The best course of action is to determine with senior management and internal stakeholders the acceptable levels of risk for each product. This collaborative approach ensures that the organization has a clear understanding of its risk tolerance and can develop appropriate strategies to mitigate those risks. It involves assessing the potential impact of risks on the business and aligning risk management strategies with the company's overall objectives. This preparation is crucial for effective negotiations with suppliers, ensuring that all parties are on the same page regarding risk management.
References
* Risk Management in Supply Chains by David L. Olson and Desheng Dash Wu
* COSO (Committee of Sponsoring Organizations of the Treadway Commission) ERM (Enterprise Risk Management) Framework
* ISO 31000 Risk Management Standards

Given Supplier X's long-standing reliability, quality, and willingness to collaborate, the best approach for the supply manager is to meet with Supplier X to discuss cost reductions. This collaborative approach maintains the positive relationship and leverages Supplier X's established performance. The supply manager can present the competitor's lower pricing as a benchmark, encouraging Supplier X to find ways to reduce costs without sacrificing quality or service.
References
* Supplier Relationship Management: Unlocking the Hidden Value in Your Supply Base by Jonathan O'Brien
* "Negotiation and Supplier Management" - Institute for Supply Management (ISM)