Supply chain risk assessment

What is a supply chain risk assessment?

A supply chain risk assessment is a critical action for effective supply chain management. By assessing the risks, organisations can identify potential threats to the supply chain and take action to prevent disruptions which could lead to increased costs, lost revenue, delays and a decrease in brand reputation.

Steps in a supply chain risk assessment

A supply chain risk assessment is a deep dive into your whole supply chain and on individuals that have a high-risk profile. Here is a summary of steps that will help guide you through the risk assessment.

Map your supply chain

The first step is to identify where your suppliers are located and what they do. You’ll also need to include contractors and labour providers.

High-level risk factors

You’ll need to look at some high-level risk factors, which could mean poor legal systems in the specific country, geopolitical unrest or high levels of poverty.

There are also security issues, types of workers and more. You can find this high-level information from research agencies or UN agencies.

Individual risk profiles

You’ll then need to take each supplier specifically, to understand their risk profile and look at their workforce, location and practices. You can collect this information directly from the supplier through feedback forms.

Prioritising risks

Prioritising risks is important to identify the risk impact and rank the risk on seriousness. So how serious would it be on the community or individual, how widespread would the impact be, how hard would it be to put right and how likely the issue may occur.

Challenges in a supply chain risk assessment

There are a number of challenges you may face when doing a supply chain risk assessment. One is the lack of visibility into operations and dependencies, so without a clear idea of who all of these are from the start, it may take a long time to establish. The probability and severity of risks can also be difficult to identify, for example, how can you accurately predict environmental conditions, or political unrest, or even cybersecurity threats? It can be difficult to address and mitigate.

Benefits of a supply chain risk assessment

A supply chain risk assessment offers lots of benefits. One of the main benefits is that you’ll be able to identify risks and address them, meaning organisations are better prepared when it comes to supply chain disruptions. It also puts you at a competitive advantage, as you’ll get a positive reputation from having a secure supply chain.

By responding to risks, you’ll be able to minimise the likelihood of disruptions, and therefore won’t face the risk of lost revenue. It can also reduce the time and resources required to respond to disruption if they occur. Finally, a supply chain risk assessment helps with better decision making, as you’ll have the data about potential supply chain risks in the supply chain.

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