4 Supply Chain Risks and How to Mitigate Them

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For those in the business of providing paying customers with a product or service, the importance of a well-functioning supply chain cannot be overstated. One minor hiccup along the way can catapult the manufacturing and delivery process into chaos, and there are multiple factors that can become supply chain risks.

In this article, we identify four major supply chain risks from strategy to performance. Further, we provide simple tips for proactively mitigating these risks, to ensure the success of your supply chain.

Strategy risk

One of the first supply chain risks to consider is the risk involved in choosing a supply chain strategy. While new business owners often overlook the intricacies of their supply chain strategy, it is vital to consider the pros and cons of each option.

For example, a small, family-run business may opt to source locally if they don’t have the resources needed to keep an eye on global suppliers. However, and especially as your company grows, it is important to regularly review such decisions in accordance with the company’s finances and intended growth. Overseas markets can generally provide resources at a lower cost, so you may be missing out on valuable opportunities for growth.

Market risk

At the same time, however, outsourcing some or all of your product lines from overseas can put your supply chain at risk if manufacturing quality isn’t up to standard. It is much easier to monitor local suppliers and to enforce quality standards since it is usually feasible to visit the site in person. However, this can be much more complicated and expensive when outsourcing overseas, and it may be difficult to maintain quality standards for your products.

To mitigate this risk, business owners need to conduct thorough research before choosing a supplier to ensure they are reliable and trustworthy. Once a supplier is chosen, ensure standards are communicated clearly and regularly, and if feasible, consider hiring a representative to supervise production processes.

Performance risk

Relatedly, suppliers don’t only need to be monitored to ensure quality standards, but also because they are subject to many changes that could directly impact your supply chain. Consider for example threats such as bankruptcies, performance issues, ownership changes, labour strikes and geopolitical changes. Any of these things can become a major risk to the smooth functioning of your supply chain, so business owners need to remain vigilant.

To mitigate the damage caused by such risks, business owners need to be continuously reviewing the condition of each supplier, including their individual geopolitical environments. By remaining alert to changes for suppliers, you can work proactively to prevent a domino effect in your own supply chain.

Demand risk

Another major risk to your supply chain is demand risk. For example, if you don’t carefully supervise each supplier, they may, in fact, be running low on inventory while still accepting your purchases. This is a huge financial risk and can cause major disruptions to your supply chain, so again we advise keeping in regular communication with your suppliers and reviewing their status consistently.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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