Supply chain disruptions can be categorized as either external or internal risks. External risks arise from factors outside your control, while internal risks are closely linked to your own processes. By using risk assessment tools and implementing effective management strategies, you can identify and closely monitor these risks.

• Market supply and demand risks: These occur when there’s a miscalculation of product demand or when you face difficulties in obtaining enough raw materials from suppliers. Delays or disruptions in material delivery can also fall under this category.
• Environmental risks: These are associated with socio-economic, political, government-related, or environmental issues beyond your control that can impact your supply chain.
• Business risks: These are often tied to the purchase or sale of a supplier company, which can affect your business operations and relationships with suppliers.

• Manufacturing risks: Weaknesses or inefficiencies in the production workflow that can cause delays or disruptions in operations.
• Business process risks: Disruptions in personnel, management, reporting, or other critical internal processes that can affect the smooth functioning of your business.
• Planning risks: These risks arise when forecasting or planning is neglected, poorly executed, or inaccurate.
• Mitigation risks: These are associated with the lack of a contingency plan to address potential supply chain disruptions

World events 

One of the biggest external risks to your supply chain is global events, which can take many forms, from natural disasters like earthquakes and fires to political and economic shifts, such as regime changes or transitions in government.

Climate change often plays a significant role in these global events, both directly and indirectly, and can have a profound impact on the smooth operation of global supply chains. For your own supply chain, environmental risks may arise from factors such as high energy consumption or excessive waste. In such cases, implementing tools to track emissions and manage resource use can help mitigate these risks.

Strategy: Develop a contingency plan for potential disruptions. This will allow your business to stay aligned with sustainability goals while addressing vulnerabilities in your supply chain.

Threats to security 

Cybersecurity threats are becoming increasingly prevalent and should be considered both an internal and external risk. Given our reliance on digital systems and communication technologies to manage inventory and distribution, businesses are vulnerable to cyberattacks. Such threats can disrupt transport, damage infrastructure, and result in costly production halts.

Strategy: SCRM can help assess vulnerabilities within digital systems and equip businesses with the tools needed to respond to potential cyber threats effectively.

Ebbs and flows in demand

Fluctuations in demand are a significant external risk that can affect your supply chain. Accurate demand forecasting is essential for maintaining profitability and ensuring you’re prepared to meet customer needs without overstocking or understocking.

Strategy: Optimize inventory levels and ensure flexibility in production and distribution to respond effectively to changing demand.

Our comprehensive, end-to-end solution for supply chains enhances performance, mitigates ESG risks, and improves your carbon footprint. The Supply Chain Control (SCC) module in our software enables you to effectively manage and track your suppliers while ensuring a two-way risk management approach.

Reduce risks in your supply chain? Try our End-to-End Solution

Climate change impacts every aspect of society, including supply chains. The way we trade, consume, and transport goods and services across continents is increasingly affected by natural disasters, rising energy prices, and extreme weather events such as droughts and heatwaves.

Weather events are becoming more severe and long-lasting, including hurricanes, floods, and wildfires. These disruptions damage transportation routes, impair facilities, and cause delays in accessing raw materials or products. Rising sea levels also disrupt infrastructure and hinder sea freight, with flooding at critical ports presenting a significant threat to the supply chain. This not only results in costly damage but also interrupts the flow of goods and services. According to the OECD, 90% of all traded goods are shipped by sea, making threats to the oceans a direct risk to global supply chains.

To stay ahead of these risks, we implore you to diversify your supplier base. Diversifying your supplier portfolio means engaging multiple suppliers for your services and materials. This strategy helps you handle disruptions in raw material delivery more effectively, as you maintain communication with alternative suppliers who can step in if one faces challenges. It also reduces dependence on long transit times. However, this approach requires strong supplier relationships and collaboration through long-term contracts. Additionally, increasing inventory levels and leveraging predictive analytics to anticipate risks can further strengthen your resilience.

Supply chain risk management can be broken down into four key practices focused on identifying and addressing risks while ensuring that the supply chain is resilient enough to handle potential weaknesses.

1. Identify the risks 

What problems currently exist in the supply chain, and what potential weaknesses could evolve into larger issues in the future? These are critical questions every business should ask to effectively manage risks. Once a thorough risk assessment is completed, it becomes much easier to address and mitigate these risks proactively.

Examples of risks include factors like location, transportation routes, political stability, and environmental threats such as droughts or wildfires.

Supply chain risk management is an ongoing process. Risks are often dynamic, evolving over time, so it’s crucial to continuously monitor operations and track risk developments. This includes setting up processes to manage risk exposure and support informed decision-making. By staying vigilant and monitoring all aspects of the supply chain, your business will be better equipped to respond to new challenges as they arise.

Climate change poses significant threats to manufacturing, production, and the delivery of goods. It also drives up the costs of raw materials, products, and transportation. This makes it essential to strengthen your supply chains, ensuring they are more resilient and adaptable to climate impacts.

The first step in this process is identifying every stakeholder in your supply chain and evaluating each relationship, such as between manufacturers and suppliers, while considering the bigger picture. According to a University of Maryland research project, this comprehensive assessment is crucial for identifying risks at each step, from sourcing raw materials to delivering the final product to the consumer. For example, risks can arise from the business locations of your suppliers’ suppliers, making it important to have backup plans and to work through “what-if” scenarios with your suppliers.

We suggest evaluating each relationship in terms of cost, efficiency, and relevance. These calculations are vital for accurate forecasting and sourcing options, especially when conducting “what-if” analyses. From there, it becomes easier to conduct a specific climate risk assessment and develop a strategy to address those risks.

The most critical aspect of a climate risk assessment is understanding your supply chain’s vulnerability to climate-related risks such as flooding or heat stress. Once these vulnerabilities are identified, you should evaluate the potential consequences and quantify the risks in order of priority. This will help you focus on the threats that need immediate attention, based on their likelihood, potential impact, and recovery time.

As a business, you become more resilient by adopting a mindful approach to risk assessments and management strategies. Supply Chain Risk Management (SCRM) is fundamentally about developing contingency plans that help your business prepare for and respond to future challenges.

How SCRM impacts core business operations

• Lower costs: By identifying areas where your business is underperforming, you can optimize these processes and reduce costs.
• Increase efficiency: Recognizing inefficiencies helps you pinpoint areas that are unnecessarily costly, enabling you to improve overall operations.
• Maintain quality: Regularly monitoring the supply chain ensures that suppliers are meeting your quality standards, which is vital for maintaining high levels of customer satisfaction.
• Implement new initiatives quickly: An agile supply chain gives you a comprehensive overview, allowing you to act proactively. Whether improving your sustainability profile or addressing potential reputational risks, SCRM supports your ability to adapt quickly to challenges. Use it to advance your ESG goals and implement sustainable practices.

Reduce risks, cut costs, and drive innovation with an efficient SCC solution. Our system is user-friendly and simplifies the tracking and management of all supply chain processes.