Answer:
With dramatic changes in the business and financial postures of almost every company, the risk of suppliers failing is not a question of “if” but of “when.” Being proactive in monitoring this risk first requires comprehension of the inherent risk. Once these inherent risk factors are identified and categorized (e.g. strategic, business process, information, or contract exposure) they can be “risk weighted” and scored in order to identify areas of greatest exposure across the supply chain. The goal is to identify those vendors whose failing would cause significant harm to the bank. This list of critical vendors can then be used to guide your monitoring program which should minimally consist of the following components:
- List of “inherent” risk factors that are categorized and risk weighted for identifying vendors who are the greatest risk within your supply chain
- List of business profile “risk factors” that are weighted in such categories as financial and geographic risk for use in monitoring specific suppliers or groupings of suppliers
- Sources for information used to develop business profile “risk factors” that are rated by quality and availability (e.g. D&B, The Economist, etc.)
- Definition of risk decision rules which are triggered by changes in risk factors that are monitored
- Linking the monitoring schedule that defines how/when you gather risk factor information with the rule of what to do when such data is obtained
First published on BankersOnline.com 4/27/09
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