Part of being in business is being capable and willing to take risks. In a supply chain, risks are seemingly everywhere and some may be relatively simple to address, whereas others may take time to mitigate. While focusing on how to effectively manage the more common risks within a supply chain as they relate to suppliers, there are a few best practices that can be implemented to lessen the potential of risks taking a turn for the worse. The amount and severity of risks greatly depends on the industry in which the business operates. However, the following best practices will assist in managing various risks that remain similar regardless of industry.
When working with suppliers, a great starting point to manage potential risks involves having a contract in place as the relationship between supplier and customer begins. Having an agreement with suppliers will assure both parties that they each have responsibilities for their portion of the business relationship. With an established agreement, both parties can also hold each other accountable for what they agreed on. If no contract is in place, there is a much greater risk related to quality, costs, production and purchasing processes, as well as intellectual property protection that may suffer as a result. Putting agreed upon terms in writing will ensure the supplier and the customer that the other party will perform their due diligence. It will also aid in not only better governing the relationship as business continues, but to mitigate risks in key areas such as costs and quality. Contracts outline payment terms, service levels, among other mutually agreed upon terms and conditions that will decrease the severity of risks associated with production and the final product. However, it is important to note that contracts do not completely alleviate risks within the relationship. They set the terms and conditions for the business relationship and provide information on managing certain risks, however another best practice to manage risks involves keeping the lines of communication clear and frequent.

In any relationship, communication is key. It is necessary for businesses to communicate regularly with their suppliers and vice versa to ensure that both sides are on the same page. Setting aside a designated time on a weekly or even monthly basis to check in with the other party will maintain a healthy level of communication. These meetings should be used as an open discussion to evaluate production process, identify any risks that may be present on either side, and implement risk mitigation plans. During these meetings, suppliers and customers have the opportunity to discuss any capacity, capability, forecasting or any other concerns that may pose a risk to either business. Keeping an open line of communication allows each party to address issues or risks they see, in addition to collaborating and developing plans to manage these risks moving forward.

Ultimately, maintaining a great relationship between the business and its suppliers will help manage and reduce risks as they relate to the supply chain. Reviewing and agreeing on a contract’s terms and conditions will lay out how the relationship will work and what is expected of the supplier and the customer. Maintaining clear communication with suppliers makes it easier to collaborate, ensure business is being handled as agreed on, and ensure risks are being identified and reduced as soon as possible. Though there are various risks associated with suppliers, these are a few best practices that will play a key role in identifying these risks and managing them to the best of the business’ ability.
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Samantha Hoy

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