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5 Ways to Reduce Supplier Reputational Risk
The Russian invasion of Ukraine has demonstrated that supply chains are vulnerable to more than pandemic-related disruptions or cyberattacks – the response to sanctions is just as important to supply chain resilience. Sanctions levied against Russia will require companies around the world to ensure they – and their suppliers – are not doing business with sanctioned organizations or individuals, or otherwise risk severe financial and legal penalties and the resulting reputational damage. Since a supplier’s reputation can become your company’s reputation too, this case serves as a reminder that it’s essential to monitor third parties for reputational risk that could impact your firm’s bottom line.
What Is Reputational Risk?
Reputational risks encompass threats to the name, goodwill, or credibility of a business that can ultimately affect its revenue. While reputational risk is difficult to quantify and comes in many forms – whether self-inflicted or from third-party business associations – it can spark business disruptions that are equally as severe as more tangible risks. This post focuses on third-party supplier or vendor reputational risks.
Types of Supplier Reputational Risk
Supplier reputational risks include:
- Lapses in ethical conduct or legal and regulatory findings, such as when a supplier is penalized for using illegal child or forced labor to produce goods.
- Doing business with sanctioned companies or individuals, such as those on the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) list or United Kingdom Sanctions List.
- Working with a state-owned enterprise in a country that is suspected of sponsoring terror, or where bribery or corruption is common.
- When a politically exposed person (or PEP) working for a supplier has been compromised.
Negative news or adverse media coverage, including everything from unethical hiring practices and product quality issues, to criminal activities and environmental disasters.
5 Strategies to Reduce Supplier Reputational Risk
Discover which reputational risks to watch out for, what penalties to avoid, and how to automate and simplify your reputational risk management initiatives.
5 Strategies to Reduce Supplier Reputational Risk
Unchecked supplier reputational risk can result in loss of customers, revenue, shareholder value and goodwill. So how do organizations improve visibility into potentially damaging supplier reputational risk?
Consider leveraging these five strategies:
- Implement comprehensive supply chain partner pre-screening that includes intelligence pertaining to anti-bribery, human rights, and environmental practices. This will provide a starting point to direct future diligence efforts.
- Regularly assess your supply chain partners against industry best practices and regulations. Results will highlight variances that will bring visibility to blind spots.
- Fill gaps between assessments with continuous reputational monitoring. Monitoring sources should include supplier news, financials, sanctions, PEPs, state-owned enterprises and more, and will help to flag important events.
- Know your Nth parties. Risk doesn’t end with your suppliers. That’s why it’s important to identify and visualize relationships between your organization and third, fourth and Nth parties to discover dependencies and risks.
- Simplify compliance reporting. Many regulatory regimes require organizations to monitor activity in their supply chains. The fastest, least-complex approach to audit reporting is to automatically map the assessment results discussed in recommendation number 2 to any regulation or framework.
Next Steps for Reducing Supplier Reputational Risk
It’s clear that assessing and monitoring for supplier reputational risk can’t be done using spreadsheets or by scanning dozens of disparate intelligence sources. Instead, organizations should look for solutions that normalize, correlate and analyze information from across multiple sources to enable actionable reporting and remediation.
Download the white paper, 5 Strategies for Reducing Supplier Reputational Risk, which expands on the types of reputational risks to watch out for, what penalties to expect, and important capabilities to look for in a solution to automate and simplify reputational risk management.
For more on how Prevalent can help you to simplify your third-party risk management program, request a demo today.
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