You can limit the impact of supply chain disruptions on your business by identifying supply chain risks and then developing ways to mitigate them. Best practices document this process in a risk management plan.
Supply chain risks come in varying forms, and with varying degrees of harm to your business. There are two main types of risk to include in your supply chain risk management plan.
Types of supply chain risk
External supply chain risks
These risks are those that are outside of your control and that makes these risks more difficult to resolve. They can be driven by events either upstream or downstream in the supply chain. They include:- Demand risks, caused by unpredictable or misunderstood customer demand
- Supply risks, caused by any interruptions to the flow of product, whether raw material or parts, within your supply chain
- Environmental risks that come from outside the supply chain and are usually related to economic, social, governmental, and climate factors, including the threat of terrorism
- Business risks, that can be caused by factors such as a supplier's financial or management stability, or purchase and sale of supplier companies
- Physical plant risks that can be caused by the condition of a supplier's physical facility and regulatory compliance
Internal supply chain risks
These risks are those that are within your control to some degree, so the business has more opportunities to mitigate these risks. These types of risks typically include:- 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 alternative solutions in place in case something goes wrong
- Cultural risks, caused by a business' cultural tendency to hide or delay negative information.