Logistics risk management is a fundamental task for all those companies that want to avoid upsets in their supply chain. And for your management to be effective, you need to know how to identify your enemies. To help in that task, we compiled the 10 supply chain risks most feared by companies according to a study by the University of Tennessee.
Top 10 Supply Chain Risks
1-. Quality
The more complex your supply chain is, the more actors are involved in it. And, therefore, it is more difficult to be able to ensure that they maintain the quality standards that you demand over time. In addition, your suppliers have other suppliers at the same time, which, again, supposes an additional factor of uncertainty.
Without forgetting the own quality problems. Launching a new product that is discovered to be defective in addition to image damage for the brand is a logistical ordeal for the company: returns, replacements, deadlines to correct quality problems, problems to detect their origin…
2.- Inventory
Anyone who works in logistics breaks out in a cold sweat when they hear the expression ‘out of stock’. Managing inventories is an art, which once again becomes exponentially more complex the longer our supply chain is. As they get longer, the amount of inventory companies have to manage increases.
Knowing how much inventory we need in each place and at any time, correctly anticipating the demand, establishing safety margins for the stock, keeping track of said inventory in real time… Listing the requirements of an inventory is a good demonstration of how easy it is that something fails at some time or somewhere.
3.- Natural disasters
Natural disasters combine two characteristics that make them especially fearsome: they are difficult to foresee and their consequences can be devastating. Although it is relatively easy to determine which areas of the planet are most exposed to certain disasters, the margin of unpredictability is still large enough to keep logistics managers on edge. And the effects of a major catastrophe can jeopardize any company that has not properly addressed these risks.
Remember that you not only have to take into account the fact that the disaster can happen, but the probability that it does.
4.- Economy
If the economy of a country can have unexpected ups and downs, when your logistics covers several countries it is not a question of whether there will be a shock in any of them, but in which ones it will be. Any economic budget can go to waste if there is a sudden change that affects your areas of interest. It could be the worsening of the economy in one of your main buying areas, the increase in the cost of raw materials, the rise in the price of fuel throughout the world or in a specific place… In any case, have the necessary solutions prepared in advance. .
5.- Losses in transit
The loss of merchandise during transport is another major concern. The casuistry is infinite: from small incidents to the complete loss of a vehicle, reaching extreme cases such as the hijacking of ships by pirates. And its consequences: economic losses, insurance problems, delays in deadlines, insurance paperwork, etc.
6.- Delay in new products
Despite all the risks that we are reviewing, a supply chain is usually a more or less oiled machine but it is already running. However, launching new products always presents a new challenge. And few things can be more terrifying than having a release date set and the first news about your new product being out of stock or being delayed because our supply chain hasn’t arrived on time.
7.- Cybersecurity
Good proof that logistics risk management is a living element and that it needs to be updated periodically is the presence of cybersecurity. A computer attack can disrupt our supply chain, modifying data, orders, dates and records. It also serves as a witness to the growing importance of technology in logistics.
8.- Intellectual property
Problems with intellectual property are other concerns that have experienced a boom in recent years. It is also one of the most common problems that companies encounter when carrying out their activities in developing countries. More and more companies are installing protocols to measure and promote the security of their intellectual property, as well as that of their collaborators, clients and suppliers, trying to prevent possible theft and misappropriation.
9.- Political instability
If logistics is the art of forecasting, few things are more difficult to forecast than a politically unstable area. All the calculations of your supply chain can be blown up if a country’s policy does the same. For this reason, measuring the possible costs and inconveniences is essential when choosing the geographical areas on which we are going to depend, either for our own activity or for that of our collaborators.
10.- Customs
The last problem that makes an entry in this list of logistics risks is customs. A scenario that has come to mobilize the European Commission itself to try to improve the systems when it comes to knowing the contents of the containers. Among the pending duties is an improvement in the detection of suspicious containers, in false content declarations and, in addition, trying to reduce the time -and delays- that all these operations entail.
If a company wants to take its analysis and management of logistics risks seriously, it needs to measure how these and other problems can influence it, establish plans to mitigate the possible effects and act accordingly. Although it may seem like a juggling exercise to be able to continue acting with so many balls in the air, risk analysis is the most powerful tool to minimize tomorrow’s problems.
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