Here’s How to Manage Vendor Risk Effectively
Written by: Sandra Larson, Writer
All business organizations have to work with vendors and third-party suppliers. It is very important to examine and study vendors in order to avoid any potential harm that they can cause to your business unintentionally. In majority cases, vendors connect to business organizations directly by getting remote access to the company network. Sensitive data is communicated, stored and handled on both corporation and supplier networks.
This practice potentially increases the chances of attacks from cybercriminals. They can get into company system through weak vendor networks and get access to secret information. Vendors may not have a security system to safeguard all the bits of business information that they attain from partner companies. That is the reason businesses need to devise solid risk management policies. Vendor risk management is a critical step towards the safety and prosperity of your business.
What is Vendor Risk Management?
Vendor risk management or VRM can be defined as the inclusive plan for the identification and elimination of business reservations and legal liabilities about the hiring of suppliers and third-party vendors for IT products and services.
Solid risk strategies are required to be made in order to avoid the risks involved with vendors. A strong vendor risk management policy can include different aspects including the following:
- A contract detailing the business relationship between the vendor and the company.
- Consistent observation of vendor performance in order to make sure that contract requirements are being fulfilled.
- Proper guidelines regarding giving access to particular information as part of a vendor agreement.
- Conditions to make sure that vendors meet supervisory compliance guidelines for your business, and an approach to monitor this compliance.
How to Manage Vendor Risks with Company-Vendor Relationship
Companies and businesses can tackle vendor risk by engaging vendors in a good business relationship. Many problematic situations can be ignored when relationships are pleasant between businesses and vendors. You can also get assignments done about the relationship between vendor and company. One thing that is very important to understand is that the supplier is not just the source of providing goods and services to run your business smoothly, but they also play a vital role in providing useful information and advice.
The following guidelines will help your business organization in building good relationships with the suppliers:
- Establish a daily contact with your suppliers.
- Build good relationships with representatives of your existing suppliers.
- Do not delay in paying your vendors’ accounts.
- It is advisable to inform your supplier well before the due date of payment if you expect delays in paying their account.
- Be just but firm with vendor sale representatives as they can take a lot of time.
- Try your best to avoid rush orders in all situations because they can be a reason for enormous stress in your company. Such decisions can also begin to ruin your relationship with suppliers.
- It is mandatory to closely observe the financial position of your vendors. You can discuss the general financial stability of the supplier with industry competitors and colleagues. This should give you a good thought about what’s going on.
- Whenever you come across any issue in a relationship, address this promptly to avoid speculations.
- Discuss faulty or damaged goods with the vendor immediately when received. Provide supporting documentation to evidence.
- Renegotiate and review the terms of trade with vendors from time to time.
Best Practices for Active Vendor Risk Management
Companies and businesses should focus on strengthening the VRM or Vendor Risk Management. They should also meet the rising demands of the regulatory environment.
1. Vendor selection is key
Successful Vendor Selection is the key factor in controlling the vendor risk. Proper planning is essential before finalizing the vendor contract. A company should understand the nature of the relationship with the vendor and make necessary policies to maintain a healthy business environment for years to come.
2. Conduct a vendor risk assessment
Vendor Risk Assessment is a well-defined process to correctly assess serious, high, moderate and low-risk suppliers with the help of self-assessment and survey techniques.
3. Monitor your vendors
Vendor Performance Monitoring on a regular basis enables companies to be aware of supplier’s capability to comply with promised obligations.
Procurify empowers teams to build a good relationship with vendors and allows you to achieve greater visibility into company’s spend.
Hence, companies can build a good relationship with vendors by taking proper measures and following true and tried techniques. In this way, you can manage vendor risk well. So both parties can enjoy working in a better business environment.
Sandra Larson is a renowned freelance online essay writer with her blog – Elizabethan Authors. She is also a regular contributor to the popular Bay State Banner. Besides writing, she is also a great advocator for Affordable Housing leading several Urban and Regional Policy programs.