With organizations outsourcing services to third party entities, the issue of vendor management has become a noted topic in today’s business world. Companies need to monitor entities for baseline compliance measures with regards to minimally accepted standards for security. Specifically, all outsourced processes, procedures, and practices relevant to a company’s business must be monitored regularly, which also includes devising a potent vendor management policy.
A vendor management policy ensures that companies can readily identify any issues, concerns or constraints pertaining to these risks. Failure to mitigate and prevent these risks can result in significant financial losses, legal issues, and reputational damage to the brand. As such, the following risks are to be thoroughly understood and associated with regards to business and contractual relationship entered with third parties.
At SpendEdge, we understand the impact of risks posed by third parties. Therefore, we are defining different types of risks that you need to understand to formulate an effective vendor management policy while entering into a third party or contractual relationship.
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Why you Need a Vendor Management Policy?
The risks arising from violations of applicable laws, rules, regulatory mandates apart from internal operational business and information security policies and procedures are termed as compliance risks. Such risks require constant monitoring and oversight of third parties, and a vendor management policy for ensuring the safety and securities of services provided to the company by such entities.
These are the risks occurring due to the inability of third parties to implement business initiatives that align with the business ideas of the company such as offering sub-standard services that provide a lower return on investment. Ultimately, when the long term vision of the company and the third-party do not align, strategic risks begin to surface, and companies need a vendor management policy to tackle them.
Transactional risks occur when the third party fails to deliver the set objectives, such as product delivery, operational efficiency, or unauthorized transactions. An important way of mitigating such risks is having a comprehensive, well-documented vendor management policy that can guide third parties on a regular basis.
Operational risks arise from a failed system of operational internal controls, that relate to personal and the relevant policies and practices. This becomes an issue when organizations integrate their operational activities with outsourcing providers, thus affecting productivity, workflow efficiency, and many other issues.
Inability to implement effective vendor management best practices can impact the company’s productivity and workflow efficiency. Stay a step ahead by requesting a free demo of our procurement platform and gain exclusive market insights to improve your vendor management process.
Country risk refers to the risks happening due to the political, economic and social landscape – within a foreign country that can impact the services provided by third parties. Managing such risks can be extremely challenging without a vendor management policy, especially when considered with respect to the diverse political landscape across the globe. These risks may also include legal issues as laws and regulations differ greatly from region to region.