Identifying supply chain risks
You can limit the impact of supply chain disruptions on your business by identifying the risks within your supply chain and developing ways to mitigate them. You should document this process in a risk management plan, which is part of your overall business continuity plan.
There are 2 main types of risk to include in your risk management plan:
- external risks — those that are outside of your control
- internal risks — those that are within your control.
External supply chain risks
External risks can be driven by events either upstream or downstream in the supply chain. There are 5 main types of external risks:
- demand risks — caused by unpredictable or misunderstood customer or end-customer demand
- supply risks — caused by any interruptions to the flow of product, whether raw material or parts, within your supply chain
- environmental risks — from outside the supply chain; usually related to economic, social, governmental, and climate factors, including the threat of terrorism
- business risks — caused by factors such as a supplier's financial or management stability, or purchase and sale of supplier companies
- physical plant risks — caused by the condition of a supplier's physical facility and regulatory compliance.
Internal supply chain risks
Internal risks provide better opportunities for mitigation because they are within your business's control. There are 5 main types of internal risks:
- manufacturing risks — caused by disruptions of internal operations or processes
- business risks — caused by changes in key personnel, management, reporting structures or business processes, such as the way purchasers communicate to suppliers and customers
- planning and control risks — caused by inadequate assessment and planning, which amount to ineffective management
- mitigation and contingency risks — caused by not putting contingencies (or alternative solutions) in place in case something goes wrong
- cultural risks — caused by a business's cultural tendency to hide or delay negative information. Such businesses are generally slower to react when impacted by unexpected events.