Shaping disruption
Supply chain leaders must reduce their surface area risk to reduce the frequency of disruptions, says Gartner
Chief supply chain officers (CSCOs) must strategically reduce the rate of disruption to their supply chains by reducing their surface areas, according to Gartner Inc.
Research by Gartner shows that disruption-shaping organisations are likely to experience less than one-third of the disruptions their peers do.
Gartner defines supply chain surface areas as the sum of all the products, processes and networks that compose the supply chain today and represent touchpoints at which risk events that affect the supply chain can occur.
“CSCOs should reduce the surface areas of their supply chains by simplifying processes, reducing movement within their supply chains, and reducing the number of sites and suppliers that compose their networks,” said Suzie Petrusic, director of research with the Gartner supply chain practice.
“With a higher cadence of risk events, a smaller surface area is an asset, a large surface area a major liability. CSCOs can’t control how many risk events will happen, but they can control the size of the target they want their organisation to be.”
Many supply chains are easy to disrupt because they pose a large target. They have expanded over decades and dispersed risk across a global network, while optimising costs. As processes become more complex and require a lot of movement of goods and material within the supply chain, it becomes a system that is easy to disrupt.
Supply chain organisations that experience fewer disruptions today have managed to control surface areas by constraining the number of touchpoints that risk events can have with their organisation.
This means fewer third-party logistics providers, shipping modes and lanes, as well as greater distances between suppliers, factories, warehouses and distribution centres. Processes are being redesigned and simplified.
“Disruption shapers balance exposure to the overall risk environment with exposure to single catastrophic risk events,” said Ms Petrusic. “The goal is not extreme consolidation but finding the right size for the organisation at any given point in time.”
For disruption shapers, reducing disruption is a part of the strategy planning process, considered along with cost, quality and speed. However, this does not mean abandoning the strategic business objectives of past decades. Instead, CSCOs can redefine cost optimisation by including the cost of constant disruption in their calculations.
“A commitment to an optimal surface area does not mean that you can never expand. It just means that CSCOs have to make intelligent design choices that diversify the total risk,” Ms Petrusic said.
“They must understand that the current environment will make it harder and harder to deliver reliable and profitable service to customers, and they should act now to experience less disruption later.”
Disruption-shaping organisations benefit in multiple ways. Their approach reduces costs to the supply chain because the organisation experiences fewer disruptions overall. When a disruption happens, the network is more likely to be prepared and recovery will take less time.
“The biggest benefit of this approach is the competitive advantage it creates. Disruption shapers are ready and waiting to service the customers that their closest competitors are losing because they are too busy responding to risks,” Ms Petrusic concluded.