A Model for Measuring Supplier Risk: Do Operational Capability Indicators Enhance the Prediction Accuracy of Supplier Risk?

Abstract

The purpose of this study was to develop a supplier risk assessment model for buyers to estimate supplier risk. It is one of the few empirical studies that considers both operational capability indicators and financial indicators; a standard logit model with five key variables (switching cost, operating profit margin, asset turnover ratio, quality capability and technological capability) was suggested as a practical tool. This model not only enhanced the accuracy of supplier risk assessment, but also served as a core element of a new supply chain management tool, 'supplier management at risk'. More practically, the model enables purchasing firms to assess supplier risk and take proactive measures against the estimated risk.