption shapers are well-positioned to attract customers from competitors caught in continuous risk response cycles.
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