The 7 Types of Supply Chain Risk and How To Tackle Them

Introduction

Modern supply chains are under constant pressure, and supply chain risk often lands on the desks of procurement, compliance and risk professionals. If you have ever spent your morning trying to fix a late shipment or explain a sudden cost spike to your CFO, you know how challenging this can be. You are not alone. Recent research shows that almost 80% of organisations faced supplier disruptions last year. Every surprise, from a delayed delivery to a regulatory fine, becomes your problem to solve.

The good news is that understanding the seven main types of supply chain risks can make your job quite a bit easier. After all, managing a risk starts with naming it. A 2024 analyst report on supply chain statistics found that the top cited third-party risks are operational issues, cyber incidents, and compliance failures. In this blog, we explain seven key types of supply chain risks, how to spot them early, and how to stay in control. By the end, you will feel ready to face future risks, instead of constantly playing catch-up.

What Supply Chain Risk Means in Practice

Supply chain risk shows up in everyday work. It might be the supplier who misses a deadline because their factory is short-staffed, leaving you or your colleague to explain delays. It might be the email about a sudden price increase on a critical component that throws off your budget. Or it might be the third‑party contractor who repeatedly forgets to send a compliance document. These are the late documents, surprise costs and last‑minute problems that stop things running smoothly.

In simple terms, supply chain risk is the chance that a supplier or partner will not deliver as expected, causing problems for you. These risks can come from their internal issues or from external shocks. For procurement and compliance teams, this often means extra stress, rushed decisions and difficult conversations. Knowing what supply chain risk looks like in day‑to‑day work helps you spot trouble early before it escalates.

The 7 Types of Supply Chain Risks You Should Know

Supply chain threats come in many shapes and sizes. Broadly, they can be grouped into seven major risk types. Let’s introduce each and see how they play out in real life, along with some tips on how to tackle them. As we go through them, you might recognise

1. Operational Risks

These are issues in day‑to‑day processes. A supplier with high staff turnover might send incorrect orders due to the constant onboarding of new employees. A key contact going on leave might cause shipments to sit idle if the handover is not planned properly. These problems are on the side of the supplier, but they lead to negative consequences for you. You feel the impact immediately: delays, shortages and stress. According to an industry survey on third-party risk statistics, operational failures are one of the most common third‑party risks.

Tip: Set clear SLAs (Service Level Agreements), have backup contacts, review performance regularly, and work on “what-if” scenarios to stay prepared.

2. Financial Risks

These relate to the financial health of your suppliers and economic factors. A classic example is a supplier going bankrupt or facing cash flow problems. Currency swings or commodity price changes can raise costs overnight, thus also falling under the category of financial risks. After all, a sudden change in exchange rates could make your costs skyrocket overnight. Picture this: a small parts supplier that you rely on collapses financially. Suddenly, you’re left scrambling to find an alternative while your production line is on pause. EU data on the cost impact of supply interruptions shows that supply interruptions can cost companies millions in lost revenue.

Tip: Run financial health checks, diversify your suppliers and set up credit monitoring alerts. Make sure that a single supplier’s money troubles don’t become your crisis.

3. Geopolitical Risks

Geopolitical risks are external shocks caused by political and economic events around the world. What may seem like another news article for one, can mean supply chain problems for you. Trade restrictions, tariffs or sanctions can make sourcing difficult or more expensive. Political conflicts or instability fall into this category as well. The war in Ukraine didn’t simply affect the region; it also disrupted supplies of everything from grain to neon gas, which is used in chips. Political instability can block supply routes or even completely stop production. A survey of European shippers in late 2024 found that over 80% viewed geopolitical instability as the biggest potential disruptor to their supply chains. The impact of geopolitical risk can range from higher costs due to tariffs to a complete stoppage if a region becomes off-limits.

among the most common third-Tip: Keep an eye on the news to stay aware of risks. We recommend using a tool to help you with this. Spread suppliers across regions, and qualify backup suppliers before you need them.

4. Environmental, Social & Government Risks

ESG is more than just a trending topic. Natural disasters and climate events can shut down facilities or block transport. Floods, storms and droughts are more frequent now due to climate change. Social risks include unsafe labour practices, human rights violations or poor working conditions in your supplier’s operations, all of which can lead to reputational harm and legal issues. Governance risks arise when suppliers lack proper oversight, transparency or ethical standards, which can result in fraud, corruption or non‑compliance. Environmental compliance failures can also close a supplier’s operations. For example, a supplier could be caught dumping waste illegally, leading to them being shut down, which in turn disrupts your supply chain.

Tip: Map the locations of critical suppliers, assess their sustainability reports and labour standards, and review their governance structures to ensure they align with your organisation’s values and compliance needs.

5. Compliance and Regulatory Risks

Failing to meet legal or industry requirements can cause delays, fines or worse. Data protection laws such as GDPR affect how you handle supplier data. Other, more industry-specific regulations may require your suppliers to have specific certifications. The EU’s Digital Operational Resilience Act (DORA) makes third-party risk management a legal obligation in the financial sector, and NIS2 requires essential industries to secure their supply chain against cybersecurity threats. Failing to comply can mean hefty fines or sanctions, as well as potential damage to your reputation. Nobody wants a regulator knocking on their door, asking for proof of supplier compliance that you don’t have.

