Industry Supply Chain Risks: The Biggest Known Risks

Industry supply chain risks pose significant challenges to businesses, encompassing the potential disruptions and vulnerabilities within the intricate web of global production and distribution networks.

Which industries have the biggest risks in their supply chain? Some candidates.

Many industries have huge risks in their supply chains. The unambiguous all-encompassing SCRM as unique does not really exist, each sector has its own SC(R)M, but many steps in the SCM affect the transport sector. Many risks affect the multiple supply chains there. That is why we are talking extensively about risks in the automotive sector and aviation as examples of SCRM in the transport sector. We also touch on some other industries.

In this post I write my own opinion, not that of any organization.

Discover practical insights into risk mitigation and resilience strategies, essential for navigating the complexities of today’s interconnected business landscape.

Which industries really have problems due to their supply chain, or are at the root of problems in the supply chain?

These industries face a variety of challenges, and their risk management is essential to increase supply chain resilience. The approach often involves diversifying and partnering with suppliers, investing in technologies, and planning, implementing risk management strategies.

Brief review of these five sectors

Supply chain risks can vary depending on the industry. Some of the industries with significant supply chain risks and the associated risks include:

Automotive industry

Sources of problems in the automotive SCRM

Electric vehicle (EV) technology: 

The transition to EVs involves developing and managing new supply chains for novel batteries, electric motors, etc. Challenges include having raw materials for batteries (such as lithium and cobalt), creating new production lines, and changing existing supplier networks to accommodate EV-specific components. After all, they are of a completely different type of technology.

Development of digital technologies: 

The new digital technologies such as IoT (Internet of Things), AI (artificial intelligence), and automation bring new risks. Such as cyber threats (hacking, taking control…), data breaches, etc. when integrating these technologies into the supply chain.

Financing risks:

Fluctuating interest rates, investments in EV technology, etc. involve financial risks. For example, due to the speed at which technology is changing, the customer’s interest is also changing. This reliance on finances and economic and market conditions can impact sustainability and expansion plans.

Container shortage:

Disruptions such as container shortages or problems due to increased demand or logistical bottlenecks, impact the supply chain, cause delays, increase costs and potential production disruptions. As a result, the JIT principle may no longer be applicable.

Loss of customers:

Consumer needs and market requirements are changing rapidly. Failure to meet new consumer demands can result in a loss of market share, impacting revenue, profits, potential profit margins, and reputation.

Trade wars:

Tariffs, trade disputes, or geopolitical tensions create uncertainties and ambiguities that disrupt supply chains. Introducing these to the sourcing of raw materials, components can result in higher costs, delayed shipments, and changes in market access.

Import delays:

Delays or restrictions on imports due to regulatory changes or other factors can disrupt production and affect the efficiency (speed) and effectiveness of the supply chain.

Semiconductors and chips:

Modern vehicles rely heavily on microprocessors for various functionalities. Chip shortages during Covid19 were caused by the gaming industry, among others, due to increased demand due to lockdowns. This has led to production delays of vehicles.

Operational risks and resources:

Challenges to workforce management, supplier reliability, the occurrence of production downtime, the quality controls performed, and the difficulties of resource management, impact operational efficiency and effectiveness. These led to delays and increased costs.

Digitalization in supply chains:

Digitalization makes a lot error-free and customization easier, but it also comes with risks. For example, for cybersecurity, data privacy, system failures… In addition, there is the need for constant technological upgrades and training for employees.

Supply chain:

Dependency on multiple suppliers for each of different parts and materials can prevent disruptions in the event of shortages at one of them.

Transportation:

Delays in transportation and logistics, import/export tariffs… may disrupt production.

Managing these risks requires multiple suppliers per product, implementing effective risk management strategies, technological resilience, flexibility in supply chains, and a culture of collaboration with suppliers to ensure continuity. A driven supply chain risk management cycle with contingency plans is therefore crucial.

Aviation industry

Top 10 Problems of the Aviation Industry in 2023 According to SATAIR.COM:

1. The coronavirus is returning (or something else is coming along)
2. Geopolitical instability
3. A constricted supply chain is slowing down the sector’s recovery
4. Jet fuel prices put financial pressure on airlines and travelers
5. The widebody market never fully recovers
6. Business travel has changed forever (e.g., due to online meetings)
7. The Industry Is Failing to Attract and Retain Much-Needed Talent
8. Changing public opinion reaches a tipping point
9. A Global Recession Slows Travel Demand
10. Governments May Not Bail Out Airlines Again

Possible common causes of airline problems

Aircraft maintenance

Inadequate maintenance and failure to adhere to maintenance schedules can lead to mechanical failure. This quickly causes incidents that endanger the safety of the aircraft.

Procurement of spare parts

Incorrect procurement or the use of counterfeit parts will jeopardize flights.

Software procurement

Relying on inadequate software or inadequately tested software with bugs can impact flight systems, communications, and logistics processes. Exposing airlines to cyber risks.

Receiving catering service

Inadequate hygiene, misuse of tools or contamination etc. in food safety leads to health risks. This can lead to emergencies.

Ground handling

Inefficient or ineffective ground handling procedures can result in delays, damage to aircraft, or unsafe conditions. These include boarding, disembarking, baggage handling, catering delivery, fuel provision, etc.

Aircraft receipt and delivery

Delays or issues in the aircraft delivery supply chain can disrupt the airline’s continuity.

Personnel training offerings

Insufficient or inadequate training for crew, ground staff, and maintenance personnel can lead to errors and accidents.

Finance

Influences on the application of safety standards and necessary upgrades include financial instability, mismanagement, or economic downturns.

Business Continuity Management (BCM) Risks during pandemics

During a pandemic, human risks (staff shortages due to illness or quarantine), building risks (lack of adequate sanitation or space for social distance), facilities risks (inability to adapt to new health protocols), information risks (handling sensitive health data) and cyber risks (maintaining cybersecurity during times of working remotely) become prominent. They have disrupted normal operations during Covid19.

Mitigating these risks includes implementing safety protocols, inspections, training programs, supply chain management strategies, financial planning, and contingency plans to ensure continuity during various contingencies. Regular audits and Kaizen are essential to minimize these risks in the aviation sector.

Pharmaceutical industry

Regulatory risks

New regulations and compliance issues can lead to delays in FDA approvals and product launches by the firm.

Quality control

Poor quality of ingredients and manufacturing processes can cause production interruptions.

Logistical challenges

Essential and time-sensitive products require meticulous logistical planning to avoid or minimize delays.

Technology Industry

Dependency on parts

depending on specific scarce components or on parts that require a long production time can threaten the continuity of the company’s own production.

Cybersecurity

Data breaches, hacks, and cyberattacks can seriously damage one’s own production, own delivery, suppliers’ production, and reputation.

Short product lifespan

Rapid technological innovations deliver new customer requirements and require a constant flow of new products, which poses challenges of delivery times.

Food industry

Seasonality and weather

Climatic conditions can affect the harvest. Therefore, leading to shortages or increased prices of raw materials further down the food chain.

Food safety

At best, contamination of food only leads to product recalls and hopefully no loss of confidence among consumers.

Logistical complexity

Products with a limited shelf life require precise and efficient logistics to minimize spoilage. This is often done with cooling from production to sale to the end customer. Due to the contamination risk, this cold chain should not be interrupted.