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What is a supplier risk assessment? 

What is a supplier risk assessment

A supplier risk assessment can help an organization understand and manage its risks while helping ensure the quality of its products and services. It is a vital part of supplier risk management and can help you avoid suppliers that might not be the best fit for your company. If you’re looking for a new supplier, you must take the time to get a thorough understanding of their business. Ultimately, this will save you time and money in the long run as the cost of non-compliance increases every year.  

Supplier risk assessment challenges  

There are many benefits to implementing a supplier risk assessment, but there are also several challenges. This type of evaluation is time-consuming and requires manual verification, without an automated system. Conducting these assessments manually makes increases the likelihood of mistakes. These mistakes can result in a company being accused of negligence and end up facing legal action. Moreover, it may take a long time to compile the information necessary for effective mitigation. Data restrictions can make the process even more sluggish. In addition, a manual supplier risk assessment process can be costly and take up a considerable amount of resources. 

How to conduct a supplier risk assessment 

Develop a long-term risk assessment process 

It is important to remember that supplier risk management is not a one-and-done approach. If you do a supplier risk assessment once and then stop doing audits for many years, your business is in high-risk territory.

Identify and document all known risks. 

The most productive way to begin any risk assessment process is to map out the supply chains of all products or services you provide. The aim is to understand each node of your supply chain and the specific risks associated with them. 

Types of supplier risk  

Whether your company is considering new vendors or has a long-standing relationship with one, it’s important to assess the risks associated with them. While some risks may be relatively small, others can pose serious threats to your business. In order to minimize these risks, you should develop a comprehensive risk assessment for your supply chain. By identifying key risks, you can better protect your company. It’s important to understand which risks are known and which are unknown.  

Reputational risk  

A cybersecurity breach at your downstream service provider or supplier’s factory may not have any direct impact on you. It could, however, still damage your reputation if you are unable to sell your product and or services. 

Resilience risk  

Supplier issues can have a direct impact on your customer service delivery and product lifecycle.  

Data security risks  

Depending on the type of data your suppliers have access to, data breaches by third parties could expose your business to increased cybersecurity risks.  

Regulatory risks  

Modern supply chain management has many complexities. You have regulatory obligations where your organization is located, but also where your suppliers reside. Yes, you trust your suppliers to maintain compliance. However, If they do not do so, your business could face the consequences.  

Commercial risks  

This risk doesn’t only affect your consumer revenues. Poor due diligence in your sourcing strategy could lead to overruns and incorrect billing. Both can damage your financial health.

Create a supply chain risk management framework 

After you have established a risk list, create a supply chain risk management framework for your audits. 

Monitor risk 

After you have created your risk management system and performed initial audits, it is important to establish a continuous and persistent analysis process. Continuous monitoring can be used to detect potential problems in your supply chain and improve supplier relations. 

Digital supply chain visibility software has made it easier than ever to monitor and measure risks. OpenPages allows you to quickly identify and monitor all potential risks in your supply chain. You can also customize the metrics that you are looking at or measuring to meet your risk tolerance and receive updates in real-time. 

Work with your suppliers to implement governance and review procedures. 

As well as monitoring risks on an ongoing basis, it is also best practice to ensure you have a governance mechanism in place to help you review supply chain risks. For example, geopolitical events or evolving situations like climate change might pose a different level of risk three years from when you first set up your risk assessment process. As such, the way you monitor and measure specific risks may need to change. 

The importance of a supplier risk assessment 

In addition to assessing the risks of a supplier, organizations can use a supplier risk assessment to identify potential problems. The process of assessing a supplier’s performance is vital in protecting a company’s reputation. By implementing supplier risk assessment, it can help an organization avoid the problems that might arise in the future.