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Supplier Risk Management

What is supplier risk management
What is Supplier Risk Management

What is Supplier Risk Management?

Supplier risk management identifies, assesses, and manages risks that could arise from working with third-party suppliers. It is a vital part of an organization’s overall risk management strategy as it helps protect against disruptions in supply chain operations, prevent quality issues, and avoid financial losses.

By identifying and evaluating risks associated with supplier relationships, companies can implement the right strategy to mitigate potential risks while improving their overall supply chain resilience.

Supplier risk management protects the organization by minimizing the impact of supplier-related problems. With a robust supplier risk management strategy in place, businesses can protect themselves from potential disruptions or quality noncompliance in the supply chain and ensure that all suppliers operate smoothly and efficiently.

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As businesses go global, supply chains include partners from different parts of the world. These suppliers, while a business necessity also can pose a risk to the organization.

For instance, a supplier who has a reputation for procuring low quality resources should not be onboarded as their raw materials will have a direct impact on the quality of the products manufactured by the business.

To avoid such issues, businesses must focus on creating a robust supplier risk management strategy that acts as a framework or guideline that businesses will follow while onboarding suppliers or vendors and continuing the relationship in the long run.

Supplier Risk Management
supplier risk management importance

Importance of Supplier Risk Management

Some of the main reasons why every organization must focus on supplier risk management are:

  • Protects the business from financial losses in case of supplier defaults.
  • Helps maintain compliance with regulations set by industry bodies or government agencies.
  • Ensures the organization’s goodwill and reputation are intact.
  • Avoid disruptions in the supply chain with contingency plans.
  • Allows businesses to continue operations by instigating alternate plans in case of delays or any other unforeseeable disturbances.

How to Manage Supplier Risk?

To effectively manage supplier risks, organizations must focus on five different aspects. These initiatives will help shape the supplier’s due diligence process.

  • Define what information needs to be collected

  • Prioritize and segment suppliers based on their performance and risk levels

  • Define noncompliance processes for dealing with supplier responses

  • Engage the entire organization in the supplier management program by defining every department’s role

  • Identify a supplier risk management solution that best suits the company’s needs

Different Risk Attributes

Different Risk Attributes and Use of it to Manage Suppliers

supplier risk management strategy

How to Build a Vendor Risk Management Strategy?

To build a robust supplier or vendor risk management strategy, businesses must focus on three main areas: risk documentation, risk framework, and risk monitoring.

  • Identifying And Documenting Risks based on their severity and impact on business. This can be done by gathering data from suppliers.
  • Building a risk framework based on priority. This helps manage the risks better.
  • Ongoing Monitoring to continuously track risk indicators helps identify supply chain vulnerabilities and take action when needed.

What are the Different Types of Supplier Risk?

Supplier risk management is essential for businesses that are dependent on external suppliers. This is mainly because various factors affect the quality and supply of materials. Broadly, there are five types of supplier risks: financial, ethical, environmental, political, and economical.

  • Financial risk refers to any financial difficulties the supplier might face during payment, which can jeopardize your company’s operations. This type of risk can be challenging to predict or mitigate. Additionally, if suppliers do not meet the agreed contract terms, it can affect the relationship in the long run.
  • If the procurement of a product or raw material from a supplier directly impacts the environment, the business has a high chance of environmental risk. However, this type of risk can be minimized through careful screening of suppliers.
  • Economic risk affects the supplier’s ability to meet business needs. This can directly impact the price of its products or services.
  • Ethical risks are part of the process if the supplier has a history or has been identified to have involvement in activities such as child labor. This can seriously impact the brand image if such relationships are not terminated on time.
  • A supplier based in a country with unstable political conditions poses a political risk to the business as it can affect the quality and reliability of its products or services.
types of supplier risk
Supplier risk management program

Not All Suppliers are Key Suppliers: Managing Risk Within Your Supplier Management Program

Supplier risk management program
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How to Implement Supplier Risk Management in an Organization?

