Vendors and suppliers are key components of the supply chain. Through the course of doing business, various challenges can arise, potentially leading to financial, legal, or other problems down the line. That’s only one reason why every organization needs to implement risk management procedures. Natural disasters, supplier shortages, and other unexpected problems can throw a wrench in a company’s supply chain as well. But nothing causes more potential issues than using a high-risk vendor/supplier.
Whether the goal is to mitigate third party risk, assess vendors, or manage your spending/spend visibility, it’s important to effectively manage your suppliers. It can be a tough road to navigate, but with the right ideas and solutions, your business can manage and mitigate risk with ease. Here are five tips for managing and addressing vendor risk.
Monitor spend risk
Spend risk and spend visibility are essential components of a successful operation. Rogue spend and disreputable suppliers/vendors can cause significant concerns to a business’ bottom line and reputation. That’s why monitoring your spend risk and spend visibility are important steps in running daily operations. Managing your company’s spend is critical to ensure positive results and prevent future problems. Spend management ensures efficient procurement/sourcing decisions, real-time invoice assessment, and quality supplier selection. The idea is to optimize whatever value a third party supplier can provide while maintaining or improving your relationship with them. Analysis and risk assessment are significant aspects of managing spend visibility.
Use risk-scoring to assess vendors
Risks come in all shapes and sizes. It could be an inventory shortage, delays (intentional or unexpected), safety/quality concerns, or merely a disreputable vendor. Regardless of the problem, setting up and utilizing a risk-score system to assess your vendors is an excellent way to get the most from their services while fostering positive relationships. Some software solutions use a concept called “dynamic risk-scoring” wherein every supplier is rated on a few key factors. These factors can fall into many categories, including performance and financial considerations. By assigning scores to each supplier and keeping them up-to-date, you can attain valuable insight and recommendations into whether a supplier is performing quality work or needs to be reconsidered due to poor performance.
Implement vendor management software
To optimize and enhance your supplier management systems, consider implementing vendor management software. Vendor management puts everything you need to know about suppliers and their history right at your fingertips. Utilizing a supplier database and monitoring software enables you to look at past invoices, data, and history to assess spend risk in real-time and manage any potential supplier risks immediately, rather than taking a “wait and see” approach. More importantly, a robust software solution offers unique third party risk management tools that allow you to assess their potential risk and overall performance in real-time, empowering you to make important decisions affecting your company and your customers.
Manage third party compliance
Managing third party compliance is something that can potentially be overlooked by supply chain managers. Fortunately, if you’ve chosen to implement a software solution, you can gain valuable insight into several compliance factors for individual suppliers. Suppliers are required to follow certain regulatory practices intended to protect customers and consumers from data breaches, health or safety concerns, and other issues. As such, part of a good risk-assessment strategy should include checking for compliance. This includes any pertinent third-party information like financial problems, legal issues, news coverage, and other factors that may play a role in determining a supplier’s risk score.
Constantly assess suppliers
Rather than assessing your suppliers on a quarterly, annual, or two-year basis, consider checking them more often. This could be anywhere from weekly or monthly, depending on how often your organization interacts with the vendor. Vendor management software can speed things up considerably in this regard. Good software can provide users with a series of valuable metrics to assess vendor performance, liability, and associated risk. Do you need to stop an invoice from being paid? In-flight transaction control lets you take swift action by placing a hold on a high-risk vendor. Are you looking to find a new low-risk vendor to take over? The software provides multi-dimensional information to help you make such difficult decisions. Through regular supplier assessment—whether software-assisted or otherwise—you can ensure the lowest-risk from third-party suppliers and continue operating your business successfully without the headache of significant supplier risks.
