# Supplier Risk in Supply Chain Risk Management: An Updated Conceptual Framework
## 3 Theoretical Background
### Supply Chain Risks of Direct and Indirect Suppliers  
A business network is made up of several layers or tiers of suppliers. Primary suppliers (tier 1) deliver directly to the focal company while having their own suppliers, which are indirectly linked to the focal company. The relationship scale varies, being stronger for primary suppliers, but all chain elements carry part of the risks relative to the others [8]. The level-1 supplier is perceived as holding the highest risk in the chain, as it deals directly with the focal company and, simultaneously, depends on level-2 suppliers. If it is not able to meet the focal company's demand, even due to disruptions at level 2, the primary supplier absorbs the risk of losing the customer [4]. Thus, corporations entrust responsibilities and assignments to their primary suppliers to maximize benefits and minimize transactions that do not add value. As a result, they increasingly depend on the ability of these suppliers to meet requirements [29] and demonstrate resilience in the face of disruptions coming from previous levels in the chain [30], mainly because disruptions can occur interdependently when suppliers are related, for example, by geographic area where a catastrophe occurs, or simply because they share the same level-2 supplier [13]. Despite this, the organization usually selects a supplier without considering that it will absorb its sub-chain and, therefore, add risks to the entire ecosystem [7]. Different approaches are found in the literature, which consider multi-level suppliers when dealing with aspects related to risks in the supply chain. [PERSON] and [PERSON] [31] analyze the relationship between risks and inventory. When considering the effects that the risks of disruption at a tier-2 supplier cause on the focal company's inventory sizing, they conclude that increasing the inventory is not always the best strategy that an organization can adopt to stabilize the system as such a decision is likely to generate greater exposure to other risks. They also suggest that allocating smaller and more frequent orders is an option for mitigating risks, even when disruptions are expected at the tier-2 supplier. [PERSON] et al. [30] investigate the resilience of tier-1 suppliers in the face of disruption from a common tier-2 supplier, considering \"resilience\" as a firm's capability to respond to disruptions and restore normal operations. From a more detailed perspective, [PERSON] and [PERSON] [20] define a resilient supplier as \"suppliers that are capable of providing good quality products at reasonable prices, and flexible enough to accommodate fluctuations in demand with reduced lead times and risks, without compromising security and environmental practices environment\". The authors also state that developing an SCRM culture is essential to achieving this objective. It is also observed that the reaction to disruptions is strongly related to the type and intensity of the event causing the disruption [13], and therefore subject to different types of risks, such as natural disasters, financial crises, and strikes [32]; geographic location, crime, supply limitations, and political and economic stability [33]; competitor actions, information management, technological changes, and consumer profile changes [20]; operational failures, sales effort, and resource dependence [34]. Thus, the aforementioned study by [PERSON] et al. [30] points to a path to help build primary suppliers' resilience to level-2 (or earlier) disruptions: cooperative competition. The authors highlight a case in which one of Toyota's first-tier suppliers, faced with a fire in their plant, was able to avert disruption due to the joint effort of other Toyota suppliers. However, they emphasize that this strategy does not help to mitigate financial risks for the client company when it is not part of a strong integration scenario with such primary suppliers.