Editor’s Note
This article outlines the key threats that can disrupt the flow of goods and services, from economic shocks to geopolitical tensions, and introduces foundational strategies for building resilience.
Supply chain risks refer to any threats that can disrupt the flow of goods and services within a company’s supply chain network. These risks include economic factors, like supplier bankruptcies and downturns; natural disasters and other environmental concerns; political instability and geopolitical tension; ethical concerns, such as child labor; and cybersecurity vulnerabilities.
Businesses can employ multiple strategies to mitigate their supply chain risks, such as supply chain mapping, weighted ranking, value at risk (VaR) assessment, supplier segmentation, diversification, inventory management adjustments, scenario planning, and building strong supplier relationships. In turn, these mitigation strategies can help to facilitate resilience and continuity in their supply chain operations.
The COVID-19 pandemic and other recent disruptions have underscored the importance of supply chains, making supply chain risk management a key priority for leaders.
Supply chain risks fall into four main categories—economic, environmental, political, and ethical.
Examples include supplier bankruptcies, natural disasters, political unrest, and ethical concerns, such as sourcing from companies with poor labor practices.
Businesses should use techniques such as supply chain mapping, weighted ranking, value at risk (VaR) analysis, and supplier segmentation to assess and quantify supplier risks.
Mitigating supply chain risks requires diversifying suppliers, refining inventory management strategies, using scenario planning, and strengthening supplier relationships.
Most of the risks that could disrupt your operations fall into four broad categories of supply chain challenges: economic, environmental, political, and ethical:
Economic issues are a supplier going bankrupt, a recession, or a work stoppage at a key manufacturing partner.
Environmental problems include natural disasters, like a flood, earthquake, or drought.
Political risks could be civil unrest or a new leader who implements steep tariffs or puts restrictions on exports.
Ethical concerns include using child labor, forced labor, or sourcing raw materials from a company that fails to give its workers the necessary protective equipment.
These are not new issues, though many of them have become more prevalent. For example, data from international disaster database EM-DAT shows the frequency of natural disasters has steadily increased over the past 20 years. At the same time, concerns that could be broadly classified as environmental, social, and governance (ESG) have come into focus.
Take, for instance, the provenance of products. A growing group of consumers wants to know where goods originated and that they were made with sustainable and ethical practices. Similarly, environmental risks now extend beyond natural disasters to sustainability. If a company is dumping waste in waters or releasing harmful toxins in violation of local regulations, that could lead to a fine or even a forced shutdown.
Modern supply chains are exposed to various risks, from economic uncertainty and natural disasters to cybercrime, labor shortages, and operational issues. Almost 80% of businesses experienced supply chain disruptions in 2024 alone, according to The Business Continuity Institute. Even the smallest slowdown can send ripples throughout a company, creating bottlenecks that can reduce its output, drive up its supply chain costs, and ultimately harm customer experience. Here are 10 risks that businesses must address today to mitigate exposure and achieve supply chain resilience.
The only constant in the global economy is change, and supply chain leaders must adapt accordingly. Economic challenges, such as inflation, recession, and labor shortages, remain significant risks.
