To run a successful business, you need to be aware of your risks. Underpinning your workplace success should be a risk management process. After all, how can you manage risks you don’t know are there?

It’s no different when it comes to supply chains. As seen recently with bare supermarket shelves and delayed shipments and deliveries, productive and undisrupted supply chains are crucial for daily life and a thriving economy.

All risks to supply chains can have damaging effects to a business—impacting revenue, declining sales and leaving them vulnerable to liabilities.

Internal vs. External Risks

Every business has internal and external risks.

Internal risks are the ones you can control or influence—this can include cost estimates, staff assignments, schedule delays, and product design.

External risks are outside of your control—this can include governmental or regulatory actions, change in currency rates that impact the value of an international trade, and most recently, a global pandemic.

So, what are the main risks facing supply chains?

Financial Risks

Financial risks can be both internal and external. External factors like changing exchange rates can have a deep impact on trade with other countries. An often-overlooked financial risk is the cost of supplier instability or contractor bankruptcy. Internal factors such as going over budget finding the limitation, constructive changes, and missed milestones requiring additional funding can often be prevented.

Scheduling Risks

Poor project management, poor communication, and changes to the scope of work are all risks which can threaten a project timeline. They can also have serious cost implications. Other external factors, natural disasters like hurricanes, fires, and floods, can also greatly impact on project timeline.

Legal Risks

Legal and contractual risks happen due to disputes or differences in contractual obligations, or when there’s a difference in outcome and process than what can be found in the terms and conditions. Other legal risks include the misuse of intellectual property, especially when patent infringement is a possibility.

Environmental Risks

Sustainability is a huge priority for businesses—or it should be. It’s essential to evaluate the risk to the environment created by your business practices or third-party suppliers. Environmental risks can include a business’s negative impact on water, air, and soil due to improper discharge or release of emissions and other waste.

Sociopolitical Risks

The regulatory landscape can change in an instant—usually due to a new government or the increasing awareness of inequitable social conditions. Many companies experience difficulty adapting to these changes and are forced to re-evaluate their supply chain.

Human Behaviour Risks

Employee behaviour risks are the most difficult to assess. These risks can play out when you don’t have the right people with the right knowledge to do the job. Sometimes the project or activity may be impacted due to an illness or injury of key workers.

Top Risks to Watch in 2022

COVID-19—the pandemic has disrupted supply chains on a global level. You only need to visit the supermarket filled with empty shelves and businesses operating on reduced hours to see this. Workers testing positive and in isolation is forcing production to halt and businesses have to adjust to unprecedented circumstances. It will take months or maybe years for supply chain to recuperative from losses.

Natural Disasters—climate change is proving to have a major impact to supply chains. From hurricanes to wildfires, employees and manufacturing can be at risk of injury or damage.

Reputational Damage—customers are increasingly expecting transparency as to how and where their products are made. Modern slavery and child labour will continue to be issues, and more and more companies will be forced to be held accountable.

Regulatory—trade laws and exchange rates aren’t set in stone. And as countries continue to discuss their trade agreements with one another, there’s a possibility for significant changes.

Digital—the digital age is advancing, helped along by the pandemic. As more businesses go virtual and processes become automated and computerised, there’s always a risk of cyber security breaches, hacking, and other risks associated with digital technology.

Understanding supply risk management can encourage companies to take effective action in response to these risks and should be an integral part of your business plan.

Talk to Pegasus today about managing your supply chain.

A version of this blog first appeared on the Avetta blog here and has been republished with full permission.

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