Assessment of supplier risk for copper procurement

Abstract

Procurement risk management (PRM) requires a good understanding and assessment of all potential risks. As the procurement industry mostly functions globally and the supply--demand chain forms a dependency structure among all interested parties, the quantification of risks related to the suppliers gain importance. This study presents a systematic PRM to evaluate and quantify the risks of a commodity associated to its suppliers. The probabilistic set up using total probability theorem on the information collected using risk management tools, such as expert opinion, charts, survey and historical realizations are imposed to quantify the risks. The resulting probabilities are utilized to construct a risk matrix which illustrates the performance of each supplier at every potential risk source. An application to a copper procurement as case study is done based on the risk management process evaluation. The quantification of the supplier's risk with respect to a risk ranking illustration in copper procurement is exposed to indicate the effectiveness of the methodology and the necessity of such evaluation in decision making.

Keywords

• Procurement process,risk management,risk matrix,total probability theorem,supplier risk,copper

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