What is Supplier Risk Management?

Published January 11, 2020 • < 1 min read

Supplier risk management refers to the management of organizational risks that may be posed by entities in the supply chain. These risks may include: 

  • Cybersecurity risk
  • Data privacy risk
  • Compliance risk
  • Legal risk
  • Financial risk
  • Reputational risk

As with all risk management programs, supplier management begins with identifying all the risks a supplier might cause to an enterprise. 

If a supplier processes a medical clinic’s patient information but is not compliant with the federal Health Information Portability and Accountability Act (HIPAA), for instance, the supplier brings the risk of fines and penalties to the clinic contracting with them.

If the quality of a supplier’s product falls short of standards set by the International Organization for Standardization (ISO), the supplier and business contracting with them could face lawsuits (legal risk) if the product causes harm to a customer of the enterprise. 

Since suppliers classify as third parties, all new supplier relationships with the contracting organization should be evaluated as part of the contracting company’s third-party risk management program. 

The third-party risk management process typically entails:

  • Due diligence, or vetting each supplier’s risk when contracting with them and following up throughout the lifecycle of contractor-supplier relationships
  • Risk identification
  • Risk assessment, which includes categorizing, predicting the effects of, and planning responses to the risks suppliers may pose (risk acceptance or risk mitigation)
  • Monitoring, continuously and on an ongoing basis, for regulatory updates and for changes in the supplier’s operations.

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