Vendor risk management
What vendor risks should I look out for?
Vendor risks are becoming more common, as supply chains get bigger and more complex. Organisations increasingly outsource to third party vendors to improve efficiency and save money. These third-party vendors have access to key financial data, customer information and are prone to cyber-security risk, so it’s important to spot the vendor risks to limit their impact on your organisation. Take a look below at six types of vendor risks you should look out for.
1. Cyber-security risk:
As more digital technology is being used within procurement and the supply chain, this makes vendors more susceptible to cyber-threats. These threats are growing in sophistication and speed, so the need for strong software in place to help eliminate these threats is important.
2. Compliance risk:
There are many laws and regulations that govern products and services, particularly in the healthcare industry. If a third-party vendor is not complying to these laws this can result in heavy fines.
3. Financial risk:
Financial risks can come in two forms, excessive costs, and lost revenue. Excessive costs can lead to huge debt, particularly if your vendor is not complying to terms outlined in your contract. Lost revenue typically occurs when third parties are not tracking or recording accurate sales activity for your organisation.
4. Operational risk:
This type of vendor risk occurs when the third party is shut down and is unable to perform their operational duties. This could be because of a fault in machinery or a logistical problem, so it’s important there is a continuity plan is place if this should ever occur.
5. Reputational risk:
This type of risk occurs from negative public opinion. For example, if products are of low quality and customers are dissatisfied or if there are data breaches with customers information, these can all affect your brands reputation.
6. Geographical risk:
It’s important to identify where your third party is operating and if there are any associated risks. For example, if your third party operates in a location that is prone to hurricanes or earthquakes or political unrest this could then lead to operation risks. Consider the rules and regulations of the country they are operating in too, as these could be different from your own organisation.
What are the benefits of vendor risk management?
Ensuring you have effective vendor risk management in place, will not only bring benefits to your organisation but helps to boost third party vendor’s performance too. Here are just a few benefits of vendor risk management:
- Ensures there is accountability for both your own organisation and the vendor’s
- Increased quality and improvement in services
- Reduced costs, particularly when thinking about compliance risks that can cause heavy fines
Risk mitigation
Procurement and supply organisations won't experience the same risks, but it's important to identify what they are and how to mitigate them.
Find out more about Risk Mitigation
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