How Do You Manage Risk With Suppliers?

Managing supplier risks isn’t about ticking boxes – it’s about protecting your business from disruption, non-compliance, and reputational damage.  

With the right process, you can build resilience, make smarter decisions, and act before problems escalate. 

This five-step guide outlines a scalable, repeatable process for supplier risk management that aligns with real-world business priorities - and helps you respond proportionately to different types of risk. 

Step 1: Identify What’s in Scope 

The first step in supplier risk management is understanding which suppliers fall within scope.

You can’t manage risk if you’re unclear where to look. 

Every organisation has a threshold - based on spend, service type, geography, regulation, or internal policy - that defines which suppliers deserve scrutiny and which fall below the line.

This is the foundation of proportionality. 

You don’t need to boil the ocean. You just need to know which parts of it matter. 

Work with internal stakeholders to define your supplier risk appetite, and clarify which suppliers are:

• Critical to operations or compliance

• Handling regulated data or customer interactions

• High-spend or long-term contract holders 

Step 2: Segment Suppliers by What They Do for You 

Next, focus not just on who your suppliers are - but what they do for you. This is where supplier risk assessment becomes more meaningful. 

Classify services based on:

• Type of exposure (e.g. data access, logistics, operational continuity)

• Alignment with your long-term goals and compliance requirements 

• External drivers (e.g. regulatory pressure, ESG focus, political scrutiny) 

This builds your supplier risks pyramid - from a few high-impact suppliers needing deeper scrutiny, to a broader base requiring lighter-touch oversight. 

Only now - once you understand the services, exposures, and business priorities - can you design a supplier risk assessment framework that reflects the real supplier risks you face. 

Step 3: Design a Clear, Risk-Aligned Assessment Framework 

Now that you’ve segmented suppliers by what they do for your business, the next step is to define how you’ll assess them. 

Start by identifying the types of supplier risks most relevant to your organisation.
 
Common categories include: 

• Financial stability

• Operational reliability

• Cybersecurity and data handling

• ESG and regulatory compliance

• Geographic or geopolitical exposure

• Continuity and disaster recovery readiness 

Once these categories are defined, establish standardised risk criteria for each. This includes setting documentation requirements, defining what evidence is acceptable, and building a scoring rubric that can be applied consistently. 

This risk information should come from both supplier-side sources (like financial statements, audit findings, ESG disclosures, or questionnaires like JOSCAR) and buyer-side data (e.g. spend history, contract terms, performance records) for a complete picture. 

This creates a consistent, measurable foundation for supplier risk assessment - ready for action.

Step 4: Assess, Score and Tier Suppliers 

With your supplier risk assessment framework ready, it’s time to apply it consistently. 

Start by evaluating each supplier across the risk types you’ve defined - using a matrix that scores both: 

• Likelihood – how probable the risk is 

• Impact – how disruptive it would be if it materialised 

These risk scores can then be combined into a composite risk score: a single, weighted rating that reflects overall exposure. This gives you a high-level view of risk while still allowing you to drill into individual factors when needed. 

This step allows you to: 

• Tier suppliers (e.g. high, medium, low risk) 

• Prioritise due diligence and mitigation for those who matter most 

• Allocate resources effectively, focusing attention where risk is highest 

But scoring is only part of the equation. To be effective, it must directly shape how you manage the relationship. 

Once you’ve tiered your suppliers, tailor your mitigation strategies accordingly.  

Key actions may include:  

• Contractual Protections: Include clauses that offer fallback options in the event of disruption - such as price adjustment mechanisms, access to alternative suppliers, or penalties for non-performance. 

• Risk Transfer: Where appropriate, transfer some supplier risk through insurance coverage or third-party guarantees. 

• Diversification: Avoid over-reliance on a single supplier by identifying alternatives or creating dual-sourcing strategies. 

• Inventory Management: Build appropriate buffers into your inventory to absorb minor delays or disruption without impacting operations. 

• Supplier Development: Partner with strategic suppliers to improve performance through training, process improvement, or technology upgrades. This builds long-term resilience. 

By combining assessment with structured action, your process for risk management becomes more than a scoring exercise. 

Step 5: Monitor Performance and Risks Continuously 

Supplier risk doesn’t end at onboarding. New threats, compliance gaps, or performance issues can emerge at any point in the relationship. 

Your supplier risk management process must include real-time or regular monitoring of key indicators. This includes: 

• Performance Monitoring: Track KPIs like delivery timelines, quality ratings, invoice accuracy, and audit outcomes. 

• Regular Audits: Review financials, compliance, and certifications annually - or more frequently for high-risk suppliers. 

• Relationship Management: Strong relationships encourage transparency. Suppliers are more likely to raise risks early if trust is in place. 

• Technology Adoption: Use tools and platforms, like JOSCAR, that allow real-time risk alerts, dashboard reporting, and automation of follow-ups. 

• Offboarding Risk: Plan for supplier exits. Build protocols for knowledge transfer, system access revocation, and transition timelines to manage offboarding risks. 

Sustained supplier risk management means maintaining visibility and control – not just at onboarding, but at every step. 

Step 6: Turn Your Framework into Daily Practice 

The final step is to embed your supplier risk assessment into a formal framework that ensures consistency and makes your process scalable. 

A strategic framework should include: 

• Cross-Functional Ownership: Involve procurement, risk, compliance, legal, IT, and finance to get a 360° view of supplier exposure. 

• Standards-Led Methodology: Align your approach with best-practice risk management frameworks like ISO 31000 or NIST - especially if you operate in highly regulated sectors. 

• Centralised Tools and Templates: Use one database or platform, like JOSCAR, to manage supplier risk assessments, documentation, scoring, and reviews. This creates audit-ready visibility. 

Structure = Confidence 

When you manage supplier risk through a consistent, collaborative process, you don’t just reduce disruption - you strengthen every link in your supply chain.  

You move faster, stay compliant, and build supplier partnerships that are resilient under pressure. 

This guide has given you a practical framework to follow. But the real differentiator isn’t just the process - it’s embedding that process at scale. 

That’s where Hellios comes in. Through shared assurance communities like JOSCAR, we help buyers: 

• Simplify supplier risk assessments 

• Reduce duplication and paperwork 

• Maintain up to date, validated supplier data 

• Make faster, more confident risk decisions 

You get consistency across teams, visibility across suppliers, and the tools to take action early - not after the damage is done.