A heatwave in California affects avocado availability around the country. A labor strike at a supplier factory complicates a product recall. A supplier goes bankrupt and can’t fulfill orders. In each of these cases, an unknown, unmitigated risk upends components of the supply chain.
Supply chain risk management is critical to ensure the prevention and mitigation of supply chain risk. If you are an aspiring professional interested in tackling this complex aspect of supply chain function, you can delve into the processes involved through advanced studies in the online Master of Science (M.S.) in Supply Chain Management program from Florida Institute of Technology.
Coursework will introduce you to myriad risks and challenges that can disrupt the supply chain, how to mitigate them and even how to leverage them for competitive advantage. This article examines some of the most taxing risks and challenges, as well as best practices and risk management techniques.
6 Supply Chain Management Risks and Challenges
At a broad level, macro trends and shifts can pose risks for supply chains as a whole. Typical supply chain risks include:
1. New Technology
Technological advancement in supply chain management often forces businesses to change systems, altering not only business processes but also the talent required to oversee them. To be effective, supply chain managers must stay current on emerging technology, its applications and its potential influence on the supply chain.
2. Cyberthreats
Along with technological advancement, organizations have increasingly embraced digital systems. While convenient, the switch to digital introduces vulnerabilities to cyberattacks in an increasingly interconnected supply chain. Therefore, it’s essential to practice best practices for cybersecurity in the supply chain as part of your overall supply chain risk management strategy.
3. Natural Disasters
Although inclement weather isn’t a new phenomenon, weather patterns and storms are becoming more intense and common. Weather shifts and natural catastrophes can wreak havoc on supply chains when weather takes suppliers out of commission or interrupts the transportation system. As such, creating resilient and sustainable supply chains is critical to mitigating environmental risks and natural disasters.
4. Political or Regional Unrest
When regions, countries, groups or states engage in conflicts, closed borders, supply shortages and infrastructure instability can impede supply chains. A government collapse can have the same effect, exposing shipments to potential increases in damage, theft or political leverage. International political disagreements and changes to trade policy and tariffs can also cause turmoil in the supply chain and uncertainty in the broader global economy.
5. Water Scarcity
On a large scale, dried-up or inaccessible eddies or channels used for transportation can halt transportation. Droughts can limit labor and production. This is another area of supply chain risk management that intersects with diversifying and creating resiliency in supply chain processes.
6. Data Theft and Fraud
An increasingly digital and interconnected supply chain means the involvement of more people in every link of that chain. A wider network leaves organizations more susceptible to data theft, hacking and fraud, enabled by the wealth of data collected from billing to research and design.
5 Business Risks From the Supply Chain
On a closer, micro level, businesses face several critical risks in supply chains. These can include:
1. Price
Price hikes from suppliers or sudden product price cutting by competitors can leave businesses scrambling to react.
2. Quality
A breach in quality, whether in packaging, transportation, production equipment or the product itself, can directly cost businesses money, either in the form of lost profits or increased expenses.
3. Delivery Lapse
Customers may reject a product that isn’t delivered on time. In some cases, late delivery can render products or supplies useless, such as perishable foods for a grocery store or delayed artwork for an advertising campaign.
4. Legal Issues
Supply chains often involve many individuals and entities in many different countries, all under various regulations. With each of these players, businesses enter into contracts that, if not drafted correctly, can leave them exposed to risks. Legal teams are becoming an increasingly important part of supply chain risk management and compliance.
5. Reputation
Thanks to more transparency in the digital age, exposing unethical suppliers and business practices is increasingly easy. This can pose a risk to a business’s reputation if consumers make buying decisions based on ethical principles. Social obligations, including environmental responsibility, ethical business practices and human rights violations, all play a vital role. Risk management professionals must work closely with value chain management to determine how ethical decision-making, or the lack thereof, will impact customer value perceptions and resulting profits.
Supply Chain Risk Management Practices
Supply chain managers should embrace risk management techniques to optimize the supply chain. Methods of mitigating risk can include:
- Establishing longer-term contracts to avoid exposure to price hikes
- Employing a quality assurance process, such as Lean Six Sigma, to help streamline processes for efficiency and fewer errors, and encouraging suppliers to do the same
- Creating a contingency plan to boost responsiveness to disasters and geopolitical uncertainty
- Crafting robust contracts with provisions that protect the buyer
- Adopting a zero-tolerance stance for illegal activity, and training all suppliers and purchasing managers on relevant laws
- Demanding — through contractual obligation — that all suppliers adhere to the same level of ethical, legal and moral standards the buyer does
- Empowering contract managers to approach their role with innovation and pursue efficiency
- Conducting regular due diligence to assess all supplier practices and procedures
Professionals can document, monitor and address known risks by following a risk management protocol. However, unknown risks can be more challenging to manage proactively. Addressing unknown risk requires fostering a risk-aware culture. This means that employees and managers at all levels of the business must be able to voice concerns, leaders must be clear and transparent about expectations, and employees must feel free to discuss challenges and take action when necessary.
Turning Supply Chain Risks Into Advantages
To mitigate risks, businesses can transform them into competitive advantages. For instance, retailers can develop strategic, long-term relationships with core suppliers, enabling longer-term contracts, open transparency and strategy alignment. Retailers can also diversify product offerings and in-house product development, building more supply channels to manage risk if geopolitical challenges or natural disasters threaten one leg of the chain. Through building supply chain resiliency and deconstructing supply siloes, companies mitigate known and unknown risks.
Companies that offer services can also stabilize supply chains through integrating modern technology that allows for more customer-centric personalization and engagement. Implementing personalization can be a boon for the customer experience and customer relations. Yet it can also support risk mitigation through data collection surrounding what consumers want and when they want it. This information enables accurate, timely and data-driven supply and demand planning, which is critical for optimizing inventory management for services-oriented companies that deal with perishables like food.
Through intensive coursework in a specialized master’s degree program, you can learn not only how to mitigate risks in the supply chain but also how to turn those risks into opportunities to outshine and outlast the competition through challenging times. Leveraging new opportunities is key to success in the ever-changing world of modern business. Supply chain managers who can accomplish this can expect long, rewarding careers in an evolving, fascinating field.
Learn more about Florida Tech’s online Master of Science in Supply Chain Management program.
