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Supplier Relationship Management (SRM) Risk Analysis

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 ?

Contractual Risk

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 ?

Dependency Risk

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 ?

Supplier Financial Risk

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 ?

Supplier Capacity 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) ?

Strategic Risk

Likely change in strategic direction which may adversely affect the client ?

  • E.g. likely to be divested / acquired by new owners ?

Reputational Risk

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 ?
  • Etc.

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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Client Reference

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David worked for Aviva Health Interim Head of Procurement & P2P...leading the development and implementation of procurement strategy".

David is an experienced procurement professional who has made a significant contribution to the development of procurement strategy within Aviva Health UK".

"He is intelligent and articulate and demonstrates a high level of commitment and integrity".

Full reference European Head of Procurement Practice Management

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