Supplier Risk Index measures the level of risk associated with a supplier by evaluating factors like financial stability, delivery reliability, geopolitical exposure, compliance, and quality performance.

What it Measures ?

How risky our suppliers are based on various factors.

Relevant StakeHolders 

Risk Managers, Compliance Officers

In-depth Use Case / Real-world Example

Consider a manufacturing company that produces industrial cooling systems. It relies on multiple suppliers for critical components such as compressors, control panels, metal parts, and specialized sensors. If any key supplier fails to deliver on time—or delivers defective parts—it can delay the entire production line. The Supplier Risk Index helps the company proactively assess and manage such risks. It combines several risk factors into one score or rating that indicates how risky a supplier is to work with. Common factors included in this index are: Financial health (e.g., credit rating, bankruptcy risk) Geographic risk (e.g., suppliers located in politically unstable regions) Delivery track record (e.g., frequency of late shipments) Quality issues (e.g., defect rates, returns) Compliance risks (e.g., labor violations, environmental non-compliance) Dependency risk (e.g., if the company relies too heavily on one supplier) For example, if a key electronics supplier is based in a region prone to export restrictions or natural disasters and has recently missed multiple deliveries, their risk index would be high. That alerts the procurement team to take action—like identifying backup suppliers, renegotiating terms, or shifting some volume elsewhere. A lower risk index means the supplier is reliable, stable, and aligned with the company’s operational and ethical standards. Tracking the Supplier Risk Index regularly enables better decision-making, strengthens the supply chain, and reduces the chances of costly disruptions. It transforms procurement from reactive to proactive.