All supply chains must deal with some level of risk, which is why supplier risk management is so essential. This practice allows companies to better prepare for sudden demand, emergencies, natural disasters, and other supply chain disruptions by considering all possible outcomes and solutions.

Companies can mitigate supplier risk by choosing reliable, diverse suppliers, being transparent with suppliers, and by continuously reviewing potential risks. They can also create a supply chain risk management plan, which includes a risk assessment, quantification of risk, and plans for what to do in various scenarios.

A supply chain risk management plan should be tailored to the needs of your specific company, but here are some of the most common elements of any plan:

• Assessment of risk
• Quantification of risk
• Evaluation of alternative suppliers
• Plans for how to communicate with suppliers in case of an emergency
• Steps to qualify new suppliers
• If/then scenario planning

Vendor management is important in any supply chain because it helps to control expenses, minimize risks, and hold vendors accountable. It also places more value on vendor relationships, which can improve the overall supply chain management process.

Supply chains face different risks depending on the industry, but many fall into these three categories:

• Natural disasters
• Man-made emergencies
• Economic catastrophes

With any supply chain, the first step in risk management is to identify all potential risks. This means analyzing every type of risk that could disrupt or influence the supply chain, from economic issues and market risks to natural disasters and social events.

There are five main steps to mitigating risk in a global supply chain, including:

1. Identify risks
2. Analyze risks
3. Prioritize risks
4. Mitigate risks or create a response plan
5. Monitor risks

Supply chain management requires a constant analysis of risks and an ongoing effort to streamline supply chain processes. Some of the best practices for managing supply chains include:

• Vetting suppliers
• Choosing diverse suppliers
• Requiring supplier insurance
• Creating a risk management plan

Companies can assess supplier risk by creating a checklist to measure every potential supplier against before making an agreement. Here are some factors to consider when evaluating a supplier:

• Insurance
• Reputation and reliability
• Financial stability
• Compliance and security
• Safety and health practices
• Sustainability

A vendor supplies goods and services to a company, while a third-party supplies goods and services directly to a customer. Hence, a vendor is a broader term, while third-party vendors are a subset of the category.