7 Measures that Must Constitute Your Vendor Risk Management Strategy
Vendor risk management or supplier risk management is the process of identifying, analyzing, and reducing the risk of disruptions in the supply chain caused due to the actions of the vendors. With multiple partners for procurement, delivery, and various other steps in the supply chain, it becomes difficult to track all your vendors and assess risk at each stage of your supply chain. With increasing globalization, procurement planning now involves coordination with vendors all over the world and ensuring global compliance while assessing risks for these vendors. The complexity of vendor management can increase the probability of vendor risk.
If there are quality issues with the services or products sourced from your vendors, then it can affect your business’s reputation. Another instance of vendor risk involves regulatory risk, where the vendor hasn’t followed the regulatory and compliance requirements for their services. The non-compliance of the vendor products can affect your services as well. If your vendors are not able to complete their services or provide the products due to financial issues or bankruptcy, then your supply chain will also be affected, and your business will have to scramble to substitute this vendor.
Your business needs a comprehensive vendor risk management framework to address such scenarios and ensure seamless procurement and supply chain management. Let’s take a look at seven measures that should be taken as a part of your vendor risk management strategy.
1. Evaluate whether the vendor meets regulatory requirements
Suppliers need to adhere to regulatory requirements like health and safety laws, environmental, social and governance (ESG) compliance, financial compliance, and many other regulations. Ensuring that your supplier meets the regulatory requirements can help you mitigate compliance risks. Continuously monitoring your vendors to verify their compliance status and whether they are updated on the current regulatory requirements is also required to reduce vendor risk.
2. Categorize vendors according to their risk types
During the procurement planning and vendor risk management process, you can segment your suppliers into different categories based on their risk levels. One category of vendors can be vendors most likely to be disrupted because of geopolitical reasons, another category of vendors could be key vendors that are consistent and regular with their compliance requirements and supply a key component. You can divide your complete vendors into levels of high-risk and low-risk, which will make it easier for you to create preventive action plans for each risk category. Preventive action plans could be ensuring backup suppliers for important components or having business continuity plans in the case of major weather events.
3. Diversify vendor base
Once you categorize your vendor based on their associated risks to the supply chain, the next step you can take is to diversify your vendor base. This can involve finding alternative suppliers for key parts of your product. In the event that your current vendors are not able to supply the key components, you can procure those from alternative suppliers so that your product manufacturing will not be halted. Diversifying can also involve finding vendors in other countries or on different continents. Depending on the type of product and their compliance needs, the process of onboarding new vendors can take anywhere between weeks and a year.
4. Monitor vendor performance
Conducting regular vendor risk assessments and quality checks should be a part of your vendor risk management strategy. You can keep track of the performance of individual vendors and the overall experience of the procurement team with the vendors. However, this should not be a one-time process. Your business can maintain a regularly updated database containing vendor track records and vendor risk categories. This procedure can help you lower vendor risk through periodic reviews and regular quality checks. You will get the chance to streamline the vendor selection process and keep backup suppliers for vendors with lower performance.
5. Push vendors to regularly update their information
With changing regulatory guidelines, vendors also need to ensure that they are complying with the updated rules. Your procurement team can establish a process to enable your vendors to update their information. This will ensure that you have the latest vendor data and help you manage vendor risk.
6. Create contingency plans
Developing business continuity plans can provide you with actionable steps if adverse events occur. According to the priority set for your products and risk levels, alternative solutions and vendors, along with proper escalation procedures, can help you manage unforeseen circumstances. You can also insure products from vendors with high-risk levels. Through proper contingency planning, you can ensure that there is minimal loss or damage to your company’s reputation.
7. Develop a Consolidated Vendor Database
To properly conduct vendor risk management, you require all your procurement and vendor data on one platform so that you can easily manage vendor risk. A vendor consolidation platform gives seamless access to supplier data to help you get a better idea of the risk factors. Such platforms also aid in improving supply chain visibility and monitoring all relevant vendor information.
A digital vendor consolidation platform can make the process of vendor risk assessment quick and seamless. With all your vendors and their details located on a unified interface, you can easily evaluate the risk parameters for every vendor. Additionally, the digital vendor management platform comes with many other benefits, like automating the payment process, simplifying complex documentation, assistance in partnering with diverse vendors, etc.
Bizongo’s digital vendor management and other supply chain management solutions can assist you in every phase of your supply chain. Contact us to get started with a digital vendor management solution.
