How can you develop a supplier risk assessment framework that considers internal and external factors?

1 Define your scope and objectives

The first step in developing a supplier risk assessment framework is to define your scope and objectives. This means clarifying what type of suppliers you want to assess, what criteria you will use to evaluate them, and what goals you want to achieve with the assessment. For example, you may want to assess your strategic suppliers that have a high impact on your core business functions, using criteria such as financial stability, quality, delivery, innovation, and compliance. Your objectives may include reducing costs, improving service levels, enhancing collaboration, or mitigating disruptions.

2 Identify and categorize risks

The next step is to identify and categorize the risks that may affect your suppliers and your supply chain. Risks can be classified into internal and external factors, depending on their source and level of control. Internal factors are those that originate from within your organization or your supplier's organization, such as operational inefficiencies, human errors, fraud, or poor governance. External factors are those that originate from outside your organization or your supplier's organization, such as market fluctuations, natural disasters, geopolitical events, or regulatory changes.

3 Assess and prioritize risks

The third step is to assess and prioritize the risks that you have identified and categorized. This means estimating the likelihood and impact of each risk, and assigning a score or rating to reflect its severity and urgency. You can use various tools and methods to perform this step, such as risk matrices, scoring models, or risk maps. The aim is to create a clear and consistent ranking of the risks, and to focus on the most critical ones that require immediate attention or action.

4 Develop and implement mitigation strategies

The fourth step is to develop and implement mitigation strategies for the risks that you have assessed and prioritized. This means designing and executing plans to prevent, reduce, transfer, or accept the risks, depending on their nature and magnitude. You can use various techniques and approaches to formulate your mitigation strategies, such as contingency planning, contract negotiation, supplier diversification, or supplier development. The aim is to minimize the negative consequences and maximize the positive opportunities of the risks, and to align your strategies with your objectives.

5 Monitor and review risks

The fifth step is to monitor and review the risks and the mitigation strategies that you have developed and implemented. This means tracking and measuring the performance and progress of your suppliers and your supply chain, and evaluating the effectiveness and efficiency of your risk management actions. You can use various indicators and metrics to perform this step, such as key performance indicators (KPIs), audits, surveys, or feedback. The aim is to identify and address any gaps or issues that may arise, and to update and improve your risk assessment framework as needed.

6 Communicate and collaborate with stakeholders

The sixth and final step is to communicate and collaborate with your stakeholders throughout the risk assessment process. This means sharing and exchanging information and insights with your internal and external partners, such as your management, your employees, your suppliers, your customers, or your regulators. You can use various channels and platforms to perform this step, such as reports, meetings, emails, or webinars. The aim is to create and maintain trust and transparency, and to foster mutual understanding and cooperation.