Choose the Right Supplier Risk Management Approach

Not all supplier risks are created equal - and not all of them deserve the same response. 

A minor delivery delay from a low-risk vendor isn’t handled the same way as a sanctions breach from a Tier 1 supplier.

That’s why strong supplier risk management isn’t just about identifying risk - it’s about choosing the right approach for the type of risk and how much damage it could do. 

Most organisations rely on five established approaches to respond to supplier risk. Each one offers a strategic response depending on:

• The nature of the risk (e.g. financial, operational, regulatory, reputational)

• Its potential impact on business continuity, compliance, or customers 

Here’s how to use them - and how structured supplier data and standardised supplier risk assessments can help you choose confidently. 

1. Avoid It 

Avoidance means walking away from the risk entirely - by not engaging with the supplier in the first place. 

This is best used when the supplier risk is high-impact and hard to mitigate, such as unethical practices, unresolved compliance failures, or high geopolitical exposure. 

Use when: The supplier fails prequalification or due diligence, and the business impact of continuing outweighs any value they bring. 

Example: A supplier operating in a sanctioned region poses legal and reputational risk. You select an alternative with lower exposure. 

Supporting tools: Prequalification, shared assurance data, and automated red flag alerts can help you avoid risk early - before contracts are signed.

2. Reduce It  

Reduction is the most used approach when the supplier risk is significant but controllable - for example, quality issues, gaps in certifications, or moderate financial instability.  

Rather than walking away, you work with the supplier to lower the risk through tighter controls and oversight. 

This might include: 

•     Strengthening SLAs or KPIs 

•     Requiring third-party certifications 

•     Offering development support or increased monitoring 

Use when: The supplier risk is real, the supplier is critical, and there’s room for improvement. 

Example: A supplier lacks up-to-date cybersecurity certification, so you allow onboarding with short-term controls and a remediation plan. 

Supporting tools: A consistent supplier risk assessment process and centralised document tracking help you identify the right interventions and monitor progress.

3. Transfer It  

Some supplier risks - especially financial, legal, or delivery-related - can be shifted to a third party through contract terms or insurance. 

This approach is suitable when the likelihood of risk is moderate to high, and the business needs additional protection from its consequences. 

Examples include: 

•     Requiring liability or cyber insurance 

•     Inserting indemnity or penalty clauses 

•     Using escrow or performance guarantees 

Use when: You can’t eliminate the supplier risk, but you can buffer the impact. 

Example: A high-volume logistics supplier carries operational risk, so you include late-delivery penalties and require cargo insurance. 

Supporting tools: A clear view of supplier insurance coverage, contractual history, and shared liability thresholds helps make transfer options enforceable. 

4. Accept It  

Acceptance means making an informed decision not to act - because the supplier risk is low, unlikely to materialise, or not worth the cost of mitigation. 

This is common for non-critical suppliers, or when the perceived risk falls well below your threshold. 

Use when: The impact is minimal or the cost of addressing the risk outweighs the potential downside. 

Example: A marketing services supplier has minor financial risk but doesn’t pose a material threat to operations or compliance. 

Supporting tools: A well-defined supplier tiering model and periodic reassessment give you confidence in when to accept and when to re-evaluate. 

5. Share It 

Sharing suppler risk means collaborating with suppliers to jointly manage it - ideal when the supplier is strategic and the risk spans both parties (e.g. Sustainability goals, continuity planning, innovation). 

This is the most relationship-driven approach, and it builds mutual resilience over time. 

You might: 

•     Co-develop improvement plans 

•     Build joint response strategies (e.g. disaster recovery) 

•     Collaborate on traceability or compliance efforts 

Use when: The risk is too important - or too complex - for one side to manage alone. 

Example: You partner with a key supplier to co-invest in more sustainable packaging, lowering both environmental and reputational risk. 

Supporting tools: Shared supplier risk management frameworks, like JOSCAR, reduce duplication and foster transparency - making true collaboration easier. 

Choosing The Right Approach Starts With The Right Lens 

Whether you avoid, reduce, transfer, accept, or share risk - your response should be driven by two things: 

• The type of risk you're facing 

• The impact it could have on your business if unmanaged 

Making the right choice depends on structured data, consistent supplier risk assessments, and a shared understanding of what good looks like across your supply chain. 

Take the Next Step  

Supplier risk can’t be eliminated - but it can be managed. The key is clarity. 

Hellios supports procurement teams in managing risk strategically - through centralised supplier data, shared assurance frameworks, and scalable supplier risk assessment processes.