Balance Supplier Risk Versus Reward
7 steps to gaining the greatest total value from your supplier relationships while minimizing risks
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- Defining and prioritizing supplier tiers;
- Utilizing risk assessment processes for new product/service requests;
- Incorporating initial and ongoing supplier due diligence;
- Utilizing balanced category scorecards;
- Adopting robust supplier performance reporting and issue resolution;
- Developing and regularly updating category market research profiles;
- Implementing a supplier Six Sigma program.
Define and Prioritize Supplier Tiers
| Example Supplier Category Tier | Example Definition |
| 1 | A significant-spend supplier whose products/service are critical to a company's revenues and require: — Complex contracts that drive continuous improvement — Proactive supplier relationship management — Detailed monthly supplier performance reporting — Proactive forecasting |
| 2 | A moderately high-spend supplier whose products/service are important to a company's revenue and require: — Complex contracts — Proactive supplier relationship management — Detailed quarterly supplier performance reporting |
| 3 | A supplier whose products/service are not critical to a company's revenue but require: — Complex or basic standard contracts — Annual performance reporting |
| 4 | A supplier whose products/service are not critical to a company's revenue and who: — Falls within a non-procurement-managed category — May utilize standard purchase order terms and conditions |
Risk Assessment Processes for New Product and Service Requests
Figure 1
Figure 1. Risk Assessment Steps
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- Supplier financials
- Insurance certificate
- Business continuity plan
- Audit report
- Subcontractors to be utilized (if applicable)
- Vendor management policy and program of subcontractors (if applicable)
- Past and current references
- Country risk assessment (if supplier is supporting you outside the US)
- Management turnover
- Product or plant closures
- Requests for payment term adjustments
- Deep discounting, etc.
- Physical security policy
- Asset management policy
- Background screening process
- Access controls
- Information security policy
- Information security breach history
- Incident management program
- Business continuity test results
Balanced Category Scorecards
Figure 2
Figure 2. Category Scorecard Example
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| Example Frequency | Example Activity |
| Daily | — Supplier daily report is developed and reviewed between supplier first-level management and company's first-level management — Majority of key questions and tactical issues are resolved in the daily meetings |
| Weekly | — Supplier weekly report is developed and reviewed between supplier first- and second-level management and company's first- and second-level management, and Procurement — Some of the remaining key tactical issues are resolved in the weekly meetings |
| Monthly | — Supplier monthly report is developed and reviewed between supplier first-, second- and third-level management and company's first- and second-level management, and Procurement — Any escalated tactical issues are resolved at this level — Majority of strategic-related issues are identified and resolved at this level |
| Quarterly | — Quarterly monthly report is developed and reviewed with supplier senior management and company's senior management — Any escalated strategic issues are resolved at this level |
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