7 Biggest Supply Chain Risks that Companies Face

A supply chain risk is defined as any unexpected incident that disrupts the normal flow of resources and commodities in a supply chain in some way. Such disruptions might hurt operations management. For example, they might create manufacturing delays, resulting in lower sales in the long term. When viewed over a longer period, supply chain risks can have a negative influence on shareholder value.

Also, it will affect the company’s long-term financial success. Risks are an inherent and inevitable aspect of supply chain management. A lack of awareness of dangers in your supply chain can result in higher total costs and degraded brand value. The following are the eight primary supply chain risks that you should be prepared to handle:

Manufacturing Risks

Manufacturing risks relate to the likelihood of a major component or step in your manufacturing process failing, causing operations to run behind schedule. Various causes, including the following, might be at work here.

• Commodity and Raw Material Prices:- A rise in the cost of raw materials raises the cost of production. This typically pushes businesses to raise their pricing, negatively impacting their buyers and reputation.
• Raw Material Shortages:- While firms increasingly seek local or regional manufacturing options for completed goods, producing many critical raw materials remains worldwide. As a result, the supply of some important commodities is vulnerable to interruption owing to surges in demand or manufacturing bottlenecks.
  
• Distribution Disruptions:- The movement of a big supplier’s activities to another site can significantly impact the cost of raw materials and manufacturing. Risk managers should maintain open communication and robust contracts with all essential parties to avoid this.

Storage and Transportation Risks

Storage is keeping goods in warehouses and distribution centers to keep a steady supply of goods on the market. Goods in a warehouse are vulnerable to theft, damage, or rotting. If not addressed properly, this may undermine the entire inventory planning process.

Similarly to storage, optimizing your product’s transportation and distribution is crucial. Delivery disruptions can have two effects on your business: non-delivery and late delivery. This might be due to transit issues, car shortages, or other considerations.

Financial Risks

Financial supply chain risk is the likelihood that a company may encounter a circumstance that will harm its financial health. They can range from an unexpected or adverse movement in currency rates to the insolvency of a supplier, among other reasons. Exchange rate changes are getting increasingly erratic and difficult to predict. If your suppliers and consumers are in different countries, currency changes can affect both the cost of raw materials and the cost of your final product. 

Legal Risks

Disputes or competing interpretations of contractual responsibilities, as well as failure to comply with the terms and conditions, can result in legal and contractual problems. The use or misuse of intellectual property can also be considered a legal risk, especially when patent infringement is a possibility. In this category, we might also include legal infractions and civil litigation.

Also Read:- Electric Vehicles and Batteries on the Evolution of Supply Chains

Quality Risks

Quality flaws in raw materials, production, shipping, and packaging can create a domino effect throughout a multi-tier supply chain. A seemingly minor issue, like damp cardboard packaging, can lead to serious consequences, halting entire assembly lines and affecting operations. Quality risk management utilizes various strategies to provide scientific solutions to these threats. Implementing Six Sigma quality assurance processes is essential for automating production and minimizing human error. These processes not only enhance quality control but also promote more efficient and lean manufacturing practices. By addressing potential quality failures proactively, businesses can maintain operational flow and ensure product integrity throughout the supply Chain.

Environmental Dangers

Environmental hazards may take many different forms and have a wide variety of effects on supply networks. 

• First, harsh weather and natural calamities endanger your supply chain’s capacity to function properly. Earthquakes, floods, and very hot and cold temperatures can all impede the passage of items through the supply chain, effectively shutting down operations.
• Second, exposing workers to hazardous situations can lead to health issues and absence from work. Exposure to dust, fumes, radiation, high noise, and poisons such as lead, mercury, arsenic, and others can cause a variety of diseases and finally result in the cessation of operations.
  

Cybersecurity Risks

The Internet of Things and other digital technologies help many firms to improve their supply chain operations. They also expose them to cybersecurity risks including malware, ransomware, phishing, and hacking. Cyber-attacks have become a serious threat in modern supply chain management. 

To reduce cyber supply chain risks, you can employ several techniques, including the following: 

• Establish compliance requirements for all third-party vendors, such as manufacturers, suppliers, and distributors.
• To limit who has access to your system, define user roles and implement security measures.
• Perform a comprehensive risk assessment of the vendor before signing any contracts.
  

Conclusion

Simply put, supply chain variations can negatively impact how your organization runs. Recognizing and preparing for supply chain risks, such as manufacturing risks, financial risks, legal risks, environmental risks, cyber risks, and so on, is crucial to your company’s existence. In actuality, failure to acknowledge and foresee such risks is a risk in and of itself. To properly manage supply chain risks, a robust supply chain must be built.