supply chain risk

Understanding Different Types of Supply Chain Risk

Both internal and external risks threaten the supply chain daily. However, supply chain risk comes in different forms. Don’t assume everything is great because a business has reduced its risk from one type of problem. Things could be disastrous if you do not consider all supply chain risk types when you create a business plan.

Here are four types of risks you should consider to avoid disruptions in supply and production.

1. Environmental Risks

Since the dawn of time, the environment has played a risk for humans. The same holds true today with supply chains. Environmental hazards include natural disasters that can disrupt transportation to droughts that drastically reduce produce supplies. In just the first seven months of 2017 in the U.S. experienced 49 natural disasters. The rest of the year would prove even worse with Hurricanes Maria and Harvey.

While it’s impossible for businesses to avoid environmental risk entirely, it’s possible to plan for such instances by having an alternative strategy in the event of transportation disruption. To avoid going out of business from a decline in a single supply, many companies diversify. This allows them to shift production to something else they do have supplies for if one product decreases in availability.

2. Facility Risks

No matter how much effort you put into maintenance, breakdowns can occur. Even facility events such as fires can happen unexpectedly. In 2016, 30 percent of the products at a Gap warehouse were destroyed in a warehouse fire. This event affected 10 percent of the company’s orders. While prevention is the key to facility problems, having a backup plan is always prudent.

You can avoid facility disruptions such as equipment breakdowns through predictive maintenance. This type of care uses data collected from equipment to schedule maintenance before a part breaks down. With predictive maintenance, downtime drops. Keeping supplies in multiple locations will avoid losing all products from fires, floods or other disasters that could affect a single warehouse.

3. Cyber Risks

Critical data for purchasing or buyer information can be stolen in a breach. In 2015, costs of cyber-hacking totaled $3 trillion. But with manufacturing and warehouses, data is not the only factor a security breach can affect. Smart factories and warehouses use Internet-connected equipment that risks disruption via cyber-attack. A cyber attack or even a loss of connectivity could cease operations of a factory anywhere in a supply chain. Protecting against these risks is a modern consideration companies must face.

Installing the latest anti-viral software is only the beginning step to preventing an attack. Constant monitoring and keeping security software updated can help maintain your business’s safety. You also must emphasize the importance of cybersecurity with all other companies you deal with on both sides of your own supply chain. Every company has a responsibility to protect itself and other companies it works with. A cyber breach affects all businesses in a chain, not just the one that takes the direct hit.

4. Personnel Risks

The personnel at your facility are the heart of your operation. Keeping them happy and working at their peak is best for your business. Labor strikes disrupt operations, as do slacking employees who drop in efficiency or proficiency.

To maintain quality and prevent worker dissatisfaction, fair wages and encouraging education may help. Listening to workers’ concerns should also be at the top of all employers’ lists. Keeping employees engaged and continuously updated on the newest regulations and procedures can reduce these effects.

Skilled labor shortages can also disrupt your supply chain. Thanks to automation, most companies no longer need unskilled workers. However, they do need engineers and IT personnel to operate the machinery and computers that took over those jobs.

In addition to a lack of workers with the right skills, companies are worried about filling management positions. Finding managers for production facilities is a concern for 75 percent of employers. Lacking the right employees could disrupt operations anywhere in the supply chain.

Mitigating Supply Chain Risk

Though it’s impossible to avoid risk altogether, lessening risks should be businesses’ first thought. With numerous risks in a supply chain, risk management also requires contingency plans in the event of a problem. Knowing about these risks is the first step in mitigating them and keeping your business ready to weather any storm.

Category: Manufacturing & Engineering

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Article by: Megan Ray Nichols

Megan Ray Nichols is a freelance science writer and science enthusiast. Her favorite subjects include astronomy and the environment. Megan is also a regular contributor to The Naked Scientists, Thomas Insights, and Real Clear Science. When she isn't writing, Megan loves watching movies, hiking, and stargazing.