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When it comes to handling unpredictable demand spikes, geopolitical conflicts, shipping interruptions and catastrophic events, less than half of the world’s organizations feel prepared. U.S. firms rate themselves slightly less prepared, while those in Asia rate themselves somewhat better. Organizations with larger supply chain groups report the highest preparedness, according to new research from the Institute for Supply Management (ISM) and Amazon Business.
“Supply chains have undergone a fundamental shift as a result, with a relentless pursuit of lowest unit price evolving into a more complex mandate [of] balancing cost and risk,” the companies note in “Balancing Cost and Risk: An Operating Model for Supply Chains.” “That balance has become a board-level priority, framed in terms executives understand: revenue protection, margin stability, and continuity of operations.”
Balancing Cost and Risk is the Default
Across all regions and organization sizes, respondents say balancing cost and risk is becoming the “default operating posture.” In the report, David C. Dowty of Amazon Web Services says COVID-related supply chain shocks have merged with geopolitical challenges to create new financial stressors on raw material sourcing. “That has created an environment where everybody is reevaluating everything we thought we knew about industrial supply chain management,” he adds.
Meanwhile, ISM’s data finds that even as disruptions accelerate, many teams still rely on manual reporting and a narrower set of risk signals. Among the other key findings in the report:
- Manual reporting is still widespread. Two-thirds (65%) of respondents use manual reporting to gather data; larger departments rely less on manual methods and more on automation.
- Most organizations report balancing cost and risk. 71% said balancing cost and risk is a primary goal, with respondents in Asia reporting greater emphasis on risk mitigation and larger firms placing emphasis on cost savings.
- Risk evaluation still skews to traditional measures. Financial health assessments and quality management systems remain the primary supplier risk evaluation tools for organizations. “U.S. respondents report higher use of cybersecurity measures; larger organizations report more use of geographic concentration analysis and environmental compliance checks,” the companies note.
- Tools are common, but sophistication varies. Respondents noted that their organizations largely rely on e-procurement solutions (58%) and supplier portals (51%). “Larger organizations more frequently use contract management systems, risk monitoring and predictive analytics,” they add, “while Asian firms report lower usage of supplier portals and risk-monitoring tools.”
4 Ways to Build Supply Chain Resilience
As organizations weigh cost against risk, ISM and Amazon identify four common practices that companies can use to build supply chain resilience in this uncertain environment:
- Diversify supply and fulfillment. Companies increasingly see single-supplier strategies, once prized for efficiency, as vulnerabilities. “You don’t need five suppliers for everything,” say ISM and Amazon, “but you do need options where it matters.”
- Improve visibility deeper into the supply chain. New data and analytics tools help organizations monitor price, availability and supplier events in near real time. Multi-tier mapping tools reveal dependencies that companies couldn’t see before: “When you can see six or eight levels down, it changes the conversation. It makes risk real.”
- Shorten decision cycles. Traditional procurement processes like lengthy RFP cycles no longer cut it in our fast-moving world. “The market can be fundamentally different six months after an RFP, making decisions obsolete by the time contracts are implemented,” the organizations caution.
- Use scenario planning to manage risk. Simulate potential disruptions, from geopolitical events and natural disasters to supplier failures and cyberattacks, and map out responses in advance. “It’s hard, it takes time, and it’s not always comfortable, but when something happens, you’re ready.”
