Why supply chain issues are a clear example of operational risk in risk management

Operational risk often hides in plain sight. It sits in the gaps between people, processes, and technology, and it can be triggered by something as ordinary as a broken data handoff or as dramatic as a factory flood. For anyone tracking risk in a mid-to-large organization, it’s the kind of risk that quietly gnaws at margins, service levels, and reputation if left unmanaged. Let me explain how this kind of risk shows up—and how to spot it before it sneaks into the bottom line.

What counts as operational risk?

Here’s the quick map. Operational risk is not the same as the risks you hear about in finance or law, though those can bite too. It arises from a business’s day-to-day operations failing to run as they should—due to internal flaws or to events outside the company’s direct control, like a supplier glitch, a system outage, or a flawed process.

To put it in plain terms: operational risk is the risk of loss from inadequate or failed internal processes, people, and systems, or from external events that disrupt how you do business. It’s the broad umbrella under which a lot of practical headaches fall.

Now, what isn’t operational risk, and why that matters for careful risk accounting?

• Credit risk is about borrowers not paying back what they owe. It’s a financial exposure tied to counterparties’ financial health, not how your day-to-day operations run.

• Currency exchange risk comes from the way foreign currencies rise or fall and affect international transactions. That’s more about market moves and financial management than how you actually manufacture, store, or deliver goods.

• Litigation risk involves legal actions or disputes. Those can be costly, but they’re typically more tied to compliance, governance, and legal exposure than to how well orders get fulfilled or how a warehouse operates.

So why do we care about supply chains in particular? Because supply chain issues are the clearest and most tangible example of operational risk in action. If a supplier can’t deliver, a transit delay stretches lead times, or a warehouse system miscounts inventory, your ability to serve customers falters. And when service slips, revenue and customer trust often take the hit.

A real-world thread you’ve probably seen

Think about a scenario many teams run into. A key supplier suddenly hits a capacity crunch. This could be due to a factory shutdown after a quality issue, a natural disruption in the supplier’s region, or a logistics bottleneck that cascades through your network. The ripple effect is real: delayed production, missed shipments, higher expedited freight costs, and even a scramble to source from a second provider at an unfavorable price. None of those issues are purely “financial” risks; they’re operational through and through.

That’s why supply chain issues occupy a central place in risk discussions. They touch procurement, logistics, manufacturing, IT (think ERP systems and inventory visibility), finance (costs and cash flow), and customer service. You don’t solve it with a single fix; you align people, processes, and data.

How to think about operational risk in practical terms

If you’re studying for a credential like the Certified Risk Manager Principles, you’ll want a clean mental model you can apply across functions. Here’s a simple way to frame it:

• Internal factors: Are our processes documented? Do we have clear handoffs between teams? Are the right people trained and empowered to act when something goes wrong?

• People: Is there reliance on a few key individuals? Do staffing levels meet demand, especially during peak periods? Are there gaps in skills that could cause a mistake or delay?

• Systems: Do our IT tools—ERP, inventory management, order processing—reliably capture what’s happening across the network? Are there single points of failure, like a critical data feed or a dependent software module?

• External events: What outside forces could break the flow? Weather, port congestion, geopolitical tension, supplier bankruptcies, or transportation strikes. These aren’t always in your control, but you can plan around them.

A practical checklist you can carry into meetings

• Map the network: Document how products move from suppliers to customers. Identify critical suppliers and the most important nodes in the chain.

• Identify dependencies: Which components or SKUs rely on a single supplier? Where does a delay have the biggest impact on customer commitments?

• Assess likelihood and impact: How often does a disruption occur, and how severe would it be for delivery, costs, or quality?

• Build redundancy: Can you diversify suppliers, add alternative modes of transport, or keep strategic buffer stock for critical items?

• Plan responses: Do you have written playbooks for common disruptions? Is there a crisis communication plan for customers and partners?

• Monitor leading indicators: Real-time shipment status, supplier risk scores, port congestion metrics, and production line uptime. If these start flashing red, you act sooner rather than later.

• Test and learn: Run tabletop exercises to practice the response. After a disruption, perform a quick post-mortem to tighten gaps.

Digress a moment about the human side

Operational risk isn’t just a spreadsheet story. It’s a people story. A process can be perfectly designed on paper, but if the team doesn’t buy into it or if training is lacking, small slips become big problems. That’s why risk culture matters. Leaders who encourage transparent reporting, early warning signs, and cross-functional collaboration tend to catch problems sooner. In the end, the best risk controls live where the people who use them actually see value and rely on them daily.

A few concrete examples to ground the theory

• Procurement fragility: A single supplier supplies a critical component. If they aren’t paying attention to quality or capacity, your production line can stall. Mitigation: diversify suppliers, set up dual sourcing for key parts, and require failure-safe lead times in contracts.

• Logistics glitches: A transportation partner faces chronic delays. Mitigation: multi-carrier strategies, regional distribution hubs, and nearshoring options that shorten the haul and reduce exposure to long-transit risk.

• Inventory blind spots: An ERP system miscounts inventory levels, causing overstock in one warehouse and stockouts in another. Mitigation: regular reconciliations, cycle counts, and dashboards that surface variances in real time.

• External shocks: A natural disaster disrupts a port or a key inland route. Mitigation: scenario planning, emergency sourcing, and contingency routes preapproved with suppliers.

Frameworks and tools you’ll encounter

When you’re navigating operational risk, reference points help. Two widely used frameworks are ISO 31000 and COSO ERM. They don’t just sit on a shelf; they guide how to structure risk governance, risk appetite, and the cadence of monitoring. In practice, teams combine these frameworks with modern tech: ERP and supply chain planning tools (think SAP, Oracle, Kinaxis), supplier risk scoring platforms, and dashboards that pull data from procurement, logistics, and finance. The goal isn’t to complicate things; it’s to give you visibility so you can act with confidence when a disruption looms.

A note on the bigger picture

Credit risk, currency risk, and litigation risk deserve attention too, but they sit a bit apart from operational risk. They influence financial outcomes and legal exposure in different ways. Understanding how they connect—with internal controls, governance processes, and cross-functional collaboration—helps you see the whole risk landscape. For professionals pursuing the Certified Risk Manager Principles, it’s about weaving these threads into a resilient operating fabric.

A closing thought that sticks

Supply chain disruptions aren’t a rare event; they’re a recurrent factor in modern business. The smart move isn’t to pretend they won’t happen but to prepare so your teams respond smoothly when they do. That’s the essence of managing operational risk: reduce uncertainty in everyday operations and create a reliable channel between your intent and your outcomes. When you can do that, you protect customer trust, safeguard margins, and keep the wheels turning—even when the weather turns, or a supplier slips a little.

If you’re exploring the Certified Risk Manager Principles, you’ll find that instinct for this kind thinking—recognizing where operations can break, building defenses, and watching the signals—serves you well. The goal isn’t perfection; it’s a steady cadence of improvement and a culture that treats risk as a daily, shared responsibility. And that, more than any single tool or tactic, is what separates teams that weather the storms from those that merely endure them.