What is supplier risk?
Supplier risk is defined as the probability that a principal will see its economic activity deteriorate or even come to a halt as a result of a breakdown in its relations with its suppliers and service providers or undesirable behavior on the part of one of them.
These issues or inappropriate behaviors may include: production or delivery delays, bankruptcy or financial difficulties, or misconduct in terms of corporate social responsibility (CSR), posing a reputational risk (such as subcontractors disregarding ethical standards, manufacturers using child labor, or those relying on low-cost products made on the other side of the world, etc.).
To mitigate these risks, the company must take action. The first step is to identify these supplier risks.
Why map supplier risk?
A client that relies on multiple service providers, suppliers, and subcontractors exposes itself to risks, especially if these parties are located in another country: supply chain disruptions, bankruptcy, production incidents, manufacturing defects, reputational risks, and even media scandals.
These risks can have repercussions on a company’s own operations—sometimes to the point of threatening its economic viability and reputation. We’ve seen this happen before, across all industries! That is why it is essential to identify and map these risks. Risk mapping covers 220 procurement categories across 170 countries, regardless of your industry: banking, tourism, textiles, agri-food, heavy industry, the medical and hospital sector, local governments, and more.
What are the purchasing categories in risk mapping?
Buyers, risk mapping allows you to assess the risks associated with your suppliers across more than 220 procurement categories in 170 countries, regardless of your industry: banking, tourism, textiles, agri-food, heavy industry, healthcare and hospitals, local governments, and more.
These categories cover your typical purchasing segments, whether you buy or rent goods, services, or intellectual services: computer equipment, office supplies, energy, etc.
The AFNOR Solutions Achats risk mapping tool also takes into account 13 CSR issues and 4 areas of potential impact on the company. This is followed by a series of recommendations that enable you to mitigate these risks—or at least keep them under control.
What is reputational risk and online reputation risk?
It is essential for a company to consider its reputation. And that reputation is largely shaped by its customers. Sometimes all it takes is a bad experience, poor value for money, or subpar customer service to break the bond of trust and tarnish the company’s reputation.
A company’s reputation can also be damaged following an incident within the company itself or in its supply chain: industrial accidents, water or air pollution, workplace health and safety violations, etc. The procurement department must be vigilant in selecting its suppliers, because if one of them has a poor reputation, it can reflect negatively on the company itself—sometimes even leading to a boycott of its products!
The best example of this is the textile industry: several Western ready-to-wear brands were severely affected by the Rana Plaza disaster in 2013, when a building housing garment factories collapsed in Bangladesh, killing more than a thousand workers who were laboring there under precarious conditions.
New digital practices (online sales, online reviews, social media, use of personal data, etc.) have made it even more important to stay vigilant: one bad experience, and negative buzz spreads like wildfire on social media. In addition to your general reputation, you must therefore monitor your online reputation. All of this constitutes reputational risk.
