When we refer to man-made risk, we are talking about disasters that have an element of human intent or negligence, as opposed to natural disasters which are unavoidable and occur naturally. Man-made hazards might be the result of crime, arson, civil disorder, terrorism, war, biological/chemical threat, strikes, labor disputes and more. These issues can affect direct suppliers, but they can also occur anywhere throughout the supply chain, e.g., sub-tier suppliers, shipping and other logistics service providers.

Man-made risk categories can overlap with other risk categories (for example, cyber and reputational) because man-made focuses more on the cause than the consequences.

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What causes man-made risk?

Man-made issues are the result of human action or inaction. But sometimes they can also be the result of pure bad luck rather than negligence, ignorance or deliberate action. Recent examples include the Evergreen becoming stuck in the Suez Canal and the collapse of a bridge in Baltimore due to a collision with a ship that lost power because a crew member accidentally closed an inline engine exhaust damper.

Of the risk types we’ve described, Reputational, Financial, Natural Disaster, Cyber and Geo-political, man-made risks are perhaps the hardest to predict. It’s possible, for example, for a business to be vigilant, see signs of a labor dispute and take action to make sure that doesn’t transpire into a full-scale factory walk-out, but more often this type of risk event comes as a surprise to the supplier and its customers. So for the buyer, that means they must engage in contingency planning up-front and keep close communications with suppliers to make sure the information about the event is received as early as possible so that they can respond as early as possible to pre-empt as much damage as they can.

How man-made risk affects your business

Man-made risk can have many negative outcomes for customers, some inconvenient, some business-threatening:

• Interruption of supply: The disruption, whether the result of problems with a direct supplier’s premises or events that affect suppliers further down the chain, will inevitably lead to short- or long-term supply interruption. Another consequence for the buyer in this case is a change in costs while filling the gap in that supply or transportation methods and while the supplier fixes the problem.

• Loss of short-term sales: Supply interruption can result in anything from inconvenience for the buying organization to losses in sales and profits owing to production shortfall and, in the worst case, complete shut-downs.
• Quality issues: If the affected supplier must start operating from new premises, with new processes and equipment, that runs the risk of short-term quality issues while it becomes established.

• Finding new sources of supply: Securing alternative sources of supply from unaffected suppliers is time-consuming and not without risk. All buyers that have been affected will be looking for the same alternative sources, making the marketplace very crowded, and the need to verify, approve and onboard new suppliers quickly brings challenges for all parties.

• Changes in the marketplace: In the case of an extreme man-made risk event, suppliers will likely be operating at reduced capacity, if at all for a while. Some suppliers don’t make it through at all. This changes the dynamics of the marketplace and can put the alternative or surviving suppliers in a more powerful position to negotiate to the detriment of buyers.

How to mitigate man-made risk

Man-made risk events are not totally avoidable, but buying organizations can take steps to reduce the impact. Firstly they need to understand the risk and put contingency plans in place, like ear-marking alternative sources of supply or getting the appropriate insurance, which is particularly important for business-critical goods or services.

Secondly, buyers must be able to respond quickly and, importantly, more quickly than their competitors. Emergencies forcing port closures or a fire destroying a factory or warehouse cannot be foreseen, but what the buyer can do is keep close contact with the supplier so they are informed about how the situation is unfolding as soon as possible. Even a small lead can allow the buyer sufficient time to put different transport systems in place or seek options to increase stockholding etc.

Speed is clearly essential all round, since these risk events inevitably lead to at least a short-term shortfall in supply in the affected market. Availability of supply will become tight and prices consequently prices will rise. There are many intelligence and risk-alert tools on the market to help buyers respond more quickly and appropriately, but those tools do need to cover the entire supply chain of sub-suppliers and their satellite operations in order to be properly effective.

Conclusion

Man-made risk – and indeed any risk – should be considered very strategically by developing contingency plans and putting in place risk mitigation actions. This is vital for buyers because man-made risks in particular vary considerably in the gravity of their outcomes, are hard to predict and can have serious consequences for the business. So it is important to consider how this risk might affect the entire supply chain.

Getting the earliest possible notification of these events is key to reducing the possible effects. Acting faster than the competition is the ultimate aim. However, the nature of the origin of these risks might mean the supplier is reticent about disclosing the facts, so the aforementioned independent sources of market intelligence and risk alerts are particularly useful for man-made risk.