Thanks to technology, the world is now a global village, making the supply chain more interconnected than ever. While the interconnectedness gives businesses room to reach a wider market and optimize operations, it also presents a myriad of risks. It could disrupt the smooth flow of goods, impact prices, and cause halt in production amongst other effects.  

Although the risks cannot be totally eliminated, containing them effectively is key to the continuity of business. By familiarizing with the various inherent supply chain risks, businesses can learn to protect their reputation even in situations beyond their control, maintaining customer satisfaction. This blog therefore explored the different risks businesses are susceptible to and gives strategies for its mitigation. Let’s dive in. 

Natural disasters

When an earthquake hit Japan in 2011, the event not only impacted the country, but disrupted the global supply chain. As a major player in the automotive and electrical manufacturing industries, the event affected major top manufacturers like Toyota and Sony who source components from Japan, leading to a halt in production.  

Natural disasters—earthquakes, hurricanes, floods, wildfires, and others— are the most unpredictable type of risk. As in the case of Japan, not only do they cause so much disruption in production halt, delay, and other areas of the supply chain, it usually takes a while for businesses involved to recover. 

Political Instability 

A major reason why political instability poses a risk is the sharp changes it could cause in the business environment. A change in government could birth new policies affecting business operations. Similarly civil unrest, sanctions, war and trade restrictions could cause disruptions forcing businesses to find new alternatives.  

An example is the US-China trade war that began in 2018. The imposition of tariffs and trade barriers between the economies has affected businesses trading between countries. Companies like Apple who source components from China were faced with higher tariffs which rippled to an increase in their products’ pricing. Some other businesses were also affected and had to source elsewhere.  

Cybersecurity Threats

As businesses rely more on technology for operations, the potential for cyberattacks increases therefore affecting the supply chain integrity. Without adequate measures, the impact could be devastating as in the case of the 2021 ransomware attack on Colonial Pipeline. The attack not only forced the company to shut operations, but led to fuel shortages and panic buying across the eastern United States. 

Supplier Failure 

Supplier failure happens when a supplier can’t meet up to meet its set agreement owing to financial instability, operational factors, or other unforeseen situations. Depending on the business structure, the effect could ripple down the entire supply chain affecting multiple stakeholders. 

Businesses having stringent contracts with suppliers, may in the case of a failure face challenges of finding an alternative source which might momentarily impact operations and ultimately customer satisfaction. 

Transportation Delays

Transportation delays are a quite common disruption today. Usually it happens due to logistical inefficiencies, traffic, strike or custom issues. While it seems harmless in some cases, at times, a single point of failure in transportation could result in millions of dollars in losses for companies relying on timely deliveries. 

A case is the 2021 blockage of the Suez Canal mirroring the impact of a transportation delay. The ship stuck in the canal for six days, creating a bottleneck that stopped the passage of hundreds of vessels. Since Suez Canal is a key artery for global trade, handling almost 12% of the world’s maritime traffic, the blockage affected deliveries from oil and gas to consumer products and manufacturing components and mirrors a transportation risk. 

How to Mitigate Supply Chain Risk 

The supply chain challengers can sometimes be unpredictable but with a proactive approach, it can be managed to reduce potential disruptions.   

Diversification of Suppliers

The saying “never place your eggs in one basket” also rings true for the supply chain. As a business don’t depend solely on a single supplier the reason being that it reduces dependency in the event of natural disasters, disruption and keeps the business going. 

With advancements in the supply chain, customers are becoming used to instant services and a disruption can impact your integrity in terms of customer satisfaction. Moreover, diversifying your suppliers also improves your negotiating power leading to competitive pricing. Looking for a supplier, International supply partner is a company you can depend on for your office, medical, government and custom supplies. Businesses can access competitive pricing here and a trial order to assess their reliability. 

Inventory Management

Effective inventory management usually employs two approaches for risk mitigation; safety stock and Just-in-time inventory system. Imagine companies dependent on Japan during the earthquake had a safety stock? The impact wouldn’t have much of an issue, especially for the automotive industry. Also by maintaining a safety stock, businesses can buffer against demand variability and still meet customer needs when unforeseen events arise. With safety stocking, the key to success is to balance holding costs with the risk of stockouts to optimize inventory levels. 

The second approach, Just-in-time inventory system, works by receiving goods only when they are needed in the production process. This way businesses can cut costs and waste. However, the suppliers have to be very reliable with efficient logistics. Since inventory management could be time costly, companies can adopt advanced supply chain management (SCM) software. It helps with end-to-end visibility,improves planning and features inventory tracking, order management, and demand planning for optimal inventory management. 

Implementing Cyber Security Measures

As illustrated with the Colonial Pipeline, cyber attacks lead to operational disruptions, financial losses, and breach of sensitive information. It’s important that businesses implement cybersecurity protocols, including firewalls, intrusion detection systems, encryption technologies, and multi-factor authentication (MFA). This is also not enough, the security protocols should undergo regular audits by both internal teams and external experts to identify and fix loopholes if there are any. 

Since employees can also be unknowingly used as a gateway for phishers to launch attacks, businesses must include regular employee training on cybersecurity best practices, how to recognize phishing attempts, and why creating strong passwords is essential. Advanced technologies like artificial intelligence (AI) and machine learning (ML) can also be leveraged to detect and respond to cyber threats in real time. By developing a comprehensive incident response plan, businesses can be better equipped against attacks while maintaining their business reputation.

Geopolitical Risk Assessment and Contingency Plans

Risk posed by political instability cannot be directly controlled and it’s advisable for businesses to take an adaptable approach. But first, it’s important to conduct a thorough geopolitical risk assessment. What is the current political climate in the region of operation? What are the current and speculated trade policies? What are the key regulatory requirements? What are the security risks in the region? Answering these questions would help with the assessment. Businesses als have to keep monitoring political developments in regions where they operate or source materials so they don’t get taken by surprise.

Furthermore, having contingency plans in managing disruptions caused by political instability is important. These could include alternative suppliers, backup transportation routes, and flexible production schedules. Regularly testing and updating these contingency plans helps businesses scale through instability maintaining supply chain continuity. 

Compliance and Regulatory Considerations

Compliance is a big deal in the supply chain. Businesses who aren’t informed about regulations may face severe consequences including product recalls, hefty fines, and a loss of market access. Regulatory compliance requires staying updated about current and upcoming regulatory changes and proactively adapting operations to comply with them. This might be hard to follow through especially in an unstable business climate but it’s achievable. 

Through regulatory bodies monitoring, participating in industry associations, and engaging in policy discussions , businesses can stay abreast of changes. For instance, the introduction of stricter environmental regulations in the European Union has compelled businesses to reassess their supply chains, ensuring that their operations and products meet these new standards. 

Trade policies, environmental standards, labor laws, and safety requirements are some examples of key policies affecting the supply chain. Furthermore, with the trend towards a green planet, incorporating sustainable and ethical practices will not help businesses align with regulatory trends but also boost the brand appeal.  

Build a Risk-Proof Supply Chain 

The business environment is more volatile than ever increasing supply chain risks. While preparation is the best approach to ensure continuity, businesses can also work with trusted suppliers like International Supply Partners (ISP) dedicated to helping businesses mitigate risks by helping with medical, office, government and custom supplies at significant savings in a timely manner. 

Also, our approach includes meticulous risk assessments, and the implementation of flexible contracts that allow for adjustments in response to political and economic changes. Ready to mitigate against risks in your supply chain? Let ISP help you leverage opportunities for growth and innovation in your supply chain today.