Modern supply chains are often complex with a lot of moving parts, and each stage involved in your production flow can affect the performance and success of your business. That’s why supply-chain risk management has never been more important.
With so many stages and suppliers involved in supply chains, disruptions and vulnerabilities can occur at any point. Risks need to be assessed, monitored and managed to avoid disruptions and ensure the performance, compliance and reputation of your business remain intact.
In this guide, we’ll cover everything you need to know about supply-chain risk management, from what it is to why it’s important and how you can effectively mitigate supply-chain risks.
What Is Supply-Chain Risk Management?
Supply-chain risk management is part of the wider process of supply-chain management, which involves managing the entire production flow of your business. It’s the process of identifying risks in your supply chain, assessing the likelihood and severity of these risks and taking strategic steps to eliminate or control them.
Supply-chain risk-management strategies should be worked into your business’ policies, procedures and operations — and those of your suppliers. This can help you ensure risks are controlled and that compliance is maintained throughout your entire supply chain.
The Importance of Supply-Chain Risk Management
Every supply chain faces risks that could have dire consequences for your business, your suppliers, your workers and even site visitors and members of the public. There are many reasons why you should be prioritising risk management, including the following:
Prevent Supply-Chain Disruptions
When risks are realised, they can cause disruptions to your supply chain. You may need to cease operations temporarily while issues are resolved. For example, if someone is injured on-site you may need to pause work while you identify the cause of the incident, ensure it is safe for work to continue and potentially find suitable workers to cover those injured.
Risks affecting the flow of goods or the availability of services can also bring operations to a halt. For example, financial difficulties, temporary travel or trade restrictions, health and safety incidents and even natural disasters are all factors that could prevent your suppliers from being able to fulfil orders.
When you have effective risk-management strategies in place, you should have a plan of action already prepared to ensure business continuity in these instances. This might involve alternative suppliers, a safety stock inventory or alternative facilities and equipment.
How you respond to supply-chain disruptions will depend on the type of disruption and the severity of it. The goal, however, remains the same: to prevent business operations and performance from being disrupted or to get things back up and running as quickly as possible after a major disruption.
Respond Quickly to Unexpected Events and Disruptions
Most of us can think of a brand or two that took an incredibly long time to respond to a major disaster. Failing to respond quickly to events or disruptions — like data breaches or corruption scandals — can scar a business’ reputation and make the situation far worse. That’s why supply-chain risk management is important. Risk management can help your business prepare for the worst so that, if unexpected disruptions do happen, you can respond quickly and prevent them from affecting your business’ reputation, profitability and performance.
Keep People Safe during Business Operations
Health and safety is one of the most important areas of risk management. You’re required to protect workers, site visitors and members of the public from harm and ill-health when carrying out business activities.
Through hazard identification and management, you can make sure people are kept safe. You can prevent your business from being held legally responsible for injuries or adverse health effects sustained by those on or around your work site.
Achieve Supply-Chain Compliance
There are several risk-management laws and regulations your supply chain needs to comply with — including the Health and Safety at Work Act 1974, the Bribery Act 2010 and the Modern Slavery Act 2015 to name just a few.
Part of supply-chain risk management is ensuring compliance with all relevant legislation. This can protect your business from compliance risks and legal liabilities.
Safeguard Your Reputation and Profits
Any business that doesn’t effectively manage risks throughout its supply chain will be vulnerable to reputational damage. This can lead to a drop in profits as clients and customers take their business to more reputable suppliers. A damaged reputation can also make it difficult to find talent — people want to feel safe and secure at work, and a company that has been publicly shamed for poor risk management is unlikely to offer them that.
By prioritising supply-chain risk management, you can safeguard your business against reputational damage and the negative effects that come with it. You can protect workers from harm, build a glowing reputation and create a company culture that attracts clients and talented workers.
Key Steps to Supply-Chain Risk Management
Now that we’ve covered the importance of supply-chain risk management, how can you go about reducing supply-chain risks?
There are three main steps involved in risk management:
Risk Identification
To manage risks, you need to know what hazards and risks are present in your supply chain. There are many different types of risks you should consider during this stage. These include health and safety risks and risks relating to finance, reputation, fire safety, the environment, sustainability, corruption and modern slavery, cybersecurity and natural disasters.
Risk Assessment
Once you’ve identified the risks relevant to your supply, you need to assess how likely they are to occur, how serious the consequences will be and what impact risks can have on your business. This is because, when you move onto the next stage, you’ll need to implement control measures proportionate to the level of risk being considered.
Risk Mitigation
Risks need to be eliminated or managed, so this stage can include planning and implementing control measures and putting action plans in place for potential scenarios — what to do in the event of a supply-chain disruption, for example.
Monitoring And Response
Risk management doesn’t end once mitigation strategies are in place. Risks evolve, and new threats can emerge suddenly. That’s why monitoring is critical. This involves:
- Regularly reviewing supplier performance and compliance.
- Tracking changes in regulations, trade agreements, and market conditions.
- Monitoring geopolitical, environmental, and cyber risks.
- Establishing rapid response plans for when disruptions occur.
By continuously monitoring your supply chain and having clear response strategies in place, you can adapt quickly to unexpected challenges and protect business continuity.
Common Risks In Supply Chains
Every supply chain is vulnerable to certain external and internal risks. Understanding these will help you build stronger risk-management strategies. Common risks include:
- Geopolitical Events: Trade disputes, sanctions, conflicts, or political instability can disrupt supply routes and increase costs.
- Cyberattacks: Supply chains are increasingly digital, making them a target for ransomware, data breaches, and IT system failures.
- Natural Disasters: Floods, earthquakes, fires, and severe weather events can halt production and transport.
- Regulation Changes: Shifts in laws and compliance requirements (e.g., sustainability standards or labour laws) can impact supply chain operations.
- Supplier Failure: Financial instability, poor performance, or sudden closure of a supplier can break links in your supply chain.
By anticipating these risks and integrating them into your monitoring and mitigation strategies, your business will be better prepared to respond quickly and effectively.
Every supply chain will have unique hazards and risks to consider and control, so the control measures and risk-management strategies you use should be unique to your business. You can read our article on strategies to reduce supply-chain risks for specific examples of how to protect your business from risks and disruptions.
At CHAS we offer a range of supply-chain risk-management services that are completely free to our clients. All you need to do is sign up for a CHAS client account and you can start accessing them straight away!Alternatively, you can become a CHAS contractor and gain access to industry-leading accreditation schemes and risk-management resources — including training modules, risk-assessment templates, business shield support and more.
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