Do You Know Your Supply Chain Risk?

by Ryan Burns

“Knowledge is power.” ~ Francis Bacon

Now more than ever, organizations are looking to better understand their supply chain risk. If you don’t understand your own, it can affect your business in multiple ways; the biggest is revenue and margin. The most obvious is lost revenue due to the inability to complete an order or reduced margin due to increased costs for non-standard processes. Everyone understands that.

But as businesses of all sizes (especially large, publicly traded ones) increase their focus on risk they will become more demanding of the risk management they expect from their suppliers. If you think that doesn’t describe your customer base, you’re likely wrong – even if you aren’t directly supplying these customers your customers may use your products to manufacture their products or support their business likely do.

This greater focus and rigor around supply chain risk means that more companies will begin to choose their supplier partners based on their risk profile too – so not understanding your supply chain risk may prevent you from growing revenue or worse have customers start to move their business.

There are multiple types of supply chain risks but all fall into two large categories: internal and external. Most organizations have a pretty good understanding of their internal risk (even if they don’t have mitigation or improvement plans in place.) External risk is more complicated can be difficult for organizations of all sizes.

The best way to know your supply chain risk is to really understand your supply base. This will allow you to see the risks that exist and let you begin to put an estimate of both the value and the cost to your organization to mitigate that risk. Even risks that you choose not to mitigate are more manageable when you know what they are and can watch for any market shifts or metric changes that indicate a high potential for failure.

This deeper knowledge of your supply chain will also help you better understand and report other important metrics such as ESG impacts and compliance with governmental regulations (e.g. conflict minerals, REACH, Prop 65, etc.)

When it comes to supply chain risk knowledge is power – and that power can help sustain your business and protect and grow your revenue.