At present, a typical supply chain includes multiple partners, with services and identification managed across all organizations and authorities around the world. In many cases, companies are using third-party suppliers in the execution of key strategic imperatives to make offshoring and sourcing more extensive and sophisticated. Since corporates want to capture the next level of service delivery, processing efficiency and cost savings, they can be exposed to unexpected risks unless their supply risk management framework has also evolved.
According to Afnor, the French Standardization Association, supplier risk is the possibility that the economic ability of the client company will deteriorate or be interrupted, due to a failure in the company’s relationship with its suppliers and service providers, or due to an undesirable behaviour from one of its suppliers or service providers. For several years, supplier risk management has been a major problem for the company’s procurement department.
There are several risks that tend to come up in supplier risk management, these risks are different as per the involvement in activities of the company and the type of purchases made. Some of these risks are, reputational risk, resilience risk, regulatory risk, Information security risk and commercial risk. To tackle such risks, you need to have an overall framework to manage supplier risk throughout the sourcing lifestyle. It can not only offer companies with maximum value but also an increased level of control.
Therefore, it has become more important than ever to manage, predict and control supplier risk by carrying out steps to understand both your organization and your supplier. The aim is to improve cost-effective sourcing, while ensuring that the risks and accountability for end-to-end sourcing and service delivery are clearly defined, managed and monitored.