As supply chain disruptions continue to challenge organizations, leaders are under pressure to prioritize resilience. However, research reveals that investments in risk management often miss the mark, with critical resources misallocated. Here’s how CSCOs can reframe their strategies to ensure resilience investments align with business objectives.
Resilience vs. Resource Misalignment: A Growing Concern
Supply chain leaders are facing increased scrutiny from stakeholders, including boards and the C-suite, to proactively manage risk. However, the challenge goes beyond building resilience—it’s about ensuring these efforts target the right areas. According to recent studies, while 70% of supply chain leaders feel aligned with enterprise partners on risk priorities, 82% acknowledge that their resources are often misdirected toward non-critical risks. This misalignment results in wasted investments, with 43% of resources allocated to non-essential assets, further straining an already overburdened supply chain landscape.
This disconnect underscores a critical issue: many organizations are investing heavily in resilience measures, but they’re protecting the wrong assets. Leaders must refocus their risk management strategies to prevent resources from being wasted on areas that don’t drive business value.
Understanding What You Value: The First Step
To address the challenges of resource misalignment, supply chain leaders need to start with a clear understanding of what the business truly values. This shift in focus is essential to aligning risk management efforts with overall corporate strategy. The concept is simple but often overlooked: risks should be prioritized based on the value of the assets or products they impact. For instance, a product with high market demand or a critical customer relationship should be safeguarded over less impactful areas.
Once priorities are set, it becomes easier to map potential risks and allocate resources effectively. As an example, General Mills has implemented a structured approach where business platforms are ranked by financial impact. This method helps the company focus its mitigation strategies on its most critical areas, ensuring a more strategic use of resilience investments.
From Theory to Execution: Managing Costs and Complexity
However, even with a clearer understanding of risk priorities, executing a resilient supply chain strategy is no easy task. Research indicates that despite having redundancy and agility, many organizations still face rising costs during disruptions. On average, costs of goods sold increased by 40% following major disruptions, and even the best-planned redundancies showed little to no statistical link to improved operational or financial outcomes.
This creates a difficult reality for CSCOs, who must now grapple with how to balance resilience investments without seeing a clear return on investment. To navigate this, supply chain leaders need to focus on cost-benefit analyses of their risk mitigation strategies. It’s not enough to build redundancies; organizations need to ensure that the value derived from resilience efforts justifies the associated costs.
For instance, in the case of a disruption, knowing which risks will have the most significant impact enables leaders to make more informed decisions. By taking into account both the cost of potential risk and the value of what is being protected, organizations can better tailor their investments to ensure they’re not just reacting but building a sustainable, cost-effective resilience model.
Conclusion: A Strategic, Value-Driven Approach
Ultimately, the path to an effective, resilient supply chain starts with strategic alignment. Supply chain leaders must prioritize risks based on what matters most to the business, ensuring that every investment is tied to a clear business outcome. This approach doesn’t just mitigate risk; it transforms risk management into a proactive driver of business success. By starting with a focus on business value and ensuring alignment with enterprise goals, supply chain executives can build more resilient, agile supply chains that stand the test of future disruptions.
In the long run, resilience is not just about protecting the supply chain—it’s about ensuring that investments in risk management are directly contributing to profitability and business continuity, despite ongoing volatility.
