CPOs are confusing risk mitigation with resilience - Gartner
A new report by Gartner - Shockproof Your Supply Chain for the New Age of Disruption - states that CPOs are so busy focusing on putting out fires in the short term that they are missing the opportunity to build resilient supply chains that can not only survive but thrive in this new age of disruption. Over the last two years, as one crisis has segued into the next, CPOs have had little time to recover from any of them and, as a result, many “are confusing risk mitigation with resilience.”
According to the report, CPOs’ ability to respond effectively has been exhausted, the cost of recovery is continuously rising, and their focus is misdirected by concentrating on solving the most pressing and least complicated issues over and over again. In addition, with risks occurring more often and with greater urgency, they simply lack the time to learn from past mistakes and effectively plan to prevent the same issues from arising in the future.
The report claims that “Amid continual disruptions, CPOs are unable to devise long-term strategies for dealing with a disruptive world, think beyond procurement to envision products and innovations that can be manufactured despite disruption, and contemplate investment in processes providing a competitive edge.”
In order to ensure that their supply chains remain operational and competitive despite relentless waves of disruption, CPOs would be wise to follow these three recommendations:
- Apply an exponential response - Focusing on “now”. Takes less than one year to build: Manage and mitigate risks beyond just the impacted area and look at the bigger picture of the entire organisation and possible future susceptibilities. “Even areas that are not currently affected, but carry the same operations framework and processes, should also be evaluated and adjusted, as well as areas that aren’t fragile yet, but with unexpected developments, could turn into vulnerabilities,” advises Gartner.
- Follow the principles of exponential learning - Focusing on “tomorrow”. Takes one to three years to build: Put a strong feedback process in place that transforms disruptions and lessons learned into preventive measures to manage future risks. Gartner says that exponential learning also “connects supply chain risk management to business continuity management and requires regular reviews and tests of business continuity plans that would be needed when risk management responses fail.”
- Adopt the practice of exponential investment - Focusing on “the day after tomorrow”. Can take more than three years to build: Invest in new technologies and digital platforms that will be crucial to achieving operational execution excellence. According to Gartner, this “creates an outside-in supply ecosystem that enables the organisation to create its own markets and robust demand with innovation, both internal and harnessed externally, at a pace that will optimise risk as a catalyst to gain a competitive edge.”
In recent years, supply chains have been plagued by a host of extraordinary disruptions – from trade wars to Brexit, from the semiconductor shortage to the pandemic, from the war in Ukraine to rising global inflation. Organisations “will need to dynamically adjust to this reality to create value in a turbulent future, but often confuse risk management with resilience in this context.” Gartner defines resilience as “the broader capability of organisations to recover, absorb, and avoid negative impacts from disruptions”, while risk is “the uncertainty that organisations face in their operations and from third parties.”
This latest series of disruptions and the growing reach of external shocks have led companies to reassess their focus on resilience as a core competitive advantage. “To thrive in the age of disruption CPOs must collaborate with stakeholders inside and outside their organisation, and begin thinking and acting like CEOs and chief supply chain officers, to influence and drive changes beyond the limitations of their current priorities, such as cost and operations management.”
It is estimated that, on average, investment in supply chain risk management has grown by 30% from 2021 to 2022 - equal to 0.65% of a company’s direct spend. However, as many organisations are just beginning their journey, the report recommends that initial expenditures be budgeted higher - 2% to 4% - in order to cover all areas, such as investments into technologies, processes, and people.
“Resilience does not come for free, but it pays off manifold. If done right, it will be the most profitable investment an organisation can commit to in the age of disruption, where the unexpected is the new normal.”
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