Vendors play an extremely important role in determining the success of your business. No matter whether you consider it important to manage relationships with your suppliers or not, you cannot deny their significance when it comes to boosting the profitability of your organization. Many progressive organizations have realized this fact and have started developing strategies for better life cycle management. At present, however, the concept of vendor risk management has shifted from a department-level process to an enterprise-wide one. Many organizations are even centralizing their vendor risk management process and effectively managing the risks posed by vendors and contractors. This makes it even more critical for other companies to leverage vendor risk management solutions to effectively manage risks.
What is vendor risk management?
Vendor risk management is a process that allows businesses to identify and mitigate potential business disruptions and legal liabilities. It also helps monitor and manage risk exposure from third-party suppliers (TPSs), who provide IT products and services or have access to sensitive enterprise information. Since strategic, financial, operational, and compliance or legal risks may be amplified with the introduction of third parties into to the business operations, companies need to have a proper risk management framework in place to protect customers’ data. At times, vendor risk management is also known as third party risk management.
With an effective vendor risk management strategy in place, companies can easily mitigate risks and overcome business challenges. To know how our vendor risk management process can help you achieve this, get in touch with our experts.
Why companies need a vendor risk management policy?
By outsourcing their vendor management process, businesses lose control over their workflows and become vulnerable to operational, regulatory, fiscal or even reputational risks. These risks can be further classified as:
Recent cases of data breaches have compelled regulators to create various legal requirements for companies. They have to ensure the safety of data even if they are hiring third party vendors. These legal requirements have made vendor management policy a necessity for businesses to avoid data breaches by vendors.
Organizations often employ third-party vendors to save costs and capitalize on vendor expertise. This increases the list of third parties working with companies and creates a larger risk landscape. Moreover, this issue amplifies as vendors either have access to sensitive data or direct access into the corporate network. This is a well-known risk which is often overlooked by companies.
Many organizations enter business relationships with third parties without completely understanding the risks it can bring to their data. They do not set any rules for their vendors, especially when it comes to data access. A majority of organizations have no idea about who is accessing their sensitive data and how much access they have. This anonymity is a valid reason for concern.
Importance of vendor management
For organizations looking for long term growth, vendor risk management becomes a critical part of their business. It helps in the continuous identification of high-risk vendors and helps expand their product portfolio. Efficiently managing vendor risks and contracts decreases excess spend and increases productivity for businesses. Moreover, by mitigating risk management challenges, companies can easily improve customer experience. To make the most of such opportunities, companies need to have a clear idea of the vendor management process. Here’s a look:
Step-by-step guide for vendor management process
All of us know that vendor management is a tough process. And to help companies effectively manage risks, we have shortlisted some steps that can help you improve your vendor management process:
Identify all your vendors
Identifying vendors who meet your every requirement is one of the very basic steps of a good vendor risk management process. Start by making a vendor list and then understand how much access to data and process your vendors have gained over time.
Prioritize vendors-based risks
After making a vendor list, it becomes quite easy for you to prioritize vendors based on risks. Simply analyze the list and find out how much risks can your vendors pose for your business. These risks can be divided into different categories such as critical, high, medium and low. There will be few vendors who will be critical to your operations, and their failure could negatively impact your process. Similarly, there will be vendors who will have access to extensive customer data, which by itself is a risky proposition. Provide access to organizational data based on risk factors and ensure access to data based on business needs.
Track new vendors
It is extremely critical for organizations to scrutinize any new vendor engaging with the organization. To achieve this, you need to have standard processes and a vendor risk management template to conduct a risk analysis and determine if the vendor will be ranked critical, high, medium or low.
You need to ensure that all critical and high risk vendors are reviewed critically by legal authorities every year. Also, companies should check if their vendors are following best practices for data security to mitigate challenges or not. The same can be done for medium and low-risk vendors in every two or three years.
Vendor risk management is a continuous process and involves constant vigilance. You can never be ignorant when it comes to the vendor management process. Therefore, companies need an effective risk management framework that can make them aware of the happenings in the network.
Contract reviews and regular checks require businesses to process huge volumes of data. Request a free demo and know how we can analyze data from multiple sources to help you manage procurement risks across various business units.