The supply chain is a complex network of processes and operations that must be well-managed to ensure efficiency, quality control, and cost savings. Unfortunately, operational risks can occur at any stage in the supply chain. It is important for internal auditors, audit officers, risk officers, and other risk professionals to understand these risks so they can take steps to mitigate them.
What are Operational Risks?
Operational risks refer to potential losses or disruptions resulting from inadequate or failed internal processes, human errors, systems failures, or external events such as natural disasters. In terms of the supply chain, operational risks can include mistakes in inventory management; delays in shipping; incorrect information being relayed between parties; theft or fraud; cyberattacks; data breaches; and more.
Identifying Operational Risks
The first step in identifying operational risks on a supply chain is to analyze each step of the process line by line. This means assessing each individual process within the supply chain—from supplier selection to shipment tracking—for any points of failure that could lead to disruption or loss. Additionally, it’s important to assess third-party vendors who may be involved in the supply chain process and identify any areas where they might be vulnerable to cyberattacks or data breaches. Finally, it’s important to assess current technologies used within the organization’s systems and evaluate whether they are sufficient enough to meet customer needs and prevent potential losses due to system failure.
Mitigating Operational Risks
Once potential areas of risk have been identified through an analysis of the supply chain process and third-party vendors/technologies used within it, steps should be taken immediately to mitigate those risks. This could mean introducing new processes that promote accuracy and safety (such as double-checking every order before shipment) or investing in new technologies that are better equipped at preventing system failures/data breaches (such as an advanced security infrastructure). Additionally, organizations should regularly review their processes for weaknesses and update them as needed based on customer feedback/complaints.
Operational risks are an inherent part of any supply chain process—but with proper identification and mitigation strategies in place, these risks can be managed effectively so that businesses can continue providing efficient services with minimal disruptions. By understanding potential sources of operational risk on a supply chain—including mistakes in inventory management; delays in shipping; incorrect information being relayed between parties; theft or fraud; cyberattacks; data breaches—audit officers can ensure their organizations remain compliant with industry standards while also protecting themselves from potential losses due to operational failures down the line.
