In the last few years, a number of businesses have gotten affected by the unpredictable vulnerabilities in the supply chain. What it led to is recalls costing over millions for industries ranging from consumer goods, automotive to pharmaceuticals. The worst part of these supply chain disruptions can be seen in both government and private organizations struggling with cybersecurity breaches and the loss of key intellectual properties due to the lack of supply chain risk management practices.
While accepting, accessing, and mitigating supply risk has always been a part of the business domain, running a successful business in the present market structure is more challenging than ever before. The Covid-19 pandemic sent waves of volatility throughout every market, making businesses aggressively reform their operations, marketing, and supply chain operations.
Likewise, climate change implications like Amazon Rainforest fires have also caused a cascading chain of material loss, international political conflict, and human rights violations.
On the political front, the Ukraine-Russia war is causing its own set of disruptions in the supply chain industry. According to a Dun & Bradstreet report, over 374,000 global businesses depend on Russian suppliers – 90% of whom are based in the US About 241,000 businesses rely on Ukrainian suppliers of whom 93% are based in the US.
In such volatile and complex socio-political environments, the definition of what is supply chain risk management has changed. What once used to be around a certain set of use cases has today been extended to cover a range of internal, external and unknown, known sets of risks.
The correct supply chain risk management plan starts with understanding the kind of risks that a supply chain circle can encounter.
Types of supply chain risks – The foundation of risk management for supply chain
On an end-to-end level, every part of the global supply chain comes with some extent of risks affecting your company’s performance, reputation, and the bottom line. When left unattended, both external, internal risks and known, unknown risks can lead to serious damage.
Let us look at what the two categories of risks entail before we look into the best ways to handle supply chain risk management. 
Known and unknown supply chain risks
Known risks are the ones that are possible to measure and manage over time. For example, a supplier’s bankruptcy causing disruption in the supply chain is a known risk. Likewise, risks around cybersecurity vulnerabilities can also be measured through supply chain risk management software analyzing the IT system inside-out.
Unknown risks are the ones that are impossible to predict. These can be climate change like a dormant volcano erupting and disrupting the supplier network, a cybersecurity attack that originated from deep inside the firmware of an electronic component. When it comes to supply risk mitigation, these pose the biggest challenge.
External and internal supply chain risks
External supply chain risks are the risks that come from outside your company. The absence of transparency makes it difficult for them to be anticipated, and they would need more talent, time, and resources when it comes to mitigation. Supply chain risk analysis is most difficult in the case of external risks.
The types of risks that fall under the external supply chain category are:
- Material risk – These happen when the material or finished goods do not reach the end-users. These risks can delay or stop operations altogether for the resellers of the goods.
- Demand risk – These happen because of poorly defined demand calculations, the demand-based risks leads to the excess product being made or, in contrast, unavailability of products to meet the demands.
- Business risk – These are caused by a change in suppliers’ organization structure, unanticipated sales to another company, etc.
- Environmental risk – These happen from several socio political issues, climate issues, and global health concerns. These risks are known to create devastating disruptions at different vulnerable points in the supply chain.
Internal supply chain risks emerge from inside the organization. With the right set of supply chain risk management processes, these can be easily mitigated and addressed. Since they are the most predictable out of all the risks, businesses have to keep an eye on their proactive management and mitigation to prevent them from happening.
The types of risks that fall under the internal supply chain category are:
- Manufacturing risks: These risks arise with the possibility of disruption in a key step or component in the workflow, which causes the operations to get off schedule.
- Business risks: These are the outcome of disruptions in processes around personnel, reporting, management, and other key business operations.
- Planning and control risks: These are caused by incorrect assessment and forecasting of planned production and handling.
- Mitigation and contingency risks: These risks can happen when a business does not have the right set of contingency plans in place for handling supply chain disruptions.
Now that we have looked into the different risks that need stringent supply chain risk management strategies, it is time to get down to those plans and look at how the instances of supply chain disruption can be lowered.
