The place does provide chain danger rank within the hierarchy of priorities within the grand scheme of a agency’s enterprise technique? We regularly consider provide chain technique as wholly unbiased from enterprise technique and danger administration technique as an altogether separate abstraction layer. This fallacy must cease.
If 2020 taught us something, it was that as shoppers and enterprise leaders, we underestimate the pivotal position of the provision chain till we’re inconvenienced, or we run out of bathroom paper. It additionally taught us that provide chain danger is enterprise danger. If the mechanisms, processes, and companions that energy our price chain instantly come to a grinding halt and we’re unable to ship to our clients, then successfully, we’ve no enterprise.
Regardless of An Abundance Of Applied sciences, Provide Chains Have been Caught Off Guard
Why have been companies so ill-prepared for the sequence of unlucky occasions that got here with COVID-19? We’d prefer to assume it’s as a result of their adopted subtle applied sciences and calculated danger administration methods failed them, however we’d be incorrect. Sure, companies have a myriad of applied sciences at their disposal (e.g., massive information, internet-of-things sensors, AI, blockchain, predictive analytics, and crowdsourcing platforms), however these applied sciences optimize provide chains for effectivity and profitability, not danger identification or mitigation. Within the meantime, the provision chain danger administration tech stack most frequently consists of Excel and SharePoint.
Optimism Bias And The Lies We Inform Ourselves
“We’ve by no means encountered a pandemic, so we wouldn’t even know how one can put together” is the lie good firms inform themselves to put in writing off losses. What occurred throughout COVID-19 isn’t a once-in-a-thousand-year ground; we’ve seen this playbook earlier than — though not all of sudden. Certainly companies witnessed the complexity and ambiguity created by Brexit. They noticed the devastating affect to provide chains from the tsunami in Japan, the flooding in Thailand, and Hurricane Maria and up to date their very own danger playbook. Some did; most didn’t.
Why? The reason is much more reductive: Optimism bias or unrealistic optimism causes many firms to falsely consider that they’re intrinsically much less prone to expertise a destructive occasion. Not like a safety and danger skilled who categorically expects the sudden, or a enterprise continuity supervisor planning for catastrophe, provide chain execs are uniquely extra inclined to those phenomena largely as a result of the pillar of provide chain success depends on consistency to maximise effectivity. And but, nothing about at this time’s enterprise circumstances is constant.
Resilience Is A Journey, Not A Vacation spot
Regardless that the effectiveness of an organization’s provide chain is as very important to its market valuation as its monetary well being, model popularity, and buyer relationships, usually companies don’t tackle provide chain danger with the identical gusto as different areas of the enterprise. But, as interconnections and interdependencies inside provide chain networks enhance, the chance of failure in a single a part of the community could have a destructive impact on the remainder of the enterprise. The top result’s that the agency is extra weak and inclined to antagonistic market reactions and decreased buyer retention.
As a result of COVID-19 was the catalyst for a sudden onslaught of digital transformation in 2020, the IT buzzword rapidly turned “resilience.” Nevertheless, for a agency to be actually resilient, it can not simply turn out to be digital, however proceed to ship on its model promise whereas hanging the steadiness between optimizing effectivity and correct danger administration. For provide chain resilience, you could relearn the artwork of hedging dangers with provide chain buffers, comparable to various suppliers and carriers or strategic stock stockpiles.
Don’t Be Caught Unaware Once more
Learn our new report “Rethink Supply Chain Risk And Strategy In An Uncertain World,” the place we discover 5 strategic steps to assist companies embrace danger administration to keep away from undue disruption and bolster provide chain resilience.
Written with Melissa Bongarzone, analysis affiliate at Forrester.