Why is supply chain risk important? 

Supply chain risk is significant to many businesses and if left unaddressed could end up costing organisations financial and reputational damage. As globalisation processes intensify cross-border supply chains are becoming more common and their efficient management calls for reliable tools. 

How can supply chain be risk assessed? 

A risk register will enable a company to identify and score any potential known risks, such us a supplier going bankrupt, ceasing to operate, even temporarily. All risks identified can then be scored according to their potential impact and likelihood. Unknown risks are, by definition, unpredictable, and harder to identify. They include natural disasters or a global pandemic. Unpredictable however does not mean you are not able to prepare.  

The balance of probability and the potential impact on the organisation will constitute the risk score. Low-risk events would only have a limited effect on the supply chain requiring less planning, analogically medium and high risks events would call for more preparation and control.  

 Assessing collaboration within your network 

The following elements should be considered when assessing the individual supplier’s risk: 

  • Are there any geopolitical tensions  
  • Any local market fluctuations 
  • Are we following the same social standards?  
  • Is this the only supplier we depend on?  

The role of governance and communication  

It is a good practice for the board of directors to establish review processes of their external partnerships and play an active role in supply chain management promoting a culture of transparency.  

Everyone in the chain, from the CEO to the employees of the companies in the supply chain, should be clear on their responsibilities and their role in reducing potential risks and increases efficiency. This in majority of the cases involves plans to transition to more sustainable practices.