Tip: Build compliance checks into onboarding, keep certifications up to date, monitor relevant laws (e.g. DORA, NIS2, CSRD), and make sure that your suppliers adhere to them.

6. Cybersecurity Risks

Over the recent years, the security risks in the supply chain have exploded in prominence. A supplier’s or your weak security can become a major problem. With so much data and system connectivity, a breach in their systems can expose your data or disrupt your services. In practice, this may look like a software company unknowingly supplying you with a product that has been infected with ransomware, but it can also be as simple as a vendor getting phished and the attackers using that info to get into your network. At the same time, a ransomware attack can halt production when it hits one of your suppliers, and if you're the one being attacked, it may even lead to your customers being unable to receive your products or services. The latest statistics on third-party breaches show that 74% of organisations consider third‑party data breaches their top concern. This is very justified when you consider that your suppliers can be used against you during a cyberattack to extort or shut down your business.

Tip: Limit the access and data you share, assess vendor security controls, include incident response clauses in contracts, require certain standards or certification (e.g. ISO 270001, SOC2) and monitor your vendors continuously.

7. Reputational Risks

Reputational risks in the supply chain are essentially guilt by association. If a supplier acts unethically or fails badly, your brand can suffer. A scandal in your supply chain can become front-page news and harm your brand overnight. Poor labour practices, scandals or repeated quality issues reflect on you. The impact of reputational risk is often a loss of customer trust, investor confidence and market value. A recent supply chain report highlights reputational damage as a growing concern for companies managing complex supply chains.

Tip: Vet suppliers carefully for practices and values, monitor news about them, and include clauses that allow audits or require certain standards, like a code of conduct, in contracts.

Spotting These Risks Before They Escalate

Now that we’ve covered the seven risk types, the next challenge is early detection. How do you spot these risks before they turn into full-blown emergencies? Here are some habits that can help you catch signals before they become full-blown issues:

Ask simple questions regularly: Build a habit of asking questions like “Is this supplier financially stable?” and “Do we have an alternative for this supplier?”. Simple check-in questions can help surface concerns.

Watch for warning signs: Big problems usually don’t show up unannounced. Are deliveries gradually getting slower? Do you notice a lot of staff changes, unusual discounting or missed SLAs? News alerts are your friend as well. Hearing about political unrest in a country where one of your key suppliers operates? That’s a geopolitical risk right there. A country bracing for a hurricane or talking about climate regulation? Those are some environmental and compliance risks to keep an eye on. Stay curious and observant.

Use data and tools for insight: Monitor regions where your suppliers operate. Build a basic risk dashboard tracking key metrics or indicators such as on-time delivery, credit scores, and compliance status. The idea is to have a quick view of who’s green, yellow or red on your risk radar. That way, you can focus on your most critical vendors first. The earlier you catch a change or an anomaly, the more time you have to respond.

Prioritise what matters: You can’t monitor everything at all times. So, the key is to identify your critical suppliers and the biggest risk areas so you can focus your early-warning efforts here. You may opt to set up more frequent check-ins or automatic alerts for those. On the other side, a low-risk supplier probably doesn’t need the same level of monitoring.

Practical Ways to Manage Risks Day to Day

Standardised risk checks:

Use a standard checklist for onboarding new suppliers covering capacity, finances, compliance and cybersecurity. This way, you catch potential issues before signing a contract and save yourself a ton of pain later.

Tier suppliers:

Segment suppliers by risk level and review high-risk ones more often. In doing so, you apply your attention proportionally, not wasting time on low-risk suppliers and enabling yourself to stay prepared for the truly critical stuff.

Playbooks for common issues:

From late shipments to price changes, these playbooks help your team know what to do. Having predefined action steps for common issues prevents panic and instead enables your team to act based on a clear guide.

Continuous improvement loops:

‍After any disruption, review what happened and update your processes. What caused it? Could we have seen it coming or prevented it? What can we do so it doesn’t happen again?

Tools and automation:

Use reminders and tools to track supplier updates and reduce surprises. While some may set up something like news alerts for supplier names to catch anything, we recommend a dedicated third-party risk management system that helps you get a holistic view of your supply chain risks and act on them. This way, your data is secure, and you can initiate follow-up steps from within a singular platform, allowing you to instantly tackle any issues that come your way.

The foundation of good third-party risk management is due diligence. We recently wrote a blog that covers the best practices for screening and due diligence. We recommend giving that a read if you want more in-depth advice on how to tackle vendor risk management in practice.

Bringing Third‑Party Checks into Your Workflow

Due diligence is not a one‑off task. Set regular reviews for critical suppliers and tie these checks to contract renewals or new services. Use third‑party monitoring tools or alerts to catch sanctions or lawsuits early. Make sure your team knows that due diligence is ongoing. For more advice, see our due diligence blog and framework overview.

Conclusion

Supply chain risk comes in many forms, but by knowing these seven types, you can plan ahead. Operational, financial, geopolitical, environmental, compliance, cybersecurity, and reputational risks each have clear warning signs and steps to manage them so that your supply chain is resilient and you are in control. Don’t be shy about leveraging tools, embedding checks and using safeguards for daily work.

As a next step, consider learning even more about the latest best practices and data on third-party risk. Download our free whitepaper: Essential Third-Party Risk Management Insights. It’s a great resource to help you build or refine your risk management framework. Think of it as a blueprint to strengthen your approach.

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