Supply risk Supply risk is the upstream equivalent of demand risk, it relates to potential or actual
disturbances to the flow of product or information emanating within the network, upstream of
the focal company. Therefore, it company’s suppliers, or supplier’s suppliers being unable to
deliver the materials the company needs to effectively meet its production requirements/demand
forecasts. The reality is that supply risk is almost invariably thought of as ‘failure’ of ‘their’
processes and controls. Most often this is about breakdown, shortage of materials through the
supplier’s chain, quality and rework issues or poor planning and hence committing to unreal
delivery dates. It may be thought that an aspect of this risk arises when the supplier is
unable to meet un-forecast demands placed on it by its customer. This is unreasonable since the
key tests of supply side failure are about whether the demand was accepted by the supplier as
being within the capacity of the company’s supply chain and then whether it met them on time and
to quality. The consequences of supply sidefailure are usually financially debilitating, resulting from
a series of issues including schedule adherence, technical concerns and quality questions.
Typically, the company’s consequences of supply failures will include:
• Loss of output, revenue and profit
• Customer dissatisfaction Another common experience of supply side failure is supplier
bankruptcy or withdrawal from the market.