The conversation about risk in any organization is a complex one. Suzie Petrusic, senior director analyst with Gartner, explains the many considerations that go into crafting an effective supply chain risk-management strategy.
Supply chains today are “facing so many risks everywhere they look,” Petrusic says, citing geopolitical tensions, regulations around sustainability and increasingly violent weather events as major concerns.
In the face of those potential disruptions, businesses need to figure out what they’re going to prepare for, and how they’re going to respond. It all comes down to considerations of cost, Petrusic says. In theory, supply chain leaders should be preparing for any eventuality, “but they don’t want the bill that comes with it. How you spend the right amount of money is an increasingly difficult decision to make.”
The best way to approach the problem, she says, is to “focus on what you value most.” Companies need to decide what the impact will be on their highest revenue sources, then invest first in those areas. Figuring out how much to spend on protecting the plan, source, make and deliver stages “needs to be a business-led question.”
Once companies focus on value, they become ready to make good business decisions about how much resilience to build into various aspects of the supply chain. Petrusic says many companies experience three “failure points”: They’re not focused on the revenue they care most about, they don’t undertake a proper cost-benefit analysis, and they’re not centering ultimate decisions on “the P&L owner.”
Enterprise risk management is usually focused on reporting, which is difficult to translate into operational terms, Petrusic says. An effective strategy needs to look across all functions and avoid operational siloes. Such an effort “is the glue that ties all of those different risk-management activities together,” she says.
Proper governance in assessing supply chain risk ensures that “you’ve got balance between the things you care about and the amount of money you want to invest.”
