In recent years, chief supply chain officers have seen three major changes in the risk environment surrounding their supply chain operations:

• The global pervasiveness of risk.
• The constant presence of risk.
• The increased costs incurred to manage risk.

Major risks have stemmed from trade wars and intense global climate change events, such as the U.S. West Coast fires, major flooding in China and droughts in Asia. Reinsurance data shows that the average cost of natural disasters has increased 2.4 times since the mid-2000s. 

Supply chain leaders reported a 4% average increase in cost to serve after each unfamiliar disruption, according to Gartner’s 2020 Supply Chain Signature Series Risk Survey. This can seem like a permanent cost increase, given the frequency of risks.

In this environment, supply chain leaders are reassessing their risk strategies. Most organizations have focused on improving their responses to disruption through agility, resilience and visibility to reduce the impact of disruptions after they have occurred. And Gartner data shows that, done well, this can reduce the impact of any single disruption.

But the current increased rate of disruption overwhelms this response-driven strategy. The supply chain doesn't have time to return to a sufficient level of readiness before another disruption occurs.

Shape the disruption

Many, if not all, supply chains have already been forced to return to a reactive and unprepared response to disruptions, despite their investments in visibility, resilience and agility.

But leading organizations recognize they must also develop a strategy to exit this vicious cycle of continuous disruption and reduce the overall rate of disruption.

Gartner compared leading organizations with others to find out how they differed. Our analysis showed two important findings:

1. Organizations can reduce the rate of disruption to their supply chains — something most supply chain leaders dismiss as even a possibility.
2. Organizations can strategically shape which risk events will disrupt them, effectively reducing the number of disruptions they experience.

We call organizations that strategically shape their risk events "disruption shapers." These companies experience less than one-third of the disruptions of their response-focused peers. That's a difference of seven unfamiliar disruptions per year.

Disruption shapers are significantly different than their peers in physical footprint movement, including processes, sales channels, order touchpoints, and countries and sites through which inventory passes. They have fewer third-party providers, shipping modes, lanes and greater distances between sites.

On average, disruption shapers have fewer suppliers and manufacturing sites. Because they have smaller surface areas, they experience fewer disruptions than their peers.

And they have a different mindset. They realize that although they cannot control how many risk events the environment generates, they can control the size of the target they want their organizations to be.

Awareness and optimization

One disruption-shaper tactic is to embed awareness of the higher rate of disruption into their overall supply chain strategy, giving it the same weight as cost, quality or speed. When doing so, they are careful to preserve the supply chain’s strategic business objectives.

For example, they redefine cost optimization and leverage innovation by adding constant disruption to their decision-making processes.

The other tactic relates back to reducing the surface area of their supply chains. They optimize movement and physical footprint, balancing exposure to a single catastrophic event with exposure to the risk environment.

The disruption-shaping strategy benefits organizations by reducing disruption-related costs to the supply chain. It also helps leverage visibility, resilience and agility to reduce the impact of disruption when it does occur. 

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Disruption shapers are ready and waiting to service the customers that their closest competitors are losing.

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By reducing the number of disruptions, the supply chain can return to the full recovery necessary for the response-driven strategy to work better.

Important to consider, supply chains need to account for the real costs of risk at this higher cadence in their business cases for budget, replacing traditional hypothetical analyses with actual historical risk data.

CSCOs must also strategically approach their enterprise partners to gain cooperation, encouraging them to consider risk-to-serve in decisions that influence supply chain design. Leaders must consider not only the needs of the supply chain, but account for and resolve their partners’ concerns about a disruption-shaping strategy.

But the ultimate benefit, arguably, is the competitive advantage created. Disruption shapers are ready and waiting to service the customers that their closest competitors are losing, because those competitors are literally too busy responding to risks.