In this article, learn about:
What supply chain risk management is
What risks you may encounter in your supply chain
How to create a risk management plan
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The principle of supply chain risk management centers on maintaining a consistent flow of the materials required to make or sell a product. Whether a company manufactures complex industrial goods, like cars, or operates a smaller business selling hamburgers, its success depends on components provided by other companies, like engine parts or hamburger buns.
If supplier deliveries are unexpectedly disrupted, production can come to a halt. After all, it’s difficult to serve hamburgers without the buns. These concerns have led to the development of strategies and best practices for managing supply chain risks across industries. Regardless of size, all businesses must address the possibility of supply chain interruptions.
Identifying where a supply chain is most vulnerable is the first step. It’s also important to recognize that risks can come from both expected and unforeseen sources. Once vulnerabilities are identified, businesses can begin building a risk management plan. These plans typically include actions such as collaborating closely with suppliers, diversifying material sources, establishing a robust and flexible transportation network, and implementing continuous monitoring processes.
What is Supply Chain Risk Management?
Supply chain risk management is the planning and execution of strategies that reduce exposure to disruptions across a business’s supply network. That includes everything from sourcing raw materials to delivering finished goods to retail shelves. The goal of supply chain risk management is not just to prevent problems, but to build resilience so the business can recover quickly when disruptions occur.
At its core, supply chain risk management is about visibility and control. The more a business understands where its products come from, how they move through the supply chain, and what factors could interrupt that movement, the better equipped it is to respond. Risk management plans can vary by business type and industry, but the principles are the same: map out the risks, prioritize them, and take action to reduce their impact.
What Supply Chain Risks Do I Need to Manage?
Every supply chain is exposed to different types of risk depending on its size, scope, and structure. While some risks are specific to a region or vendor, others—like transportation delays, tariff changes, or global pandemics—can affect the entire network. Some of the most common sources of risk are:
Geopolitical Risk: Changes in trade agreements, political instability, sanctions, or conflict can create serious challenges for sourcing and transport. For example, tariffs on imported goods can increase costs or delay shipments as suppliers adjust to new regulations. If you're sourcing materials from overseas, it's important to understand how international trade policy can impact your operations.
Related Reading: How Do Tariffs Affect Your Suppy Chain?
Environmental Risk: Natural disasters like flooding, hurricanes, and wildfires, especially as climate change makes these events more likely, can halt production, delay transportation, and cause damaged inventory. As climate patterns become more volatile, businesses must account for weather related disruptions, especially if key suppliers or facilities are located in high-risk areas.
Operational Risk: Manufacturing issues, inventory imbalances, bottlenecks, poor quality control, or breakdowns in internal processes can lead to delays or inaccuracies in order fulfillment. These are often preventable but require consistent monitoring and strong internal controls to manage.
Supplier Risk: If a supplier shuts down unexpectedly, changes their lead times, or falls out of compliance, it can halt production. A supplier’s financial health, labor conditions, or even IT infrastructure can all become points of failure. Building visibility into your vendor network is key to minimizing this risk.
Related Reading: What is Lead Time and How Does it Affect Retail?
Transportation and Infrastructure Risk: Port congestion, carrier shortages, and infrastructure failures—like bridge closures or airport delays—can significantly affect delivery timelines.
Cybersecurity and Data Risk: Modern supply chains rely heavily on digital systems to process orders, transmit data, and monitor logistics. That makes them vulnerable to ransomware attacks, data breaches, and EDI errors. If your systems go down, it can stop shipments before they even leave the warehouse.
How Can I Make a Supply Chain Risk Management Plan?
An effective supply chain risk management plan starts with visibility. Businesses should first map out their supply chains in detail, from raw materials and main suppliers to distribution centers and retail delivery. This includes identifying third party logistics providers, freight partners, and software vendors.
Risk mapping involves drawing out each step of the supply chain from source to manufacturer to warehouse to retailer. It’s a project that should extend, not just to the sources that you directly deal with, but to the source of your sources as well. The reason for going back to the source of the products is that any interruption to any of the links will reverberate to the top. Thus, risk maps are often global in scope, stretching to distant corners of the world.
Once the supply chain is mapped, the next step is risk assessment. This involves asking key questions:
Where are the most vulnerable links in your supply chain?
Which regions or suppliers are high-risk due to weather, politics, or economic volatility?
Do you have backup plans if one or more suppliers or routes becomes unavailable?
From here, businesses can prioritize risks based on likelihood and impact. High-risk items—such as a sole-source component with a long lead time—should have contingency plans in place. Lower-risk items may only require monitoring. The goal is to focus resources on the areas that could create the most disruption.
After risks are identified and prioritized, the next step is action planning. This includes implementing redundancies, negotiating more flexible contracts, expanding supplier relationships, and improving internal processes to speed up response times. The plan should also outline what actions to take during a disruption and who is responsible for executing them.
How Can I Manage Supply Chain Risk?
Reducing risk in your supply chain isn’t a one-size-fits-all process. Every business has its own unique network of suppliers, logistics partners, and fulfillment requirements. That said, there are several proven strategies that can help minimize risk and improve supply chain resilience—regardless of business size or industry.
One of the most effective ways to reduce risk is to build stronger relationships with your suppliers. Open communication allows you to detect early signs of trouble—like production delays, compliance issues, or capacity constraints. When suppliers feel like strategic partners, not just order takers, they’re more likely to keep you informed and collaborate on solutions. In fact, improving your vendors' own risk management capabilities can indirectly reduce your risk as well.
It’s also important to avoid putting all your eggs in one basket. Relying on a single supplier—or even a single region—can leave your supply chain vulnerable to unexpected shutdowns, labor strikes, or geopolitical disruptions. Diversifying your sourcing strategy and building relationships with multiple vendors gives you options in the event that one source goes offline.
Transportation is another commonly overlooked area. If your supply chain relies on one port, one carrier, or one specific route, a single disruption—like a weather event or infrastructure failure—can grind your operations to a halt. Build transportation flexibility into your plan by working with multiple carriers and exploring different shipping modes to keep things moving.
In some cases, carrying safety stock may also make sense—especially for high-priority or hard-to-source items. While excess inventory comes with holding costs, a small buffer can help bridge short-term gaps without affecting store-level availability or performance scores.
Lastly, it’s important to regularly stress test your supply chain. Conducting scenario planning—running “what if” exercises based on real-world risks—can help your team identify weak spots and develop contingency plans in advance. What happens if your top supplier shuts down? If a carrier misses MABD windows? If a warehouse goes offline for a week? Answering those questions now can save time, money, and customer trust later.
At the end of the day, the most resilient supply chains are built on a foundation of collaboration, flexibility, and foresight. No plan will eliminate risk entirely, but with these tools and strategies in place, suppliers can significantly reduce the impact of disruptions—and recover faster when challenges arise.
Supply Chain Risk Management and SupplyPike
Finding pain points in your supply chain can be challenging. That's why we created the compliance solution at SupplyPike with data-driven, actionable insights. Track your carriers, your manufacturers, and your items’ flow to help create a risk management plan.
Schedule a demo with the team today!