Published on March 2, 2014
9 Critical Supplier Related Risk Factors Develop & Grow with the PCH Library http://www.procurementcareerhub.com/library
Geopolitical Risk Country specific risks such as terrorism, weather events, natural disasters and local politics
Geopolitical Risk Example A 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 Risk Over reliance on a single point of failure (e.g. supplier, sub-supplier, location, transport mode)
Concentration Risk Example You 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 Risk Risk that occurs as a result of your poor decision making
Strategic Risk Example You contract supplier that does not have service, but your supplier to meet your Sourcing to awith a supplier for a good or the capability or processesdoes not have the capability or technology to provide what you have contracted for. requirements. This supplier used recycled boxes to store and shop customer material.
Reputational Risk Negative customer or public opinion due to actions taken by you or your supplier
Reputational Risk Example Hackers 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 Risk Risk that occurs when you or your supplier do not comply with laws, policies and procedures
Compliance Risk Example Your 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 Risk Risks that occur as a result of not integrating your supplier into your internal processes
Operational Risk Example You 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 Risk Risk that occurs due to the poor financial health of your supplier
Financial Risk Example A 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 Risk Your supplier decides they can no longer meet their obligations due to changing deal economics
Credit Risk Example You 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 Risk Risks that occur because of loopholes or lack of clarity in your supplier contracts
Contractual Risk Example You 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
Images of Money https://www.flickr.com/photos/ 59937401@N07/5930175788/siz es/o/ Dave Dugdale https://www.flickr.com/photos/ davedugdale/5099605109/sizes/l / jronaldlee https://www.flickr.com/photos/ jronaldlee/4648545609/sizes/o/ Mark Fischer https://www.flickr.com/photos/ fischerfotos/7432022562/sizes/k / jcarbaugh https://www.flickr.com/photos/ jcarbaugh/64190834/sizes/o/ Brandon Grasley https://www.flickr.com/photos/ brandongrasley/8227882239/siz es/k/ Guano https://www.flickr.com/photos/ guano/3911266957/sizes/o/ MCS@flickr https://www.flickr.com/photos/ skrobola/4571498936/sizes/o/ Bionic Teaching https://www.flickr.com/photos/ bionicteaching/11338445384/siz es/k/ Dying Regime https://www.flickr.com/photos/ dyingregime/8474094742/sizes/ k/ Word Ridden https://www.flickr.com/photos/ wordridden/4275674005/sizes/l/ thisisbossi https://www.flickr.com/photos/ thisisbossi/3190441988/sizes/o/ libertygrace0 https://www.flickr.com/photos/ 35168673@N03/4743607494/siz es/l/in/photostream/ Stockmonkeys.com https://www.flickr.com/photos/ 86530412@N02/8449175260/ Dylan Payne https://www.flickr.com/photos/ dylanlucaspayne/6075284122/siz es/o/ Stockmonkeys.com https://www.flickr.com/photos/ 86530412@N02/8187154150/siz es/k/ Images of Money https://www.flickr.com/photos/ 59937401@N07/5858030702/siz es/o/ bmills https://www.flickr.com/photos/ 32485328@N00/7175133946/siz es/h/ PHOTO CREDITS Maritime Union of New Zealand https://www.flickr.com/photos/ maritimeunion/6971557391/in/p hotostream/
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