You can limit the impact of supply chain disruptions by identifying the risks within your supply chain and developing ways to mitigate them. You should document this process in a risk management plan, which is part of your overall business continuity plan.
There are 2 main types of risk to include in your risk management plan:
external risks – those that are outside of your control
internal risks – those that are within your control
External supply chain risks
External risks can be driven by events either upstream or downstream in the supply chain.
There are 5 main types of external risks:
Demand risks – caused by unpredictable or misunderstood customer or end-customer demand
Supply risks – caused by any interruptions to the flow of product, whether raw material or parts, within your supply chain
Environmental risks – from outside the supply chain; usually related to economic, social, governmental, and climate factors, including the threat of terrorism
Business risks – caused by factors such as a supplier’s financial or management stability, or purchase and sale of supplier companies
Physical plant risks – caused by the condition of a supplier’s physical facility and regulatory compliance.
Internal supply chain risks
Internal risks provide better opportunities for mitigation because they are within your business’s control. There are 5 main types of internal risks:
Manufacturing risks – caused by disruptions of internal operations or processes
Business risks – caused by changes in key personnel, management, reporting structures or business processes, such as the way purchasers communicate to suppliers and customers
Planning and control risks – caused by inadequate assessment and planning, which amount to ineffective management
Mitigation and contingency risks – caused by not putting contingencies (or alternative solutions) in place in case something goes wrong
Cultural risks – caused by a business’s cultural tendency to hide or delay negative information. Such businesses are generally slower to react when impacted by unexpected events.
