Submitted on Tue, 2014-08-12
By Jim Laverty

Protect your company’s reputation and financials by planning for these six supply chain threats.

6 Threats That Can Destroy Your Supply Chain's Revenue

As your company’s supply chain becomes larger and more complex, the number of threats it faces always seem to increase. Your ability to mitigate those threats and minimize the financial risks your businesses face plays a major role in your ability to thrive as a company. Supply chain disruptions can bring your business to a halt and lower customer satisfaction, with IndustryWeek finding that “major supply chain disruptions have been found to cut the share price of impacted companies by 7% on average.” You need to work hard at building resilience in your supply chain in order to overcome each of these threats to your profitability:

1. Supply Chain Threat — Cost Volatility

The final retail price the consumer pays can be affected by the variable costs for each part or material that plays a role in its production. From dependence on the oil to fluctuating costs of raw materials depending on the season, unpredictable costs can cause major disruptions in your supply chain.

A recent example of this supply chain threat:

  • The pork industry is currently facing a huge disruption to to the deadly Porcine epidemic diarrhea virus (PEDv). With no known cure and a near 100% death rate for young piglets, more than 7 million piglets have died from the disease in the US in the past year, causing pork prices to skyrocket. Every company that uses pork for its products has to raise their prices as a result.
     

2. Supply Chain Threat — Labor Issues

Labor is the largest variable cost within a warehouse. Changes in worker wage agreements or increases in the minimum wage level can send the cost of products skyrocketing. A strike or other significant work stoppage can happen at any time, and bring your supply chain to an absolute halt.

A recent example of this supply chain threat:

  • A dockworkers strike on the west coast in early July had the potential to cost the US economy billions of dollars per day. Roughly 40% of cargo entering the country would’ve been impacted, significantly disrupting companies that export products and parts from overseas.
     

3. Supply Chain Threat — Cyber Security

Preventing cyber threats to your company may take some extra money, but it far outweighs the costs and reputational damage of getting hacked. From your brands being damaged in consumers’ minds, to huge financial losses, and executives losing their jobs, non-compliance can have a huge impact on a company. Every relationship with your business along the supply chain needs to be vetted to ensure security.

“Security pros con­sider the sup­ply chain a criti­cal se­curi­ty risk — rank­ing with the clas­sic employee in­sid­er at­tack and the tra­di­tion­al hack, where an out­sid­er fer­rets a hole in a com­pany’s fire­wall. In the mod­ern world, busi­ness-to-busi­ness con­nec­tions are the weak­est link. The first thing an at­tack­er will do is look at who you do busi­ness with.” - Minneapolis Star Tribune

A recent example of this supply chain threat:

  • Target was the victim of a high profile hacking event that saw the personal information of 110 million people stolen. The threat was a direct result of relationships Target had built along its supply chain. By using credentials stolen from a refrigeration contractor that had access to Target’s system, the hackers were able to work their way to stealing a treasure trove of personal info. Target’s profits dropped by 46% compared to the same quarter the year before, the company had to spend $100 million upgrading their security, and experienced untold reputational losses. Even credit card companies were impacted, and had to spend $200 million to reissue new cards.
     

4. Supply Chain Threat — Legislation & Compliance

Supply chains are required to be more compliant to environmental and safety laws than ever before. The FDA and EPA, amongst many other agencies, can fine businesses heavily for failing to comply with strict laws. Businesses have to worry about legislation abroad too if they want to produce or sell their products there. An ingredient that may not be labeled toxic in the USA, may be toxic in Canada, for instance.

A recent example of this supply chain threat:

  • Over the first four months of 2014, more than 650 companies were fined by the Chinese government in Beijing for excess pollution. The more expensive it becomes to produce in China, the more expensive products will become around the world due to the added supply chain costs.
     

5. Supply Chain Threat — Man-made Disruptions

Political unrest, chaos, and war can have a remarkable impact on your supply chain, changing shipping routes and even keeping parts and products from getting to where they need to go.

Some recent examples of this supply chain threat:

  • The recent violence in the Ukraine, and tragic downing of a Malaysian Air flight, has lead many airlines to significantly alter their flight routes around the country. This is leading to higher ticket prices and transportation costs for distributors.
     
  • DC Velocity recently ran a feature about the threats your material handling equipment may face. Through both theft and a lack of supply chain visibility, millions of dollars worth of pallets are leaking from the supply chain every year.
     

6. Supply Chain Threat — Natural Disruptions

Hurricanes, tornadoes, earthquakes, flooding, and everything in between can be a major destructive force on supply chains. Natural disasters can strike without notice and takedown significant areas within a company’s supply chain, bringing production to a halt.

A recent examples of this supply chain threat:

  • In 2011, massive flooding in Thailand destroyed more than 1,000 factories that create vital parts for computers, especially hard drives. The world’s largest producer of hard drives had to shut down 75% of its production, and computer companies all over the world didn’t have the supply to meet demand. The flooding’s impact was felt for more than a year and a half.

 

Learn More About Running a Profitable Supply Chain

Learn more about building a resilient supply chain to minimize the financial impact of these threats by exploring some of our other blog posts and by giving our experts a call to talk about running a more profitable supply chain.

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