Top 10 Supply Chain Risks and How to Manage Them

Supply Chain Risks

Supply chain risks are a big part of the business world. But what exactly are they?

Supply chain risks refer to the possibility that a product or service will be unavailable or improperly prepared. This could happen due to problems with production, transportation, or storage. It can also occur as a result of natural disasters like hurricanes and earthquakes (which can cause delays in shipping).

Your supply chain is not a simple part of your business operations. Companies that make everything from computers to cars know that optimizing your inputs and how they interact can give you a competitive advantage.

There are many opportunities to reduce costs and increase margins in your supply chain…from distant factories to your warehouse shelf.

These same companies discovered that a tight supply chain can pose risks. Relying too heavily on one source can make it expensive but also make it fragile. If you can beat the price of one product, your supplier will value you less and may be more willing to work with you. IP issues can also mean that your original design could end up in a bestselling product.

The risks are increasing with 2023 just around the corner. It’s crucial to identify emerging risks in the aftermath of a pandemic. There will be turbulence in Europe, and a slowdown in Asia.

This is why we have created this guide on supply chain risks and strategies to manage them.

Internal risks – The ones that are already present
External risks – Looking outside
Existential risks – The world-changing events

Internal risks

Your supply chain planning includes internal risks. These are often more visible and therefore easier to manage. They are still dangerous for your business. These are the main ones:

1. Production control risks

Quality is the core of any manufacturer. A small industrial unit might take in parts from 100 suppliers around the globe. However, a change in a product parameter or material limitation could render that part ineffective in your final product. This change might not be your fault, but it will be your problem.

This adds to the burden of quality control. If you source from an outside supplier and haven’t done so in a while, audit your supplier list to see if parts have changed in the specification, increased in cost without increasing quality, or been quietly substituted with “equivalents” you never agreed to.

Different in 2023: After years of disruption and pandemics, the global manufacturing sector is facing a severe skills shortage, including in China, the workshop of the universe. Raw materials cost more and there are more bidders to make the products – This could leave you out of pocket if your price limit is higher than that of a competitor. Now is the time to make sure.

Also read: Production Scheduling: What It Is, Stages and Software

2. Business information risks

Information is the key to a smooth supply chain. Information is essential for a supply chain to function smoothly. The more interactions there are, the more information you will need. You’ll likely find information gaps if you only look at one process within your supplier network. This is because the information you need is either not available or in the wrong format.

All this adds to the work and exposes people to additional risks. Because people are more likely to guess and estimate than confirm. Is it possible to bring together all of the information needed into one “Single Version” of the Truth? This would allow you to see and resolve any discrepancies early.

Different in 2023: Although applications have been successfully managing supply chains since the 1990s, many of them weren’t interoperable which led to the same issues of data inconsistency, incompatibility, and other problems. Web applications and cloud services are now able to connect all data. However, many manufacturers don’t realize the potential. It is vital to keep ahead of the curve.

3. Planning and forecasting risks

A related point is that only good information can make good predictions. Unfortunately, many of the world’s supply networks are not fully connected. Reports, charts, as well as other predictive tools, must also rely on incomplete data.

(Note “incomplete”. Not necessarily “wrong”. Your monthly report might be correct in its entirety, but it is the missing parts that are important. Make sure that you are aware of what you don’t know.

Different in 2023: Some services are now in a cost spiral due to shocks in the air- and surface-transport sectors. This means that your inputs may be uneconomical tomorrow, even though the cost-per-unit seems reasonable today. You need to ask yourself if predictive models truly take all factors into consideration.

4. Mitigation and contingency risks

An escape plan is the best plan in turbulent times. Imagine if production costs went up by 110%, not 10% in one year. This has happened to many manufacturers, including American building materials and Taiwanese chip makers.

These issues can be managed by agreeing in advance when you will “get out of Dodge”. This means that you need to find alternatives rather than continue with a supply chain risk management plan. It’s too late when you need another source. Have a plan that can help you imagine bad situations ahead of time.

Different in 2023: Economic ripples are swirling all over the globe, many of them originating in China’s manufacturing centers – a normal part of the business cycle. These aftershocks will likely be larger in 2023 as problems that were previously unknown bubble up to the surface. Although Covid-19 is over, its supply chain risks remain.

External risks

Let’s look at what could happen in the world beyond our own supply chains. It’s not always easy to think about, but it is more fun than the alternative.

5. Demand and supply in the market

There are many factors that affect the demand for any product. It’s not just about fashions or fads. It is important that your supply chain management considers global patterns of consumer demand and business demand. This includes those that aren’t related to your product quality or price: Legal reforms, economic contractions, and commodity prices that make it difficult for your inputs to be competitive. Although it may seem excessive for a plastics company in Hawaii to monitor the Texas crude oil price, this is a crucial input.

Different in 2023: Multiple factors that affect supply and demand are converging. These include political and economic risks, societal changes that could make profitable products obsolete overnight, and societal changes. These factors are also changing at an extraordinary rate. Pay attention to the “landscape”, which surrounds everything you do.

6. Innovation and competitive invention

The pace of technological change has not slowed down. Technology has enabled products and services to evolve and improve faster than ever before. These competitive pressures could lead to a sudden drop in customer base and customers changing or churning daily.

Different in 2023: There is anecdotal evidence that customer loyalty has become less reliable in recent years. This means that your customer base cannot be taken as a given. As if you thought the job of supply chain management wasn’t difficult enough. you now need to be an expert in competitor intelligence.

7. Environmental awareness risks

Everyone loves to be green. This presents a unique opportunity but also adds burdens to supply chain managers. Layer upon layer of CSR (Corporate Social Responsibility) regulations, new laws, and legal principles, as well as a variety of international regulations, encapsulates the sourcing web. This adds time and effort.

Different in 2023: As the West (and many Eastern) economies face trouble, governments are easing some policies on green issues. But their citizens are doing more than compensating. All buyers, whether they are consumers or business-to-business, make decisions based on their values and not just the legal restrictions. Do not be fooled by someone else’s CSR policies.

Also read: What is a Distribution Strategy: Importance, Types, Factors & Example

Existential risks

The big ones are events that have a global impact and sometimes feel more like fiction than reality. It’s the responsibility of supply chain managers to consider the impossible and plan how they would handle it in 2023 and beyond.

8. Entire economies simply collapse.

Not all apocalypses involve zombies. In 2023, the world looks uncertain. Many countries are financially leveraged in dangerous ways. A currency crash or supply shock could cause entire industries to collapse, bending and even breaking your supply chain.

Do both your primary source and secondary sources reside in the same city or business cluster? Think about what might happen if one of your primary sources was unavailable tomorrow.

9. Conflict can spread across borders.

No one likes to think about what side effects might occur if NATO enters Ukraine or China takes action on Taiwan. These things are possible today more than they were a few years back. Their effects can be felt far beyond their borders.

For years, shipping and air travel, local transport, delivery, and lines of communication such as the internet, may be affected. You will need a plan if your sources are spread across the risky territory.

10. The markets are moving forward.

Multiple industries are at risk of extinction by 2023. This has been true since 1910 when horse-and-cart manufacturers were no longer considered investment-grade. However, the involvement of footloose capital today can make a business venture unviable – even entire sectors can become unviable within a short time after investors withdraw their funds. Do you have suppliers who are in this sector? You should be critical.

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