Top 5 Strategies to manage supplier risk effectively

Top 5 Strategies to manage supplier risk effectively

Supplier risk management can identify, access and control threats to an organization’s capital and earnings due to its supply chain. It may potentially have a negative impact on the activity of a client company. The challenge of supply chain risk management has been enhanced by globalization. Such increased complexity has brought with higher level of risk and potential failure points.

As supply chains are becoming more complex external risks such as natural disasters and geopolitical risks are difficult to prepare for, whereas other risks such as mechanical failures and poor management issues can be easily predicted. Procurement experts must consider several factors to protect the organization from information security issues to non-compliance with regulatory requirements. Some of these risks include:

1: Reputational Risks: Companies must ensure that the supplier’s morals and principles align with theirs. Unethical behavior, like child labor, insufficient working conditions, fraudulent business decisions, unprofessional behavior can be disastrous for company’s reputation and image.

2: Regulatory Risks: These risks involve non-compliance with contract and application legislations. It is also very imperative to ensure that suppliers are compliant with any standards and regulations that they or the client company must comply with. Regulatory risks are among the issues that are out of any business’ control but warrant an attention to keep up to date on.

3: Resilience Risks: A supplier failure like an IT system failure may lead to an interference or disruption to a supply chain. Events such as labor strikes, plant shutdowns with supplier companies may obstruct the regular functioning of the company.

4: Information security and privacy risks: Cyber security risks or failure in supplier company, such as security breach, hacking and phishing etc can compromise sensitive data, including customer data of the organization. Cyber security risks are among the most essential components that companies have been seeking help within recent years.

5: Financial risks: An organization must be mindful of potential bankruptcies, price fluctuations, market and tax changes. Poorly managed sourcing arrangements or supplier failures and inaccurate billing from outsourced parties can cause financial losses or higher out-turn cost than anticipated.

Strategies to decrease supplier risks

1: Aiming end-to-end supply chain visibility: With end-to-end visibility, you can easily track order progress and ensure timely responses to any issue. 3SC’s 4PL Visilog addresses key challenges and acts as an orchestrator for an end-to-end supply chain management.   

2: Diversify your supplier base: Using a single or few concentrated suppliers may likely to disrupt your supply chain. Engaging multiple suppliers can help distribute the risks and reduce its impact.

3: Segment suppliers for risk management and ensure regular risk monitoring: You need to review supply chain risks regularly and ensure control measures. Always validate supplier risk profile to track which supplier are more likely to be affected in terms of financial, environmental, operational and legal risks.

4: Maintaining a close relationship with a supplier: Better communication with your supplier can ensure good understanding of your supplier and their limitations before any problem occurs.

5: Leverage Technology: Technology can help an organization identify risk ratings, monitor controls to keep risks in check. Advanced analytics and visual presentation of key data can easily provide users with the complete supply chain risk information.     

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