Supplier Risk Assessment

What is a supplier risk assessment?

A supplier risk assessment is where you identify and assess the risks associated with working with a particular supplier. These could be delivery issues, financial instability and even political instability. By going through the supplier risk assessment, you’ll be able to mitigate the potential and likelihood of risks associated with the supplier. 

How to conduct a supplier risk assessment?

When conducting a supplier risk assessment, it’s important to appoint select individuals to lead on the process. Here are the steps involved in conducted a supplier risk assessment.

1. Identify the critical assets and suppliers-
Focus your efforts on your most important assets that have high risk and that are critical for business continuity and compliance. You’ll need to identify the sources and types of risks that may affect your suppliers too, such as security or political instability.
2. Analyse the risk
- You must then analyse the probability and severity of each risk, and how it will affect your organisation and the whole supply chain.
3. Evaluate
- Next, you’ll need to compare the risks against your risk appetite and tolerance.
4. Action
- Once you have evaluated the risks, you’ll need to implement action to reduce, avoid or accept the risks. You can do this by conducting a survey or audit to collect information. Or you can use scoring systems to rank and prioritise the risks.
5. Monitor
- Once you have come up with an action, you’ll need to manage and monitor the risks overtime.

Types of supplier risks

There are many supplier risks that suppliers face, ranging from cybersecurity risks to capacity risks. Here is a breakdown of the types of supplier risks to look out for. 

Capacity risks
It’s important to make sure your suppliers are able to meet their delivery schedules when there is a supply disruption, so make sure to continuously measure their capacity.  It’s also important to monitor their finances too, as disruptions like these can cause enormous risks.

ESG risks
It’s important that your suppliers do not have a bad track record when it comes to ESG, as it can expose your organisation to reputational damage and criminal charges.
Compliance risks
Make sure your suppliers are compliant with data privacy and information security, as you could face heavy fines. 

Cybersecurity risks
As technology is more advanced, organisations are vulnerable to cyberattacks on customer data. 

How can AI help with supplier risk assessments

AI can help organisations evaluate and prioritise risks, reducing the workload of the procurement and supply team, and eliminating any human errors. It can also help to improve your risk analysis, as data collection and processing is automated and AI can analyse the data patterns for you. It can analyse large data sets quickly, making it easier to see the patterns and anomalies that indicate a risk. This can especially help if you have a large quantity of suppliers and data to get through, meaning the procurement function can focus on other business critical tasks.