9 Critical Supplier Related Risk Factors

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Geopolitical RiskCountry specific risks such as terrorism, weather events, natural disasters and local politics

Geopolitical Risk ExampleA terrorist attack in a large city means that a key supplier must close their facility for an extended period of time, as workers are not able to get to the office. As a result, you are not able to provide timely support to your customers.

Concentration RiskOver reliance on a single point of failure (e.g. supplier, sub-supplier, location, transport mode)

Concentration Risk ExampleYou are highly dependent on a single supplier because you have sourced multiple critical goods or services from them. The supplier then requests a large cost increase that you cannot mitigate because of the complexity of resourcing all goods or services.

Strategic RiskRisk that occurs as a result of your poor decision making

Strategic Risk ExampleSourcing to a supplier that does not have the capability or processes to meet your requirements. This supplier used recycled boxes to store and shop customer material.

Strategic Risk ExampleYou contract with a supplier for a good or service, but your supplier does not have the capability or technology to provide what you have contracted for.

Reputational RiskNegative customer or public opinion due to actions taken by you or your supplier

Reputational Risk ExampleHackers are able to access the credit card data of your customers due to a weakness in the systems of your payment processor. The breach is widely reported and customers believe you have breached their trust in you.

Compliance RiskRisk that occurs when you or your supplier do not comply with laws, policies and procedures

Compliance Risk ExampleYour supplier sub-contracts with a company that is located in a country in which your government has sanctions, making the use of that sub-contractor illegal. Usage leads to significant fines from your government regulator.

Operational RiskRisks that occur as a result of not integrating your supplier into your internal processes

Operational Risk ExampleYou have contracted with a supplier to provide a good or service, but that decision was not popular within your company. As a result, colleagues are not supporting your supplier which means the supplier cannot provide the good or service as contracted.

Financial RiskRisk that occurs due to the poor financial health of your supplier

Financial Risk ExampleA major supplier files for bankruptcy, and the bankruptcy court allows them to terminate the contract that they have with you. You must either renegotiate terms or immediately seek alternative sources of supply.

Credit RiskYour supplier decides they can no longer meet their obligations due to changing deal economics

Credit Risk ExampleYou force a fee reduction on a key supplier, which leads to compressed margins. Therefore, your supplier must cut the cost of providing the good or service which leads to significant reductions in quality.

Contractual RiskRisks that occur because of loopholes or lack of clarity in your supplier contracts

Contractual Risk ExampleYou sign a contract for the provision of goods or services, and after a period of time you wish to cancel the agreement. After reviewing the contract, you realize that the termination provisions are not clear, which may lead to an unbudgeted cost to cancel.

For more information, including an overview of how to manage and mitigate critical supply base risk factors, visit

the PCH Library

www.procurementcareerhub.com/risk-management

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