Supplier Relationship Management (SRM) - Risk Analysis
Introduction to Supplier Relationship Risk Analysis
A key element of Supplier Relationship Management (SRM) is the identification and management of supplier risk. The first step in this process is to review suppliers against a check-list of potential risk criteria to identify high risk or "critical suppliers".
The more of these risks that a particular supplier flags, the more they should be considered critical from a risk management perspective and consequently receive a higher level of Supplier Relationship Management attention.
Ownership / Awareness of Supplier Risk
Is there an agreed owner for the supplier within the the client Procurement team ?
- If not, is there an agreed owner for the supplier within the broader business ?
- Do we know the answers to the following questions ?
Material Outsource Risk
A "Material Outsource" risk is defined as an outsource relationship that carries a significant risk of end customer detriment for which the client would be solely accountable
Supplier Operational Service Failure Risk
Would an operational service failure be likely to have a significant end customer impact or a substantial non-end-customer impact (e.g. financial, reputational, operational, legal etc. impact on the client) ?
- Would the impact be immediate ?
- Only the client impacted – not its competitors ?
- Is there a high degree of complexity / integration involved ?
Supplier Business Continuity Risk
Is a Business Continuity Plan (e.g. Disaster Recovery Plan) needed for the supplier ?
- Has the Business Continuity Plan been reviewed / approved recently ?
- Is a copy of the Business Continuity plan available ?
- Is there a clear owner for the Suppliers’ Business Continuity Plan ?
Do we have a current executed bespoke contract with the supplier ?
- Are rights to audit secured contractually ?
- Have we planned sufficient time to contract with an alternative supplier before the above contract expires to provide continuity of contractual coverage ?
- If not, how long before we do have contractual coverage ? (duration of exposure)
- If not, would any detrimental changes be anticipated if we seek to extend the existing contract ?
- Do we have a price benchmarking clause built into the contract ?
- Do we or are we likely to have a reciprocal trade agreement in place ?
- Copies of valid insurance certificates on file ?
Is the client substantially dependent upon the supplier (Y/N) ?
- Switching costs/time is high
- Insufficient substitutes/competition
- Proprietary intellectual property e.g. product or process know-how / innovation
- How dependent upon the client’s business is the supplier ?
- Joint Venture ?
- Is a long term strategic relationship intended ?
Has the supplier unacceptable financial risk ratings (e.g. D&B, BvD or similar) (Y/N) ?
- Are there credible rumours that the supplier is in trouble ?
- Is the parent group contracted to act as guarantor ?
- Have we made substantial advance payments, which may be at risk ?
Does the supplier have adequate capacity for the client’s requirements ?
- And in the future ?
- Can capacity be switched on in time to meet both the client’s demands and those of their other customers ?
- What are the constraints ?
Relationship Quality Risk
Is the relationship broken or becoming broken (e.g. disputes which may escalate to supplier seeking to “break” the contract or engage in litigation) ?
Likely change in strategic direction which may adversely affect the client ?
- E.g. likely to be divested / acquired by new owners ?
Is there a significant risk of the supplier negatively impacting the client’s reputation ?
- Regulatory or Legal impropriety ?
- Environmental impropriety ?
- Ethical management (e.g. SA 8000 etc) impropriety ?
- Other negative PR ?
Supplier Exit Plan ?
In the event of excessive financial or operational risk does an Exit Plan exist ?
- Is there an “Exit Plan” section within the contract ?
- Has this been reviewed and been approved as “fit for purpose” ?
More Supplier Relationship Management (SRM) Information
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© www .interim-management-purchasing.co.uk December 2012
“David worked for Aviva Health UK...as Interim Head of Procurement & P2P...leading the development and implementation of procurement strategy".
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