Do you ever get confused when people use the terms supply chain risk management (SCRM) and supply chain resilience? It’s common to hear industry practitioners, stakeholders, solution providers, and analysts use these terms interchangeably; for example, an SCRM program and a supply chain resilience program. But are these terms actually equivalent? Or is there a reason to use one over the other?
In this blog, we’ll look at the distinctions between SCRM and supply chain resilience—and discover what those differences mean for your company’s supply chain management.
SCRM vs. Supply Chain Resilience
In general, both terms describe the same business discipline and process. The National Institute of Standards and Technology defines supply chain risk management (SCRM) as, “A systematic process for managing supply chain risk by identifying susceptibilities, vulnerabilities, and threats throughout the supply chain and developing mitigation strategies to combat those threats…”
This definition holds true for both SCRM and supply chain resilience. When you break down these two concepts into their various components, both involve mitigating risks in your supply chain—such as extreme weather, ESG risks, and geopolitical risks. To mitigate risk, both use strategies like qualifying additional and alternate sources for high revenue-at-risk components; improving supplier collaboration and planning; and designing products and supply networks for resiliency. However, the way they view risk is very different.
Is The Glass Half-Full or Half-Empty?
SCRM and supply chain resilience both refer to the same “glass”, but present different perspectives. SCRM tends to see the glass as half-empty, focusing on minimizing risks. Supply chain resilience, on the other hand, takes a more positive approach by aiming to maximize resilience and sees the glass as half-full. Essentially, one views risk as a potential danger, the other perceives risk as an opportunity to grow and improve.
- Supply Chain Risk Management (Half-Empty): Sees risk as a threat to be minimized. Concerned with avoiding disruptions and identifying vulnerabilities.
- Supply Chain Resilience (Half-Full): See risk as an opportunity to be maximized. Concerned with navigating disruptions and identifying opportunities.
In terms of value propositions, discussions about SCRM focus more on cost and disruptions avoidance, vulnerability identification, remediations, and other operational tactical concerns. For example, discussing SCRM might lead to questions like, “How can we avoid disruptions?” and “How can we lower costs?”
Conversely, supply chain resiliency connects more easily with strategic themes like competitive advantage, market share, and brand and shareholder value. For example, “How can we turn this risk into a competitive advantage?” and “How can we pivot quickly to gain market share?”
Benefits of Supply Chain Resilience
Focusing on the positive comes with its perks. Companies that recover faster from a supply chain disruption can be more competitive. Using early detection, crisis preparation, or avoiding impact altogether through proactive planning, companies can gain a time-to-market and market share advantage over competitors—especially those competitors that depend on the same suppliers and components. Studies have shown that the loss in market share and shareholder value from supply disruption events can take a decade to recover from, not to mention the brand impact of having to delay shipments. Responding faster also means avoiding costly mistakes.
Take, for example, a factory fire that cost multinational telecommunications company Ericsson $400 million in revenue because the company didn’t take action. Ericsson and its rival Nokia both received chips from the same supplier: Philips. When Philips informed Nokia of the delay in shipments caused by the fire, they realized the disruption could impact their supply chain and began collaborating with Philips to find a solution. Ericsson, on the other hand, did not take action. On top of the loss in revenue, Ericsson lost 52% of its employees and about 30% of its total assets—all because Ericsson didn’t respond quickly.
On the flip side, companies that adapt to changing situations by building resilient supply chains can reap the benefits. During the pandemic, a global electronics manufacturer did just that. In January 2020, Resilinc alerted this company about a “flu-like illness” in the major manufacturing hub of Wuhan. The company quickly realized that worsening conditions could cause an inventory shortage and knew they needed to act fast. Thanks to Resilinc’s Multi-Tier Mapping, the company had precise knowledge of the sites where more than 7,500 parts and materials were produced. Within five minutes, the team identified Wuhan-specific sites using Resilinc’s EventWatchAI platform and was able to put strategies in place to avoid the impact of the pandemic.
Read the full story in the case study: How a Global Electronics Manufacturer Navigated the Pandemic With No Supply Chain Disruptions.
Who Should Lead the Journey to Supply Chain Resilience?
Both the SCRM and supply chain resilience value propositions are relevant to the growth of supply chain management as a critical business discipline. However, each resonates with different levels of leadership within a company. Sourcing and supply chain operations professionals are more interested in SCRM, while supply chain resilience piques the interest of the C-suite. The success of your supply chain initiative depends on the operations team effectively communicating the goals to upper management.
Once the C-level executives are on board, they can then engage the rest of the company and promote the benefits of the program, leading to operational improvements throughout the organization. Leaders must take a thoughtful approach to developing incentive programs and methodologies. Rather than simply rewarding cost savings targets, they must focus on protecting the continuity of supply and ensuring profitability. This can be achieved by incorporating KPIs such as minimizing disruptions and resolving them quickly into the incentive programs. By doing so, leaders can build a culture that prioritizes efficiency, risk management, and value creation.
Driving these types of operational improvements required for true supply chain resilience should be considered on the same level as innovation, sustainability, operational excellence, compliance, and strategic planning. Making these changes happen requires strong governance that cannot come from product managers. Learn more about what this journey looks like in Resilinc’s blog: What is Operational Resilience? (And Why You Need to Prioritize It).
How Can Supply Chain Resilience Benefit Your Company
So, should these terms be used interchangeably? No. While they are similar at their core, they hold very different values and meanings for your business and may be perceived differently by different levels of leadership. Going forward, continue to use both terms, but be aware of their nuances and evoke the term that is most likely to resonate with the person you are talking to within your company.
Also, consider this: is your company focusing on SCRM or supply chain resilience? As we’ve seen in this blog, highlighting the opportunities to be gained (instead of the risks to be avoided) holds real value for your company. By planning ahead and looking for ways to turn risk into an advantage, you can gain a time-to-market and market share advantage over competitors!
If you’re looking to make a change to supply chain resilience, remember, that this change is most impactful coming from your C-Suite. To learn how to sell your supply chain resilience initiatives to any audience, download The Ultimate Guide to Supply Chain Resiliency Program Success.