The Supplier Risk Score: Your Single Source of Truth

For procurement teams, the pressure to both ensure operational resilience and keep costs down has never been greater. Traditional methods of evaluating suppliers, often relying on gut feelings, outdated spreadsheets, and inconsistent criteria, are no longer sufficient. They create a fragmented and subjective view of risk, leaving organizations exposed. 

What if you could replace this uncertainty with a clear, consistent, and objective measure? This is where the concept of a supplier risk score comes in. It provides a single source of truth that transforms how you compare, select, and monitor your suppliers.  

Supplier risk scoring allows you to make smarter, data-driven decisions to increase supply chain resilience. Here, we will look at the benefits of a unified risk score. 

What is a Supplier Risk Score? 

Think of a supplier risk score as a credit score, but for your supply chain. It is a numerical rating that quantifies the diverse supply chain risks associated with a specific supplier in a specific location. 

Instead of juggling disparate pieces of information, you get a single, standardized number. This score is typically calculated on a common scale, such as 0 to 25. The higher the number, the greater the level of risk. This simple yet powerful concept creates a common language for risk across your entire organization. 

This standardization is what makes a unified risk rating a true single source of truth. It allows for an apples-to-apples comparison between potential vendors, even when they face vastly different types of risks.  

If you work with the same supplier across multiple locations, you will score each one separately. This is because location-based risks can be wildly different. One region could be prone to wildfires; another could have poor workers’ rights. These can be aggregated at a supplier level. However, it is still vital to understand the location-specific risks.  

Take flooding, for example. Your supplier may be in a region that experiences regular flooding. However, if their facility and transportation links are high above the floodplain, flooding is unlikely to disrupt their operations. 

The risk score removes the guesswork and subjectivity that often plague procurement decisions. Furthermore, it ensures that everyone from a category manager to the Chief Procurement Officer is working from the same playbook. 

The Pitfalls of Traditional Supplier Evaluation 

Manufacturers are often hampered by outdated supplier evaluation methods. When decisions are based on personal relationships or incomplete data, inconsistency becomes the norm.  

One procurement team might prioritize cost per unit, while another focuses on total landed costs. Their colleagues in planning or operations may be more concerned with on-time delivery or product quality.  

As a result, cross-functional teams have no standardized way to weigh a supplier’s associated risks. This leads to a fragmented understanding of the supplier base and hidden vulnerabilities that only surface during a crisis.  

A KPMG survey revealed that over 75% of business leaders consider supplier risk management a strategic priority.  Furthermore, 70% admit their supplier risk management strategies are inefficient, leaving them exposed to reputational damage from third-party failures.  

Goods made with forced labor can be seized and destroyed. Compliance issues can result in shipments being delayed. Partnering with a vendor involved in unethical labor practices can lead to regulatory fines and irreparable brand damage.  

You cannot manage supplier risk if you don’t know where it is. Without a unified metric, companies are making critical decisions with an incomplete picture of their risk exposure. 

How a Supplier Risk Score Is Calculated 

A comprehensive supplier risk score is not a single data point, but a sophisticated aggregation of many. The system analyzes a wide array of both external and internal risk factors to create a holistic view of the supplier.  

External risks to consider include potential supply chain disruptions such as natural disasters; political violence; socio-political; operational; risk to individuals; and sustainability. 

There are also economic risks regarding taxes, economic performance, and legal regulations. 

Finally, external risks also include long-range climate risk. 

Companies may have internal risks that they wish to include in calculating the risk score. Examples of these include on-time delivery performance; product quality metrics; cybersecurity strength; financial health; and business continuity plans. All these internal metrics are optional.  

The risk scores are weighted depending on a company’s characteristics. Certain risks will be more important to you depending on what you source, where you source it from, and how critical the material is to you, and the potential impact on your operations. 

For example, let’s say you source semiconductors from two different suppliers, one based in Japan and the other in Taiwan. If semiconductors are critical to your business, then earthquakes would be a high risk. Both countries are prone to seismic activity and even minor tremors can impact semiconductor manufacturing.  

Conversely, if you source grain from the United States, weather and climate risks that could impact crop yields would be more of a concern to you.  

Figure 1: External risk indices are combined with internal performance data to create a comprehensive view of supplier health.

Transforming Supplier Onboarding 

The benefit of using supplier risk assessment starts at the earliest stage of the supplier lifecycle: onboarding. During the selection process, the score provides an immediate, objective filter.  

Think of the risk score as the overall strategic risk a particular supplier poses to your business. You can set “no-go” thresholds to automatically weed out suppliers that fall outside your company’s risk appetite. This saves countless hours of evaluation time and prevents teams from pursuing partnerships that are doomed from the start.  

This data-driven approach makes the bidding and selection process less frustrating and more strategic. Instead of discovering a critical risk factor late in the negotiation, procurement teams have actionable data from the beginning.  

This allows for a much deeper and more efficient due diligence process. You can confidently compare two seemingly similar suppliers and see that one has a significantly lower risk rating due to its robust business continuity planning. This clarity empowers you to make faster, more confident decisions and build a stronger, more resilient supplier base from day one.  

The strategic risk score changes over time because risks are not static; they evolve. For example, a formerly peaceful region can experience unexpected civil unrest.  

A New Era of Risk-Optimized Procurement 

You cannot build a resilient supply chain without mitigating supplier risks. This is known as risk-optimized procurement.   

The supplier risk score provides the foundational metric for this transformation. It is the single source of truth that empowers procurement teams to move beyond simply cutting costs and become strategic drivers of business value. 

By embracing this data-driven approach, you can protect your operations from disruption, safeguard your brand’s reputation, and build stronger, more collaborative supplier relationships.  

If you would like to see how supplier risk scoring could work for your organization, please contact Everstream Analytics for a demo.