Supplier risk management is essential for businesses that are dependent on external suppliers. This is mainly because various factors affect the quality and supply of materials. Broadly, there are five types of supplier risks: financial, ethical, environmental, political, and economical.

• Financial risk refers to any financial difficulties the supplier might face during payment, which can jeopardize your company’s operations. This type of risk can be challenging to predict or mitigate. Additionally, if suppliers do not meet the agreed contract terms, it can affect the relationship in the long run.
• If the procurement of a product or raw material from a supplier directly impacts the environment, the business has a high chance of environmental risk. However, this type of risk can be minimized through careful screening of suppliers.
• Economic risk affects the supplier’s ability to meet business needs. This can directly impact the price of its products or services.
• Ethical risks are part of the process if the supplier has a history or has been identified to have involvement in activities such as child labor. This can seriously impact the brand image if such relationships are not terminated on time.
• A supplier based in a country with unstable political conditions poses a political risk to the business as it can affect the quality and reliability of its products or services.