What Is Supplier Risk Management?

Supplier risk refers to the possibility of damage to the entire supply chain due to the inability of downstream companies to operate normally or the daily operations being affected due to uncertain supply.

Supplier risk

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Supplier risk refers to the fact that downstream companies cannot operate normally or daily operations are affected due to uncertainty in their supply, thus causing damage to the entire supply chain.

The causes of supplier risk can be divided into two types: objective cause and subjective cause. Objective reasons refer to unfavorable factors in the external environment or errors made by insiders and equipment failure. Risks caused by objective reasons are not intentional, such as risks caused by external causes such as natural disasters, economic crisis, and market fluctuations, and risks caused by internal reasons such as wrong decision making, mismanagement, or careless operation. In contrast, subjective reasons refer to the fact that the supplier intentionally takes actions to damage the interests of downstream partners and the operation of the entire supply chain for its own short-term benefits, or the fact that partners fail to fulfill their obligations to cooperate. This section discusses the subjective causes of supplier risk. ^[1]

Supplier risks are mainly in the following three areas. ^[2]

Supplier risk control mainly includes the following measures. ^[3]

(1) Selection of suppliers

Designing reasonable supplier selection procedures and standards is an important way to overcome the risk of adverse selection. The selection of suppliers is a basic issue of equipment supply chain management. From the perspective of equipment supply chain risk control, the indicators of supplier selection should include three aspects: performance indicators, strength indicators, cooperation attitudes and cooperation capabilities. index.

Powerful companies are more capable of ensuring the performance level of the equipment supply chain, more capable of overcoming internal and external risk factors, and more capable of long-term stable cooperation; the strength of the supplier is not strong, which is the risk of the equipment supply chain itself. A supplier in distress or bankruptcy will seriously affect the stability of the entire equipment supply. Select equipment supply chain partners based on the strength of the enterprise. Only in this way can a truly strong and stable company be selected as a partner, and a long-term strategic cooperation relationship can be established. The indicator of cooperation attitude is mainly to examine the degree to which suppliers attach importance to cooperation . The indicators of cooperation ability mainly examine the ability of suppliers to quickly integrate into the environment of equipment supply chain and cooperation ability.

(2) Supplier incentive mechanism and trust building

Without intrinsic incentives for suppliers to invest in their own quality, timeliness, and innovation capabilities, it is likely that under a highly asymmetric information situation, when individual interests conflict with the interests of the equipment supply chain, it may take measures that harm the overall interests of the equipment supply chain Behavior, which brings equipment supply chain risks. Therefore, an appropriate external incentive mechanism is a necessary condition for the general operation of the equipment supply chain. Establishing trust relationships and promoting trust are the key to supplier risk management.