Global research and advisory firm Gartner have cited six key factors that organisations need to evaluate before determining their supply chain resilience.
Gartner’s advice comes amid increasing protectionism as economies curtail their outward integration to concentrate on their own affairs. Some supply chain chiefs have followed suit by lessening their dependence on China, especially after the covid-19 pandemic revealed cracks in the solidity of the country’s supply chain networks.
However, Gartner Senior Director Analyst Kamala Raman warns that any adjustments to global supply networks must not be done in a manner that abandons integral business relationships:
“Decoupling the U.S and Chinese economies is not the same as diversifying for resilience. The first is seen as a binary ‘all or nothing’ act, which can be expensive or impossible to execute given the depth of integration between these economies. Improving resilience, on the other hand, is an excellent idea.”
Doing the above is naturally easier said than done. Gartner stress that improving supply chain resilience is likely to be “expensive, challenging and time-consuming”, while a one-size-fits-all approach is simply not feasible. Therefore to determine an organisation’s supply chain resilience, irrespective of scale, Gartner have identified six key factors that need to be taken into account. They are as follows:
Risk appetite
The first factor identified by Gartner is ‘risk appetite’, which in simple terms refers to how “hungry” an organisation is for risk taking.
Here Gartner believe that being risk-averse carries its own risks. They argue that no risk-taking means zero innovation, which turn results in lost market share as competitors yield the benefits of innovating via-risk taking. Therefore companies are advised to collaborate on and evaluate their own risk appetite statement.
The risk appetite statement should spell out a number of factors, as Gartner’s Koray Köse explains:
“It details to what extent risks should be taken to achieve strategic and operational goals, sustain competitiveness and increase agility. In times of uncertainty where tariffs and other geopolitical developments can have huge negative impacts on supply chains, a risk appetite statement that is accepted and valued by all stakeholders is more important than ever.”
In addition to a risk appetite statement, Gartner write that ‘risk monitoring committees’ can be used to monitor and guide responses to risk events after they occur.
Technology is also key in determining one’s risk appetite, however Gartner warn that very few machine learning and artificial intelligence vendors can currently offer a “working solution”. Moreover, due to every company being of a different size and scale, Gartner recommend that each firm closely cooperate with finance and IT departments to agree on a customised budget that guarantees proper implementation.
Critical partners
The next factor on Gartner’s list is ‘critical partners’.
This concerns an organisation’s critical suppliers, who may not have the means to invest in a diversified network. Should it turn out that a supplier cannot support a diversification strategy, Gartner say that “supportive” actions should be considered, such as slowing down or seeking more accomplished partners.
What are we protecting?
Gartner’s third key factor is self explanatory; companies merely need to consider what they are protecting and how vital it is. As Kamala Raman explains, organisations can then calculate how much supply chain resilience and diversification their network requires:
“When making a decision, first determine what you are trying to protect — a product line, government contract or market access. And then consider what you’re trying to protect against: sole-sourcing risks, increasing labor costs, tariffs, lead times or regulatory burdens. The answers to those questions will give you a notion of how much resilience and diversification your network really needs.”
Trade-off decisions
The 4th factor to evaluate is the trade-off companies encounter when investing valuable time and resources into diversifying an existing network.
With this in mind, Gartner advise organisations to establish supply chain resilience at the same time they decide on a new product or network setup. Furthermore, Gartner stress that organisations also need to take account of the opportunity cost of failing to introduce revolutionary technology like 5G.
Who will pay for it?
The previous factor then leads us to the question of who will pay for any investment intended to build resilience. According to Raman, it is a tall order to get the balance right between absorbing the cost or passing onto the consumer:
“Like every investment, it’s a balancing act. An organization can opt to absorb the costs, share them with upstream suppliers or raise prices for customers. Equally, the costs of not investing in resilience might also be high. Downsides might include tariffs, increasing costs, longer lead times, decreased customer satisfaction or negative impact to the brand.”
National or trading bloc policies and incentives
Last but not least, Gartner argue that organisations should also factor in the policies and incentives of both governments and trading blocks.
Gartner say that a number of countries and trading areas now offer incentives to organisations that plan to shift their manufacturing back to their country of origin, or at least closer to the end customer. Choosing to build infrastructure in such a territory could therefore prove cost-effective.
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