Supplier Risk

What is Supplier Risk?

In today’s global economy, supply chains include numerous partners, with services and sourcing managed across several organizations and in jurisdictions across the world. Corporations are increasing their use of third-party suppliers in the execution of key strategic imperatives and these third-party operations are becoming larger and more complicated as time goes on. Businesses should upgrade their risk management framework if they don’t want to miss potential profits and saved costs.

Why Is It Important to Have a Good Supplier Risk Model?

In today’s world, economies are vulnerable to global events. In the last decade, a number of organizations have been troubled by unforeseen supply-chain failures and disruptions, leading to financial damages costing hundreds of millions of dollars in varied industries, both private and governmental. In all these cases, the lack of a systematic process to identify and manage growing supply-chain risks contributed to these losses: this is especially true during the Coronavirus crisis.

The supply chain risk model can reduce risk exposure and provide agencies with a competitive advantage by establishing a resilient supply chain that can adapt to changes.

What Internal Data Should I Have for a Good Supplier Risk Model?

The most important external data that you will need is information about your suppliers. Keep in mind that for good results, you might need to start collecting the data during the supplier selection process itself. Once the supplier is selected and on board, the most critical component is risk monitoring. Evaluating the tiers of the supplier is important as the risk is higher with more supplier tiers. Then, you will want to also check the company’s historic data. It will be good to find some proven ability to meet the capacity requirements.

What External Data is Essential for a Good Supplier Risk Model?

The most important external data that you will need is information about your suppliers. Keep in mind that for good results, you might need to start collecting the data during the supplier selection process itself. Then once the supplier is selected and on board, the most critical component is risk monitoring. Evaluating the tiers of the supplier is important as the risk is higher with more supplier tiers. Finally, you will want to check the company’s historic data to find some proven ability to meet capacity requirements.

What External Data May Prove Useful for a Good Supplier Risk Model?

The risk management process must begin by determining the required data types and the frequency of data updates on suppliers as every risk decision depends on access to and the use of sufficient and reliable data on suppliers. While some data, like public company credit ratings, is readily available, other supplier data, like production capacity and regulatory compliance, is harder to obtain.

What Are the Main Challenges of the Supplier Risk Use Case?

Companies may struggle to obtain the data needed to assess supplier risk, though the use of Business Intelligence (BI) tools can mitigate this difficulty.

Many enterprises also struggle to mitigate the impacts of volatility, uncertainty, complexity, and ambiguity on their supply chain operations.

Interesting Case Studies and Blogs to Look Into

A Case Study in Global Supply Chain Risk Management: How AGCO Implemented an SCRM Solution to Save Millions
Risk Management in Supply Chain Management: Case Study of a Brazilian Automotive Distribution Process

Tangible Examples of Impact

“With powerful hurricanes, earthquakes and wildfires threatening business operations and logistics, supply chain risk professionals across manufacturing industries usually have their hands full when it comes to mitigating disruptions. While the focus is usually on extreme weather, two operational disruptions at a supplier level … revealed once again the full diversity of supply chain risks that can influence industrial production lines. In total, both events caused automotive and machinery supply chains more than $500 million in financial losses.”

How a Fire, Strike Lost the Auto Industry $500 Million