Risk has always been a concern of supply chains, but it's front and center now. Heather Wheatley, vice president analyst with Gartner, explains how companies can balance considerations of resilience and cost to protect against disruption.

Risk management has long been a priority, but prior to COVID-19, it was often conducted in functional silos. The pandemic initiated a “big push” for a more comprehensive approach to risk from boards of directors, CEOs and on to chief supply chain officers — the last an emerging title in the C-suite that signals the growing attention being paid to risk and supply resilience. (The new awareness has also sparked the formation of supply chain centers of excellence, with a particular focus on that challenge, Wheatley says.)

Executives came to the realization, however, that resilience is expensive, and that it’s not economically feasible to take steps against disruption in every aspect of operations. As a result, “we’re now seeing a measured approach to what’s important, what we want to protect, what are the risks and what we want to invest in,” Wheatley says.

In approaching the question of risk management, many companies start by trying to identify the actual risks they might face in their supply chains. Wheatley says that’s the wrong approach. Instead, they should be determining which products and services are most important, and therefore qualify for protection. Then, with appropriate mitigation measures in place, companies can begin to define the real risks, which might include disruptions in sourcing and logistics capacity, and the impact of geopolitical tensions.

Companies can reduce the likelihood and impact of risk by thinking about their supply chains as “a target on the wall — the more complexity we have, the bigger the target gets,” Wheatley says. Efforts to “right-size” the supply chain can help to reduce the scope of that target. At the same time, there’s the option of qualifying alternative suppliers, as a means of reducing the impact of sudden supply disruptions.

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