8 Key Supplier Risk Assessment Components You Need to Know

Suppliers are always at the core of procurement discussions. 

And with good reason 

How far would your procurement strategy go without suppliers?

Yeah, that's a bit impossible

But your business doesn't need random suppliers. It needs people you feel comfortable relying on. 

How can you know, however, that the supplier you are ready to sign a contract with is not going to risk your operations or worse, your reputation?

What about the suppliers you already have? 

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A supplier risk assessment framework is usually a great start 

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8 Supplier Risk Assessment Components 

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Supplier Visibility 

Can you fix something you don't see?

Not really 

Before you jump to conclusions about your suppliers, you need to develop a clear view of who your suppliers are. 

You could pull out the data from your systems or just grab a sheet of paper and list every supplier working withwith your business. Define the services provided, their locations and how critical they are to your operations.

It's also a good idea to add the name and role of the person who manages the relationships. 

As you work through this, you might discover that having a centralised supplier database makes sense. If you haven't considered it yet, it could be the perfect time to implement a supplier management system.

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Having full visibility over suppliers makes it easier to prioritise evaluations and helps you target the suppliers with the highest impact on your business.

Risk Identification 

Suppliers are important, yes, but that doesn't mean Supplier A has the same significance for your operations as Supplier Y. 

You might be using one for office supplies and the other for materials required to build your products.

Guess where the worst risk would come from?

Doing this small analysis lets you know what to look out for and where to focus your efforts.

Here are the most common types of supplier risks

• Financial risk is one of the first things you want to check for. Is the supplier on good financial ground? What do the records say? Among the red flags you'll want to avoid are late payments, credit issues or unstable cash flow.
• Operational risk:  Nobody likes delays for things already purchased.  A good supplier should be able to always meet your volume and quantity expectations within the timeframe agreed.
• Cybersecurity risk: We live in a modern world, and sometimes that comes with additional downsides. If a supplier has access to sensitive data, it's fundamental to check for their security practices and policies.
• Compliance risk: The surge of new regulations is becoming a challenge for many companies.  It's your job to verify if a supplier is adhering to all the regulations relevant to your industry.
• ESG risk: Do their practices align with your company’s values around sustainability, labour, and ethics? A scandal involving a supplier can quickly reflect back on your brand.

Due Diligence Onboarding 

So you selected a supplier and everything seems just ready to bring them onboard…

Stop 

Before welcoming a new supplier to your company, run a due diligence check. Even before the contracts are signed, make sure the supplier is indeed legitimate and truly aligned with your business’s needs.

You can use the points mentioned above to check for all the most common risks. 

Confirm the company's status, review their financial statements, ask around for past success cases, and don't hesitate to get all the necessary information to really be confident in your decision. 

Documenting this process not only reduces risk, it also shows stakeholders that you’re taking supplier selection seriously. When onboarding is handled thoroughly, it sets the tone for a more secure and trustworthy partnership

Supplier Risk Assessment 

The supplier has finally been onboarded.

What's next?

Create an assessment framework that works for your business.

You are assessing different things at this point, but mostly the focus is on how likely it is that a risk will occur and how much impact that would have on your business. 

This is how you can approach it:

• Segment your suppliers: And by segment we mean determine their real risk level. Classify suppliers as low, medium or high risk. The factors to consider? Depends on your business, but operational dependence, for example, is one of the most important to assess.
• Use a scoring model: We are going to see this point in a bit but allocating values to different risk areas to get a general risk score can be pretty helpful if you want to be as objective as possible.
• Include different sources of feedback:  Suppliers touch almost every point of your business. So why not ask for feedback from different areas? Like finance, IT, sales and, of course, procurement.
• Schedule reviews: To make any assessment work, you must be ready to face a simple truth: Things change; what was just fine yesterday can be different tomorrow morning, so it's definitely smart to set regular supplier risk assessments.

Service Delivery and  Performance Evaluation

Okay, let's say that your suppliers are the real deal, have a good financial status and meet all the criteria. 

Would it be right to do nothing and hope for the best?

Not exactly 

The best suppliers on paper can still show poor performance in practice. Delays or quality issues, for example, can quickly break that great first impression you had at the beginning of your relationship.

This is how you can keep an eye on performance levels:

• Use KPIs: As simple as that. Monitor metrics like on-time delivery, product quality, order accuracy and responsiveness. Or just choose the ones that make sense for your business.
• Go over your agreements: It's not a bad idea to check your agreements and contracts on some occasions to double-check the alignment between expectations and reality.
• Check for possible patterns: A one-time issue might not be cause for concern, but ongoing problems signal deeper risks. Look for patterns in missed deadlines or product defects.

Consistent performance evaluation keeps suppliers accountable and helps you spot early warning signs.

Set Score Levels 

Remember we said we'd dig deeper into this? 

Yeah

Numbers certainly make things easier for you to understand which supplier brings the highest risk to your business should something happen.

But how do you allocate one number or the other?

Using a supplier scorecard matrix can help a lot.

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Generally speaking, though, these are the factors you need to consider:

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• Develop a scoring framework:Create a system that assigns numeric or tiered scores based on risk factors, like financial stability, compliance gaps, or delivery performance. You might use a 1–5 scale, a percentage, or labels like low, medium, and high risk.
• Set thresholds for action: Define what each score level means. For example:
• Low-risk suppliers require standard monitoring
• Medium risk might need more frequent reviews or performance improvements
• High risk could trigger audits, sourcing alternatives, or even exit plans
• Keep it transparent and repeatable: Apply the same criteria across all suppliers so the process stays fair and consistent. Document how scores are calculated and reviewed.
• Make the right decisions: Use these scores to prioritise who gets onboarded, who gets re-evaluated, or who might need backup options.

Establish a Plan to Address Risks

Now that you know what could go wrong and how your business could be impacted, it's time to move to the next step: Do everything to be prepared.

After all, that's what makes the difference, how well you are prepared to respond.

Start with a specific outline of your risk mitigation actions, this could span something as simple as having a chat with your supplier or something more serious like setting deadlines for improvements.

For ongoing relationships, it’s often better to work with the supplier to fix the issue rather than immediately replacing them. Share your concerns, always seeking concrete ways to align on expectations.

Every action plan should have someone responsible for follow-up, plus clear deadlines. Without accountability, risk mitigation won't work as it should.

Continuous Monitoring and  Alerting

Supplier risk assessment isn't a one-time thing. 

Conditions change, markets go crazy, and what once worked just fine for your company might now be a source of risk. 

Continuous monitoring helps you catch issues early, stay ahead of disruptions, and make faster, more informed decisions when the world around you shifts.

The goal here is to catch warning signs early. You can use third-party monitoring tools, news alerts, financial tracking services, or even automated risk platforms that flag issues in real time. This lets you react quickly if something goes wrong,like a data breach, bankruptcy filing, or regulatory fine.

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It’s also helpful to set internal alerts for contract expirations, missed SLAs, or policy violations so you’re not blindsided. The more visibility you have, the better

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