Awareness of potential risks, adoption of best practices and emergency preparedness have increased among supply chain managers, unforeseen disruptions continue to hurt companies. Since 2010, several organizations have been affected by unforeseen supply chain disruptions, resulting in recalls that cost these companies millions of dollars, says a McKinsey Insights report. The report goes on to mentioning that such situations afflict various industries, including pharmaceuticals, automobile and electronics. What’s even more disturbing is that as many as a third of these companies do not analyze the complete supply chain when a disruption takes place, says David Thorp, Executive Director at the BCI. So, let’s have a look at the different supply chain risks and how to overcome them.
Top Supply Chain Risks
The leading causes of supply chain disruptions are:
Compliance and Reputation Risks
Compliance is among the main challenges faced by organizations, with 45% of supply chain executives reporting an increase in the pressure for internal and regulatory compliance, according to an Aberdeen study quoted by an article on Informatica.com.
The landscape of global supply chain compliance is more dynamic than ever before. Some of the common challenges are delays in market access because of global trade rules and environment regulations. Compliance in regards to supplier management and their labor and working conditions is also a hot topic, as seen in the case of Nestle, which was sued for sourcing fish from a company that used child labor, according to an article by the Business & Human Rights Resource Center.
Economic and Geopolitical Instability
Sudden political or economic changes can lead to demand shocks. Price volatility is also an important factor. Apart from this, trade restrictions imposed by countries on each other as seen in the case of the US-China trade war or political tussles as in the case of Brexit also have a huge impact. In case the UK is determined to exit the EU, it could lead to delays in shipping and higher delivery cost, according to an article by YunExpress USA.
The world is getting warmer with the emission of greenhouse gases. As temperatures rise, the frequency and intensity of droughts, tropical storms, forest fires and ill-timed rains could also increase. Such weather patterns can lead to water shortage, property damage and flooding, adversely affecting inland shipping.
Cyber attacks could cause damages worth $6 trillion annually by 2021, says an article by Cyber security Ventures. Supply chain businesses are vulnerable to such attacks, as a hacker can bring the entire supply chain network down.
How to Address and Overcome Supply Chain Risks
Chain Risk and Trade Compliance
The first step is to give supply and trade compliance a serious thought. Systems and processes need to be put in place to ensure compliance through the entire chain. While the initial installation and changes may be painful, it’s a necessary evil and one that your team can get used to very easily.
Strong Import/Export Procedures
Stringent import and export procedures help your company avoid penalties and control costs. A strong program should include staff training, perfect record keeping, regular auditing and self-reporting.
Following Best Practices
The best practices should be documented, and every employee should be encouraged to follow them. Behavior-based reward systems can also be easily incorporated.
The risks and rewards of global supply operations are substantial. Understanding the risks is the first step in addressing them and doing so can greatly benefit your company.