What Are the Types of Supplier Risks? A Breakdown with Examples

When we talk about supplier risks, we’re not just talking about whether a supplier will deliver on time. You’re exposed to risk in more ways than one - some obvious, others hidden deeper within the supply chain. 

Understanding the different types of supplier risks is the first step in building a robust, proactive supplier risk management process. Below, we break down the five core categories and share real-world examples to bring them to life.

1. Financial Risk

This is the risk that your supplier may not be able to stay in business - whether due to cash flow issues, unsustainable debt, or market collapse. 

Example: A specialist component supplier files for insolvency halfway through a major production cycle, leaving your team scrambling for alternatives and driving up costs. 

How to manage it: Perform regular financial health checks. Use a supplier risk assessment to monitor for red flags like late filings or credit rating drops.

2. Operational Risk

Operational risk refers to disruptions in your supplier’s ability to deliver goods or services reliably - due to internal failures like labour strikes, equipment breakdowns, or poor capacity planning. 

Example: A supplier misses critical deadlines due to a warehouse fire, triggering a delay in your product launch. 

How to manage it: Diversify suppliers where possible. Ask about contingency plans and evaluate their disaster recovery capabilities as part of your onboarding process.

3. Geopolitical Risk

These supplier risks stem from events outside your supplier’s control - such as trade disputes, civil unrest, export bans, or sanctions - that can disrupt the flow of goods and services. 

Example: A supplier in a politically volatile region faces sanctions, preventing you from legally continuing the relationship. 

How to manage it: Monitor geopolitical developments across your supplier base. Flag high-risk countries during your supplier risk management process and prepare alternatives in stable regions. 
 
Hellios supported defence buyers through exactly this during a recent international crisis - helping them assess exposure, identify compliant alternatives, and maintain continuity. You can see how that unfolded in this case study on supply chain resilience in the defence sector.

4. Cybersecurity Risk

Your suppliers are part of your digital footprint.

If their systems are compromised, yours could be too. This is especially relevant for technology, SaaS, and data processing partners. 

Example: A data breach at a cloud service provider exposes sensitive customer information, creating reputational damage and regulatory exposure. 

How to manage it: Include cybersecurity criteria in due diligence. Ask about ISO certifications, data encryption, and incident response plans.

This is where Hellios communities like JOSCAR can help standardise and streamline security-related supplier risk assessments.

5. Sustainability Compliance Risk

This covers ethical, environmental, and regulatory failures - such as modern slavery, unsafe working conditions, corruption, or poor sustainability practices. 

Example: A supplier is found to be violating labour laws, prompting media coverage and damaging your brand’s reputation. 

How to manage it: Build Sustainability requirements into your procurement policy. Platforms like JOSCAR can simplify this by collecting and validating compliance data upfront, across multiple standards. 

Supplier Risks Are Interconnected - and Manageable 

The five risk types above rarely exist in isolation.

A supplier with financial trouble might also cut corners on safety. One facing geopolitical uncertainty might also be vulnerable to cyber-attacks due to resource strain. 

That’s why effective supplier risk management means taking a holistic, structured view - rather than reacting to isolated incidents. 

Hellios supports procurement teams in tackling these risks with clarity and consistency.

By using tools like JOSCAR, you gain access to validated, standardised supplier data across all five categories - so you can act early and with confidence.