One of the most difficult parts of running a business includes the dependency you have on other people. You depend on your employees to pull their weight and you depend on other companies to help you manufacture, develop, and send out your products. As a result, you need to be acutely aware of possible risks in your supply chain.

Material Shortages

In production there are a lot of moving pieces; one of which is the materials that you need to make your product. If there is a shortage in any part of the materials needed, this could slow your supply chain down greatly. For example, if you are making something that requires a part with a small percentage of copper in it, and there is a copper shortage, you will have to make new plans. You could either wait until the copper shortage resolves itself, or you can try your best to find an alternate material you could use instead. As a result, you are taking a risk by becoming dependent on one material instead of having multiple options.

Excess Inventory

On the other side of the coin, you can also run into issues if you have too much of a product or material instead. This problem arises from over-ordering and poor planning. This also happens when for whatever reason, your customers decide not to purchase your new products. You should also be aware of how much you are wasting during product development. Unfinished products can take up space in your facilities and waste cash. If you find yourself with too much excess inventory, you could have a warehouse sale and sell your products at a discounted price. Being able to make some money off your products is better than making none.

Price Fluctuation

Along with the changes in the economy, you will experience the flow of supply and demand. You cannot control how the market overall goes and because of that, you cannot predict how prices may change in the future. This is a natural and inevitable risk that comes from being in the business world. If prices go down on your supplies, it would be beneficial for you because you will be able to spend less money. However, if the market price goes up for your products, you might lose money because fewer people will want to buy them.

Being able to manage the financial risks that result from depending on a supply chain can be difficult. Still, once you understand what risks are possible, you will also better understand how to prevent them.

Read this next: How to Allocate Resources

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