As supply chains have lengthened and more complex, supply chain professionals are increasingly responsible for anticipating and eliminating a greater number of supply chain risk. The stakes are high: in the past five years, nearly three-fourths of companies experienced significant disruptions. Which makes topic of ‘supply chain risk’ very important in current context.
1. Supplier Risk
There are several supply chain risks involved with working with other companies especially in the supply chain where there is high dependency on the other firms. These supply chain risks can vary from a supplier going bankrupt to not delivering the right quantity of a certain product on time. There are several ways to reduce this risk including having a comprehensive on boarding and monitoring process, working with certified suppliers and having a good rapport with the supplier.
2. Policies and Cultures
A risk of having a global supply chain is that companies will be operating in a number of countries all with different business cultures. This is a supply chain risk because what is acceptable in one culture is not in another and may even be against the law. Similarly laws, trade policies and trade restrictions vary from country to country therefore when trading, business need to be aware these. These types of policies will change how the supply chain runs. As well as changing policies the supply chain needs to beware of political and economic stability in the countries that they operate in as these could also have a negative impact on the supply chain.
3. Environmental Risk
There are a number of different environmental related supply chain risks that affect a supply chain and can be unpredictable. Natural disasters like earthquakes and flooding are examples of environmental risks the supply chain faces although some of the disaster can be irregular and rare the risk increases the more countries a supply chain spans across. Other environmental risks that can affect the supply chain are extreme weather, road / port closures and other manmade disasters. Although some of these risks are unpredictable actions can be taken to reduce the damage once it’s done. One of these is having a good communication system in place this will at least ensure observations of the damage are accurate and a backup plans can be drawn up quickly. That is the reason why all procurement contracts have clause of “Force Majeure”
4. Demand Risk
There are a variety of factors that can affect demand, this includes the economic state and other variables, and this is a risk for the supply chain. The more unpredictable demand is the harder it is to know how much to produce therefore it is important to have a comprehensive demand forecasting system in place in order to minimise the risk of producing too much or too little. With more stable demand forecasts the supply chain risk is reduced.
5. Operational Risk
Internal risks to the supply chain are those that cause disruptions to the operations or processes, these disruption can be caused by any process within the business and if not controlled or maintained can have knock on affects for the business and the supply chain. These can vary from machine break downs or production problems to it failures.
6. Economic Risk
The state of the economy effects exchange rates, labour costs and interest rates which determine inflation , not only effecting the economic state of the home country but also with countries that the company or suppliers operate in. As the recent recession demonstrated this can have bad consequences on the supply chain with decreases in worldwide demand, and the economic climate stagnant, cost cutting measures will have to be taken, this may not be the most effecting way for the supply chain but as it spans across a lot of countries the state of the situation in the country will affect all other.
7. Control Risk
With many of these processes within the supply chain not being done by the company or plant itself there is a risk of lack of control, with high dependency on other firms or products and parts being shipped in from other countries there is a lack of control from the company this is a supply chain risk because the outcome of these can be unknown, a way to reduce this supply chain risk is by having good communication systems in place in order to mitigate some of this risk.
8. Unresponsive Supply Chain
If there is a sudden change in the supply chain cause by any of the above factors then the supply will need to be responsive , this can be difficult because some of these factors are unpredictable therefore having a durable dynamic system in place to respond to any change is vital to keep the supply chain active and running efficiently.
The reputation of a business can have an impact on the supply chain. Unethical practices by external companies liked that the business sources from will impact how stakeholders view the company this could lead to a loss in demand , morale and investment. An example of this Apple who sourced some parts of their products from external suppliers in Foxconn that had unethical practises , although Apple themselves did not have unethical practises this association damaged their reputation.
10. Resource Risk
Lastly a lack of people as a resources is a supply chain, occurring mainly when key personnel are missing from the process. There are many reasons why a process can be lacking people it could be from people illness or holidays but this leaves the supply chain working inefficient and not at optimum capacity. Very recently I have learned that since China has lifted the policy of one-child
In supply chain there could be many other types of risk, what is important to understand which one can hurt you most. Supply chain risk management is a high-level concern for supply chain professionals. Supply chain risk management implementation is a difficult task because it requires involvement of various firms across the supply chain. For effective supply chain risk management implementation, managers need to know the enabling factors and their relative importance, hence, keeping an eye on above 10 supply chain risk is crucial to mitigate those risk when and if happens.
About the Author- Dr Muddassir Ahmed
Dr MuddassirAhmed is the Founder & CEO of SCMDOJO. He is a global speaker, vlogger and supply chain industry expert with 17 years of experience in the Manufacturing Industry in the UK, Europe, the Middle East and South East Asia in various Supply Chain leadership roles. Dr. Muddassir has received a PhD in Management Science from Lancaster University Management School. Muddassir is a Six Sigma black belt and founded the leading supply chain platform SCMDOJO to enable supply chain professionals and teams to thrive by providing best-in-class knowledge content, tools and access to experts.