Where Do Risks Exist in Your Supply Chain?

The last few years have certainly been a wake-up call for consumers and businesses about how supply chain disruptions can affect every aspect of our lives. From manufacturing delays to reduced sales, any disruption is simply bad for business. That’s why it has never been more critical for companies to identify and mitigate risks in their supply chain. 

While it isn’t possible to anticipate every supply chain risk, brands can better prepare for an uncertain future by identifying and planning for the supply chain  risks we do know about. Both external and internal threats can affect your business, but you still have the power to get ahead of them. This guide will help you identify external and internal risks in your supply chain and explain how to mitigate them.

External supply chain risks

Political

We have little direct control over how geopolitics play out, but there are still steps we can take to prepare for disruptions caused by incidents like trade wars or armed conflict. 

The war in Ukraine is the perfect example of this sort of political risk. As a result of Russia’s invasion, embargoes against the country increased the cost of oil worldwide, disputes between Russia and European countries curtailed natural gas supplies, and apparent sabotage to a major gas pipeline diminished that resource even further. Your own business and those you conduct business with may have to pay more for a limited energy supply, which can throw off everyone’s supply chain.

The fix: Start sourcing alternative suppliers or reconfiguring your supply chain to be less dependent on foreign oil, gas, and other resources now.

Manufacturing, raw materials, and quality

Unless your product is manufactured entirely in-house or your organization sits at the base of the supply chain, your business must be prepared to cope with external manufacturing risks. If your manufacturer struggles to source raw materials, or the cost of materials is too high to be profitable, your business may run out of supplies or be out of stock of common materials.

And, if you have to quickly pivot to sourcing raw materials from a new (and unproven) supplier, there’s a risk that you’ll see a dip in quality. If your products break more easily, are viewed as inferior, or begin slipping in quality, you could lose more products during shipment and also see more customer complaints. Having to switch to an unfamiliar and unvetted supplier in the spur of the moment can also introduce a lot of third-party risk into your organization.

Frantically looking for alternatives on short notice can put you at risk of creating subpar products and increase the odds of experiencing a security incident. That can have a big impact on your brand’s reputation and revenue. 

The fix: Work with your manufacturers to diversify their sourcing of raw materials or rework your products to use more affordable or accessible alternatives. Build out a network of alternative sources of high-quality materials well in advance of a supply chain crisis.

Transportation

You need to get goods from Point A to Point B, but that’s easier said than done. During the pandemic, we saw a nationwide shortage of truck drivers and numerous strikes and protests designed to grind logistics operations to a halt, which caused tremendous disruptions across supply chains. Distribution challenges create backlogs of undelivered products, which increases the cost of storage and transportation.

The fix: More businesses are investing in innovative packaging to ship more goods in less space. It’s also why more companies are turning toward reshoring manufacturing and storage since international transportation isn’t as reliable as it once was amid rolling pandemic lockdowns and other barriers.

Financial

As we saw with Brexit, political change can introduce financial risks into supply chains. Significant financial changes can affect exchange rates and other key trade processes, making it hard to manage international supply chains. Price volatility is also a big deal right now, with inflation at historical highs. 

The fix: It’s never been more critical for businesses to trim costs and operate lean to account for higher costs. Right-sizing your operations in advance of expected major changes to the political or financial landscape can make sure you come out ahead rather than end up spending time catching up.

Internal supply chain risks

While you can’t control everything, you have a bit more control over supply chain risks that are internal to your business.

Environmental 

If your organization manages its own manufacturing or transportation internally, you’re already aware of the environmental risks. For example, if your factory’s runoff floods local farmland with chemicals, that’s a public health risk, a major legal liability, and stands to cause reputational damage to your brand.

The fix: If there’s a chance of your business causing environmental harm and compromising public health, your GRC committee needs to put a plan in place to avoid any potential damage and respond quickly and appropriately to fix any issues or incidents that do arise

Cybersecurity

Did you know that cyberattacks, once a nuisance, have become a leading cause of supply chain disruptions? Unplanned IT outages spawned 68% of supply chain disruptions in the United States alone in 2022. A 2017 cyberattack famously crippled shipping giant A.P. Møller-Maersk, costing the company about $300 million, while another in 2021 shut down a major gas pipeline in the United States.

Businesses should make a plan to prevent phishing, ransomware, and hacks to protect the supply chain. This includes bolstering both your cybersecurity and third-party risk management capabilities.

The fix: Follow best practices for data backups and IT security and monitor third-party vendors for potential breaches. Have an effective cyber risk management program in place, and acquire the right technology to manage it.

Labor

Machines can do a lot of the heavy lifting, but your business still relies on human beings to keep the supply chain running. In the wake of The Great Resignation, finding and retaining quality employees might be more challenging for your business. This means it’s going to take longer to manage the supply chain.

The fix: Retain and build your staff with perks like training, flexible hours, and competitive pay. Put some leg work into understanding the needs of your workforce, what makes them feel fulfilled, happy, and valued by your organization, and what conditions will help them do their best work.

Account For All Business Risks At Once

We all know that risks are a part of business, and sometimes the supply chain is particularly vulnerable to disruption. If just one party fumbles, it can cause downstream effects in the supply chain. You protect your business from the unknown when you anticipate and put plans in place to deal with these common supply chain risks. 

If you want to account for all of the risks in your business, pick an integrated GRC platform like LogicGate Risk Cloud. See it in action: sign up for a Risk Cloud demo today.