Supply Chain Risk a Threat to Business

Aug 12, 2016

Supply chain management is key in order for a company to run smoothly and provide customers with the products they are seeking. Knowing which contractors are supplying materials or products and how they're getting where they need to be is essential in managing a complex supply chain and avoiding unexpected risks.

Unfortunately, it's not always simple to keep an eye on material and service suppliers and ensure everything is running exactly as it should. Problems can arise, seemingly out of nowhere, and develop into serious supply chain disruptions that can throw production off schedule, result in product shortages, and cause revenues to drop.

Managing the risk of a large supply chain

When a business is working with contractors, especially contractors that offer specialized expertise or services, it's critical to ensure the company is prequalified before agreeing to a business arrangement. When a company fails to look into its potential business partners, it takes a huge risk that has the potential to disrupt its smoothly running supply chain.

Contractors that aren't prequalified against the hiring company's safety and risk criteria could be engaging in illegal practices that may shut down its operations entirely. A company that hires a contractor without vetting the firm may find that the business could be unexpectedly shut down due to noncompliance with government or industry regulations. This leaves the organization that hired the supplier in a bad position — it needs to find a new contractor to do a very specific job, and if it can't do so quickly, the company's supply chain risks product shortages or service disruptions.

Similar problems can occur if a company isn't prepared for unexpected events when working with a supplier. Natural disasters or terror attacks could knock a contractor's business offline, which could present a large problem for the hiring corporation.

Reducing the risks

Managing a supply chain, especially one that reaches across the globe, can be a challenge for many businesses. However, it's essential to properly manage the risks associated with hiring a contractor and ensure supply chain operations will run smoothly after hiring a new supplier. While risks can't be eliminated entirely, there are things a corporation can do to lessen them. A company can choose to investigate its contractors beforehand — a small step that can hugely reduce business risk and prevent unexpected supply chain disruptions.