Are you confident with your supply chain planning for the next 12 months of business? Let’s face it, for many of us planning and forecasting have always been a bit of a dark art, but predictability in demand and supply meant that we got away with it. The past was a reasonable indicator of the future and the whole global system worked within a set of tolerances which overall served us well for decades. And then the last two years happened.

Supply markets are shifting — putting risk and resilience in focus.

The war in Ukraine will be a pivotal moment for supply chains. It will succeed where the pandemic failed in prompting many businesses to re-evaluate their supply chains. 

Organizations will onshore and nearshore. New trading regions will form. Some global supply chains will remain as they are because they must, Others will not, as simpler, shorter, more resilient supply chains take their place. In making these decisions, executives will be considering how risk and resilience strategies impact cost and revenue. And they will be facing up to the complexity of the decisions they make. Let’s take a closer look at how companies can balance risk and resilience and what technology and transparency could bring to the table.

Risk vs. Resilience

You can’t manage all risks out of a global supply chain. As we have seen, there are things that are outside of an organization’s control. Therefore, when it comes to risk management, even those that do are often betting that certain parts of their systems will not break and if they do the cost to repair is cheaper than investing in deeper risk management. It’s a form of gambling. But how do companies inform their bets in terms of identifying risks to manage? 

In the past, it was often based on the criticality of a product or service, but as we have seen, in networked supply chains the smallest thing can create the biggest challenges. Gathering real-time data across supply chains in an efficient manner is a real challenge for risk management. While in theory it seems straightforward, in practice it is extremely difficult. Access to affordable technology, expertise to build risk frameworks, and cost are just three examples of why it is so difficult for so many companies. 

As a result, boardrooms are now choosing resilience over risk, but challenges remain. High costs, dual sourcing and capacity buffers remain serious challenges for companies choosing resilience. These challenges are amplified even more when companies are all trying to do the same thing, as we saw with COVID-19, and are seeing again with the exodus from Russia.

Waiting Game

As ever with tech, yes and no. The tech has come a long way, in fact Industry 4.0 is all about data and connectivity. In the next decade, we will build the sorts of platforms that we think are available now, but the reality is that today a lot of nice dashboards mask manual processes and data inputs behind the scenes. This shouldn’t be seen as a fault; it was the best most of us could do.

Networked supply chains are complex, and the emerging smart tech is priced accordingly. Customers must pay for the innovation, and this will price many out of the market until such a point that affordable utilities arrive, most likely by sector. For now, most solutions rely upon convincing suppliers to provide data, something which also prevents many buyers from realizing the benefits.

Of course, these are all problems that will resolve themselves. But in the short term, the complexity and cost of risk systems is driving many to adopt Just-in-Case over Just-in-Time. It won’t last. There is massive investment pouring into supply chain management technologies like ‘risktech’ and ‘sustaintech.’ Transformed ways of working are coming, but waiting for it to come is not a strategy.

Tech or not, it’s important to remember what we are trying to achieve. We are trying to make the right decisions. In order to do that, we are in search of transparency. If we know what is happening when we need to make a decision, we can do it quickly based on evidence. Or, for those with the budget, we can have our smart tech make decisions for us. Those with big budgets can even have our smart tech anticipate events, allowing us to make our decision in advance (this is happening in places). 

However, without transparency, none of this is possible. We must get to the data. When looking at risk techs, it is important to look at the ‘possible’ and the ‘practical’. The possible will be what we can achieve with the data. The practical will be how we get the data and create a platform for visibility and making decisions. 

Transparency is the basic requirement that sits behind a comprehensive risk program. It’s also where risk meets resilience. Because to make choices, you need options. 

Working Together  

There are three principal reasons why resilience is the prevailing trend in the market; 1) Organizations seek but cannot achieve transparency because they don’t have adequate risk management, 2) Organizations have transparency, and opt to embed more resilience based on risk profiling, or 3) They can afford to do so, and see it as a competitive advantage based on revised market trends.

Neither risk nor resilience comes cheap, and the choice of strategy must be made based on the specific situation of each business and, critically, the appetite for risk. Less risk and more resilience generally mean higher costs, so risk appetite is a fundamental choice for a business.

It’s not binary, and may differ by country, sectors, or even across different parts of the same business. It is a strategic choice for now, but a choice made in the knowledge that things may be different again when big tech comes to the rescue.

Sensationalists may have presented risk and resilience as an either-or situation. But the fact is that supply networks are much more complex than that. Just-in-Time isn’t the enemy, and Just-in-Case isn’t the only solution. Risk and resilience work in tandem and, if supply networks live and breathe, there is value to be had from recognizing and exploiting that balance, working within the tolerances. 

It takes us back to predictability, which is the ultimate goal. Companies need to create predictability in a world that is currently extremely unpredictable. The tolerances of 2020 no longer apply, but the goal is still the same. Risk and resilience are not just about safety. They are now about outperforming the competition.

Simon Geale is executive vice president at Proxima.