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A Step-by-Step Guide for Effective Supplier Risk Management

Apr 23, 2019

With the rise in globalization over the last few decades, supplier risk has increased substantially. Companies of today are tasked with coordinating global strategies for meeting regulatory requirements, assessing risks, and mitigating them – all while maintaining the optimal productivity levelsThe problem increases manifolds in the complex global marketplace. Today, supply chain managers deal with numerable financial risks, which range from stockholder profits to compliance issues. A failure to improve supplier risk management can result in significant monetary losses for the company such as reputational damage, regulatory penalties, and production delays.

At SpendEdge, we understand the importance of supplier risk management for the smooth functioning of businesses. Therefore, in this blog, we are highlighting the step-by-step process that can lead to better supplier risk management.

Establishing a supplier risk management system is imperative for companies to mitigate risks. Request a free demo and know how you can build an effective supplier risk management system for your company.

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How to Manage Supplier Risks?

Step 1: Certify

Selecting a supplier is not easy and comes with its own set of challenges. A strong supplier risk management process mitigates that risk by incorporating values into the current metrics and ensuring that suppliers associating with the company are able to meet their deadlines on time. It basically requires you to practice these functionalities in supplier risk management:

  • Gaining expertise about the marketplace.
  • Asking the precise questions in the RFP process during the bid.
  • Verifying the information provided by suppliers against a third-party source.
  • Centralizing information for established suppliers.
  • Repeat the information to keep it updated.

Step 2: Monitor

Not every supplier holds equal value for your business. Strategically identify suppliers who are important for your supply chain and those who can cause disruption in the manufacturing line or services. Evaluating suppliers strategically and critically will help you determine the types of risk levers that can affect suppliers or the supply base. This supplier risk management process will require you to:

  • Determine the sources of information that needs to be monitored.
  • Establish a supplier risk management framework that can monitor external and internal in real-time.

Step 3: Analyze

Implement technologies to reduce the amount of time and effort required to analyze and create reports that can increase visibility and provide actionable intelligence. Areas to analyze can include financial risk, supplier performance, or spend category depending upon the profile of your company.

By repeating the supplier risk management process over regular intervals, you will gain a better understanding of how your supplier performs and what are the acceptable behavior thresholds. The points you should be addressing while analyzing are:

  • The performance of your organization.
  • The supplier’s performance against service level.

Step 4: Mitigate

Since predicting a suppliers failure with complete accuracy can be a difficult task, you can always compensate for the same by planning for it. Proactively prepare for these potentially damaging supplier disruptions with the supplier risk management in place. Also, developing a supplier risk assessment process, building contingency plans by documenting competitive suppliers can help improvise plans according to the updated information.

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