Identifying and Managing Supply Chain Security Risks in a Dynamic Landscape
Effective risk identification is the cornerstone of a resilient supply chain. It enables organisations to anticipate and prepare for potential disruptions, thereby maintaining continuity and securing a competitive edge. The process goes beyond mere recognition of possible risks; it involves a deep understanding of the intricate interdependencies within the supply chain and the external factors that can impact the organisation.
To learn more, download our latest eBook, Supply Chain Resilience and Security: Harnessing the Potential of Internal Audit.
Identifying and managing supply chain risks is not a one-time activity but a continuous process that adapts to changing circumstances. It involves systematically analysing various aspects of the supply chain, including suppliers, logistics, regulatory environments, and market dynamics. By identifying risks early, organisations can implement strategies to mitigate them before they escalate into major disruptions. This proactive approach is required in today’s business environment, where supply chain disruptions can have far-reaching consequences, not just operationally but also financially and reputationally.
Categorising and prioritising risks is a fundamental step in the supply chain risk management process. By classifying supply chain risks into distinct categories, organisations can gain a clearer understanding of the nature and severity of different types of risks and how they impact the organisation. Supply chain risks can be broadly classified into five categories: strategic, operational, financial, compliance, and reputational. Here is a breakdown of these risk categories:
Strategic Risks: These risks are related to long-term decisions and strategies of the organisation. They could stem from changes in market trends, technological advancements, or shifts in consumer preferences. For example, the increasing price of fuel has seen logistics companies switching to an all-electric fleet while the growing consumer demands for sustainable products have prompted organisations to think about their carbon footprint throughout their supply chains.
Operational Risks: These include risks associated with day-to-day activities and processes within the supply chain. These could be logistical issues, supplier disruptions, quality control failures, and technology breakdowns. Financial Risks: These involve risks that impact the financial health of the organisation. They include currency fluctuations, changes in commodity prices, and other cost volatility. The rising prices of wheat and other commodities due to global conflicts and weather impacts have caused food prices to increase around the world. The rising cost of shipping and other logistics has put pressure on businesses to find ways to reduce other costs, and all have an impact on the organisation’s supply chain.
Compliance Risks: Compliance risks arise from the need to adhere to laws, regulations, and standards. These risks pose significant challenges to the security and resilience of global supply chains. With the introduction of stringent environmental and labour laws in China and India respectively, along with the complex international trade disputes like the US-China trade war, organisations are now scrambling to comply with new regulations while trying to maintain an uninterrupted flow of goods. This has not only disrupted supply chain efficiency but also created vulnerabilities in supply chain security, leading to increased operational costs and further uncertainties.
Reputational Risks: These are risks that can affect the public perception of the organisation. They can be triggered by various factors, such as product recalls, ethical concerns in the supply chain, or data breaches. This supply chain risk categorisation process can enhance risk awareness, improve risk assessments, optimise resource allocation for risk mitigation, promote a proactive risk management approach, and facilitate informed decision-making. These benefits collectively contribute to safeguarding operations, enhancing resilience, and achieving strategic objectives.
To learn more, download our latest eBook, Supply Chain Resilience and Security: Harnessing the Potential of Internal Audit.