supplier risk management implementation

  • Develop an integrated supplier database by consolidating supplier data across all operational systems. This helps create visibility, supply chain transparency, and access to real-time information.
  • Segment suppliers into risk categories using data from internal and external sources. Assign risk categories and develop backup suppliers for primary materials using this information. External supplier data predominantly includes company financial information, cybersecurity contingency plans, and vendor risk management plans.
  • Translate risk data into predictive intelligence to create governance and escalation procedures to handle potential risks and their impact on company operations. Use the analytics to develop alternative sourcing strategies by continually researching new suppliers.
  • Keep supplier assessments up to date to ensure the company does not suffer from supplier failure in the long run.

What are the Features to Look for in a Next-generation EQMS from a Supplier Management Perspective?

ComplianceQuest Supplier Risk management solution, not only automates quality and compliance processes but also helps with risk management. Part of our next-generation EQMS suite, the solution includes a host of features, including:

  • System of engagement and collaboration

  • Embedded AI for prioritization, automatic issue categorization, and risk assessment

  • Ease of integration with ERP & CRM

  • Custom workflows

  • Integrated risk management

  • A data-driven solution that enables continuous improvement

  • Scalable solution, designed keeping the long-term in mind

Great product, support, and people to work with!

We have rolled-out CQ across our company to automate various elements of QMS requirements such as Document Management, Complaints, Non-conformances, Corrective Action (8D and A3), Supplier Management and Audit Management. We have been using the software for more than 2 years. We are glad to see how well the system is being used across the company. We have several thousand users on the system currently and working to scale the usage further. CQ solution has been configured to meet our needs, works elegantly across languages, across time zones, and business verticals. With integration between CQ and SAP to exchange critical data, the process automation provides a lot of productivity.

Lia Budiman,
Solution Consultant, Continental Contitech

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continental contitech logo
ComplianceQuest's supplier risk management

Why Should Businesses Choose CQ for Supplier Risk Management?

CQ’s Supplier Risk Management Software helps take control of your Supplier Quality across all locations. The solution helps businesses:

  • Manage the complete supplier lifecycle
  • Collaborate with suppliers in Real-time
  • Digitize and automate the entire enterprise’s supply chain in a single platform

Coupled with risk, audit, change, document management, and various other QMS capabilities, the solution helps collaborate with suppliers with two-way visibility of supplier performance.

As a cloud-based solution, CQ’s Supplier Risk Management software is part of ComplianceQuest EQMS. A unique feature called Supplier Central makes life easier for quality and supply chain leaders to:

  • Track all supplier-related data in real-time
  • Have end-to-end data supplier’s quality standing visibility
  • Respond to supply chain-related requests with agility
  • Communicate and collaborate with stakeholders
  • Submit requests to suppliers, contract manufacturers, dealers, or partners

Manage the risks that could arise from working with third parties and protect the organization by minimizing the impact of supplier-related problems with CQ’s Supplier Risk Management

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Quality-centric Companies Rely on CQ QMS

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Frequently Asked Questions

    • Intelligent risk-based decision-making prioritizes key risks and suppliers based on risk vectors and leading indicators.
    • Fully connected, end-to-end risk management process that is seamlessly embedded into key business processes such as strategic contracting, sourcing, and S&OP.
    • Comprehensive multi-tiered governance approach across all tiers of the organization, covering strategic, tactical, and operational decisions.
    • Robust end-to-end solution to connect and analyze insight that helps take action.
    • Risk-aware culture with a proactive risk management mindset.
  • CQ’s Supplier Risk Management solution can be easily used by:

    • Management to gain visibility into supplier performance
    • Quality leaders to build better supplier relationships
    • Manufacturing teams to quickly identify and resolve supplier quality and performance issues
    • Engineering team to effectively engage the best selection of capable suppliers
    • Suppliers to keep track of changes, issues, and overall performance indicators
    • Procurement to ease the burden of supplier management

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