What is supplier risk management?
Supplier risk management is the process of identifying, assessing and mitigating the risk of supply chain disruptions that are caused by the actions of a supplier. Supplier risk is often considered to be principally financial, which is, of course, a key element of it—after all, if one of your key suppliers goes out of business, you’re going to have a big problem.
What is supply chain risk management?
Supply chain risk management is much larger than supplier risk management. Whereas supplier risk management focuses only on one party—the supplier—supply chain risk management focuses on any risk that’s going to affect any element of your supply chain. In other words, supply chain risk management is the process of identifying, assessing and mitigating the risk of supply chain disruptions that are caused by not just suppliers, but by any risk event that will impact your ability to get supplies—such as incidents at major logistics hubs, your own facilities or even risk that occurs along the paths of your supply network.
But what’s the difference really?
Okay, definitions are boring. Instead, imagine this: One of your company’s key suppliers suddenly declares bankruptcy, and you can no longer get the parts you need to keep manufacturing your product. What are you going to do? Your customers are going to be unhappy. Your new product launch will have to be indefinitely postponed. Your stock price will start to plummet.
But wait: If you have a supplier risk management program, things aren’t so bad. You’re alerted to the financial insolvency, you take steps to find alternative suppliers and you keep your supply chain intact.
Crisis averted. So your supply network is rock solid. Right?
- Now imagine this: Your supplier is fine, but a hurricane is headed toward the main airport that the supplier uses to ship its product to you.
- Now imagine this: Your supplier is fine, but oil prices in your region have increased dramatically, and your transportation costs are about to soar.
- Now imagine this: Your supplier is fine, but one of their suppliers has just experienced a huge factory fire that is about to shut down operations. For months.