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13 Risk Factors That Can Jeopardize Your Supply Chain

Aggressive global competition has created a highly demanding customer and need for smooth supply chan. To serve its needs for low cost, sound quality, agility and easy availability, organisations are looking beyond their own boundaries to the management of their supply chains and minimize supply chain risk factors. In this they have been inspired by different supply chain practices available around the world. But knowing most of supply chain risk is still a hope and not a reality for many companies.

Increasingly, large multinational firms, in an effort to simultaneously provide local responsiveness and global integration, are developing complex, differentiated supply chains, which increase the likelihood of disturbances.

The complex and dynamic interactions between supply chain entities leads to considerable risks that can propagate up and down the supply chain – adversely affecting performance. Such risks can significantly reduce operational performance, profitability and shareholder value over the long term.

More specifically, risk factors (i.e. those factors associated with uncertainty and disruption) are increasingly important considerations. In this blog I will outline the major risk factors, which I have observed and help our customers encountering them from a NUNNER Logistics perspective.

1)    Supply Risk

There are several supply chain risks involved with working with other companies especially in supply chains where there is high dependency on other firms. These supply chain risks can vary from a supplier going bankrupt to not delivering the right quantity of a certain product on time. There are several ways to reduce this risk including having a comprehensive on-board and monitoring process, working with certified suppliers and having a good KPI system in place with the supplier.

2)    Demand Risk

There are a variety of factors that can affect demand, this includes the economic state and other variables, and this is a risk for the supply chain. The more unpredictable demand, the harder it is to know how much to produce therefore it is important to have a comprehensive demand forecasting system in place in order to minimise the risk of producing too much or too little. With more stable demand forecasts the supply chain risk is reduced. A classic example will be dealing with ‘bullwhip effect’

3)    Process Risk

Unforeseen and/or random interruptions that significantly affect operations, e.g. machine breakdowns, labor problem, process reliability, quality defects are most common process & manufacturing risk. Better planning and deploying preventive maintenance methods can minimize this process risk. However, it is very difficult to eradicate them fully, and it is inevitable to airfreight to meet customer demand or other backup solutions NUNNER has in place.

4)    Decision Complexity Risk

Uncertainty that arises because of multiple dimensions in decision-making process, e.g. multiple goals, constraints, long-term plan, etc. This could also happen in due to size and complexity of big organisation or imposed by customer. In complex situations we always intend to at forefront to help customers and make the logistical transaction as swift as possible.

5)    Natural Uncertainties

The natural uncertainties can be caused by earthquake, floods, non-deterministic chaos, etc. In our business we face these disruptions every so often. Due to our network and reach we have helped our customers to find a way to get them supplied as quick as possible.

6)    Cultural & Geopolitical Risk Factors

Issues of trust, bureaucracy, corruption, ethics, etc. leading to misunderstandings and different set of expectation. The way we do business in Europe is different in China, India or Middle East. We have to learn to respect the cultural differences that affect business transactions and be more diverse and inclusive.

7)    Accessibility of logistics

Despite there are plenty of logistics providers available worldwide. But having an access to right partner is tough situation is not always easy. We recently have encountered a situation in Qatar when most surrounding Middle Eastern countries have shut the boarders for a number of days and in those conditions finding a right logistics services provider with network solution is vital. In this type of situation ‘Nobody goes further’ than NUNNER Logistics!

8)    Economic Risk

The state of the economy effects exchange rates, labour costs and interest rates which determine inflation, not only effecting the economic state of the home country but also with countries that the company or suppliers operate in. As the recent recession demonstrated this can have bad consequences on the supply chain with decreases in worldwide demand, and the economic climate stagnant, cost cutting measures will have to be taken, this may not be the most effecting way for the supply chain but as it spans across a lot of countries the state of the situation in the country will affect all other.

9)    Control Risk

With many of these processes within the supply chain not being done by the company or plant itself there is a risk of lack of control, with high dependency on other firms or products and parts being shipped in from other countries there is a lack of control from the company this is a supply chain risk because the outcome of these can be unknown, a way to reduce this supply chain risk is by having good communication systems in place in order to mitigate some of this risk. In particular cases NUNNER manages and controls the vendors on accuracy, quality and meeting delivery deadlines.

10)  Unresponsive Supply Chain

If there is a sudden change in the supply chain caused by any of the above factors then the supply will need to be responsive, this can be difficult because some of these factors are unpredictable therefore having a durable dynamic system in place to respond to any change is vital to keep the supply chain active and running efficiently.

11)  Reputation Risk

The reputation of a business can have an impact on the supply chain. Unethical practices by external companies liked that the business sources from will impact how stakeholders view the company this could lead to a loss in demand, morale and investment. An example of this was when Apple sourced some parts of their products from external suppliers in Foxconn who used unethical practises. Although Apple themselves did not have unethical practises this association damaged their reputation.

12)  Resource Risk

Lastly, a lack of people as resources in a supply chain occurring mainly when key personnel are missing from the process. There are many reasons why a process can be lacking people it could be from people illness or holidays but this leaves the supply chain working inefficient and not at optimum capacity. Especially recently there is a shortage in many European regions of skilful staff to work in offices, warehouses, factories. Not to forget about the shortage of drivers.

Erwin Cootjans, CEO