We’re always beating the drum about the importance of supply chain risk management (SCRM). And it’s for a good reason. We know that a lot of companies think they’re managing supply chain risk when, in fact, they’re barely managing supply chain risk, or not managing supply chain risk at all.
The problem is simple: There are many different types of events that could disrupt your supplier network. And if you’re relying on basic financial indicators alone, you’re simply not getting the full picture.
Here are the top five most common risks that are threatening your business:
1. Viability of Business Partners
If one of your suppliers goes down, it has the potential to disrupt your entire business. A supplier shutdown is a big deal and is of course something that you should be monitoring. The real key to managing this risk effectively, though, isn’t about being aware of it when it happens—it’s about getting the warning signs before it happens and making sure you can ask your suppliers about these warning signs when they happen.
If you think it’s impossible to predict this kind of thing, you’re just not paying close enough attention. It’s not just about standard financial ratings. By getting alerts about topics such as slow growth or poor revenue outlook, major ownership structure changes or major product recalls, you can be aware of your risky suppliers before they become actual threats to your business.
2. Supply Chain Risk: Natural Disasters
The number of natural disasters is increasing. And as the globalization of supply chains also becomes more widespread, this makes them even more of a threat to businesses everywhere. In their 2018 Supply Chain Resiliency Report, the Business Institute cites weather incidents as being one of the top three concerns for the companies surveyed. You can’t stop natural disasters—but if you’re monitoring the regions where you have key suppliers or core supply paths, you can make sure you take fast action (or preventive action) to mitigate their effects on your procurement functions and your business.
3. Reputational and Compliance Risk
If you’ve ever seen a brand in the news because they were working with a company that got charged with a corporate social responsibility or compliance violation, you know that you don’t want that to be you. Are you aware of potential reputational and compliance risks in your supply chain or procurement processes? Risk events ranged from FDA warning letters to human rights violations. But if any of your business partners or suppliers are guilty of these kinds of practices, you’re going to want to make sure you know about it so that you can take fast action.
4. Man-Made Risk
Although they’ve often ranked as the number one top risk concern according to surveys like the Allianz Risk Barometer Repor t, man-made risk events come fourth on the list in terms of common risks in our customer network. This type of risk includes not only fires and explosions but any other kind of non-natural disaster that might shut down a business partner site or location (for example, a power outage, evacuation due to a bomb, etc.). You can’t predict a fire or explosion, but that doesn’t mean you can’t be prepared. Does your procurement department have action plans in place for when a fire or explosion might disrupt your business?
5. Strikes and Labor Unrest
If industrial disputes and strikes aren’t on your radar as a very real potential for business disruption, it’s time that they were. Just as easily as a hurricane or a fire can shut down a major port or plant, a strike can do the same. It’s essential for your business that you know when a strike might cause a disruption in your supply chain, so that you can take the necessary actions to address it. An example would be rerouting shipments.
Managing Supply Chain Risks
Any one of these five risks can take out your business—but it doesn’t have to be that way. Whether it’s an issue with company viability, a natural disaster, brand bad behavior from one of your business partners or an explosion, it’s possible to remain on top of business disruptions. In many cases, you can suspect that they’re going to happen. In some cases, you can know that they’re going to happen. In all cases, you can be prepared for them to happen.
riskmethods was acquired by Sphera in October 2022. This content originally appeared on the riskmethods website and was slightly modified for sphera.com.