In the past, supply chain risks were mainly associated with the quality and safety of products. Today, they are also linked to financial issues such as fraud or counterfeiting and environmental concerns such as pollution or waste. As a result, supply chains have become more complex and interconnected than ever before. This has led to an increase in the number of factors that can affect them.
The supply chain is the backbone of any business, but it's also a complex and often unpredictable system. That makes it difficult to predict what might go wrong — or when. Here are some common types of supply-chain risks. Understanding the below types of risks can help organizations mitigate them or at least reduce the impact when these happen.
1. Inventory Risk
When inputs do not arrive on time or in adequate quantities, leading to production stoppage. This risk may be caused by:
• Delays in receiving raw materials from suppliers
• Shortages of critical components
• Slowdowns in transportation
To avoid this problem, make sure that you have adequate supplies of raw materials, components, and finished products.
2. Stockpiling risk
Stockpiling risk occurs when you hold onto excess inventory. This happens when you order more than you think you'll need and then end up having to store extra goods.
There is a risk of stock getting excessive inventory deteriorated and getting obsolete.
3. Quality Risk
When products supplied by suppliers fail to meet specifications, causing production disruptions, it can be caused by errors made by suppliers, distributors, or retailers.
The quality risk is the probability that a product will not satisfy its specification at the time of delivery. The likelihood of failure depends on many factors, including:
- Quality control procedures and practices in place during manufacturing;
- Product design features such as materials used and their physical properties;
- Manufacturing processes and equipment used ;
- Customer demands for specific performance characteristics;
- Supplier's ability to deliver on schedule;
4. Labor Shortage Risk
Labour shortage risk occurs when there aren't enough workers available to perform specific tasks. To ensure uninterrupted delivery of goods, businesses must have a robust system for monitoring their suppliers.
5. Pricing Risk
Pricing risk exists when prices change unexpectedly. In many cases, pricing changes occur because of external factors such as currency fluctuations, competition, and weather patterns. Pricing risks can also result from internal factors such as unexpected demand or supply shortages.
6. Delivery Time Risk
Delivery time risk occurs when shipments arrive late or never show up at all. Sometimes delays can be caused by bad weather, natural disasters, or unexpected events. Other times, they might be due to human error. Delays can cost you both money and reputation.
7. Currency Risk
This type of risk can arise when the value of one currency increases relative to another.
For instance, you could incur a loss if you plan to sell an item in dollars but receive payment in euros because of exchange rate fluctuation. You could try hedging against this risk by buying foreign currency ahead of time.
8. Regulation Risk
Regulation risk arises when laws change so that what was previously legal becomes illegal. These changes can occur in many different ways. They include:
• Changes to tax regulations
• New environmental rules
• New safety requirements
• Changes to product liability law
9. Transportation Risk
Transportation risk occurs when you don't get products where you expect them to go. It can happen for many reasons, including:
• Incorrectly marked packages
• Delayed delivery due to bad weather
• Shipping blockages
10. Unforeseen Demand Risk
Unforeseen demand risk occurs when you suddenly see an increase in demand for your product. You might experience this kind of risk if you release a new product line or launch a major advertising campaign. Your suppliers are unable to provide inputs at the required rate, leading to unfulfilled customer demand.
11. Weather Risk
Weather risk occurs when your supplier ships your goods during inclement weather. Bad weather can delay shipments and damaged goods.
12. Political Risk
Political risk occurs when politics affect your ability to operate.
Companies can avoid these risks by managing their supply chains on an ongoing basis as they continue to expand into new markets and increase production levels.