Latest Report: The 2022 Gartner® Market Guide for IT Vendor Risk Management Solutions
Consider these scenarios: A cyber-attack takes a key supplier offline, hampering your company’s ability to produce goods. Layoffs at an IT vendor lead to diminished oversight of security controls and data safeguards. A natural disaster or geopolitical event disrupts your supply chain, delaying the release of a new product. A critical third party is cited and fined for an ethical lapse, resulting in “guilt-by-association” reputational problems for your company.
Each of the above supplier risk events can lead to cost overruns, jeopardize revenue, and damage customer trust. If these risks are being tracked at all, it’s being done in silos, which forces organizations into reactive mode when a disruption occurs. How can your procurement and supplier management teams get ahead of supplier risk before it impacts your organization? Here are seven ways to gain proactive risk visibility and control across every stage of the supplier relationship.
Given today’s complex business environment, basing supplier sourcing and selection solely on technical fit is a risky proposition. It’s now essential for procurement and sourcing teams to also confirm whether a potential supplier’s risk profile is acceptable. This means evaluating multiple dimensions of risk, including:
By seeking risk insights early on, you can compare potential suppliers beyond technical fit and establish a baseline risk level for each supplier that you select.
Be sure to carry over any due diligence findings from the sourcing and selection stage into the contract lifecycle. Include key risk provisions in your supplier contracts and leverage an automated contract lifecycle management solution to:
Contractual provisions should address incident notification timing and require advance warning of events that could impact supplier relationships, so you can prepare sufficient contingency plans.
Effectively communicating supplier risk and its potential business impact can be challenging. Measuring and tracking Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs) is essential to the SRM process, but unwieldy spreadsheets and overly detailed dashboards can make it difficult for decision makers to “see the forest for the trees.”
To provide some clarity around KPIs and KRIs, Prevalent created an eBook and scorecard that:
eBook: 25 KPIs and KRIs for Third-Party Risk Management
The 25 Most Important KPIs and KRIs for Third-Party Risk Management will put you on the path to more effective communication regarding your TPRM program.
Not every supplier requires the same level of scrutiny, so tiering and categorizing suppliers based on risk will help you to prioritize and scope your ongoing risk assessment and monitoring initiatives.
For a more structured approach, consider grouping your suppliers based on three categories of risk:
Tiering and categorization must be performed consistently to gain an accurate picture of your third-party risk exposure, inform further due diligence, and ensure that suppliers are assessed against the risks and standards that matter most to your business.
Accurately and comprehensively assessing your supplier risk will likely require participation from experts from several disciplines across your company, including supplier management, procurement, IT security, compliance and privacy – not to mention your supplier contacts. A centralized SRM platform can help by delivering automated, relevant supplier risk assessments that drastically reduce manual labor while rallying both internal and external stakeholders around a single, cohesive process.
When it comes to selecting risk assessment questionnaires, you’ll need to consider two primary factors:
Regardless of the content or collection method you use, be sure to have a remediation strategy to act on assessment results. There’s no sense in conducting risk assessments if you’re not willing (or able) to go the final mile.
At any time, businesses can fail, new products can launch, or mergers and acquisitions can occur. Questionnaire-based assessments are essential for gathering data from suppliers at specific points in time, but new risks will inevitably surface between periodic assessments.
You can bridge the gaps between assessments, keep risk scores updated and accurate, and know when further investigation is necessary by leveraging a continuous risk monitoring solution to scan public and private sources of supplier intelligence for:
If there is any best practice in this post that will help procurement and supplier teams become more proactive, it’s this one. Not only should you leverage continuous monitoring data to validate and update assessment findings, but also seek an SRM solution that integrates monitoring and assessment capabilities for maximum efficiency and visibility.
A supplier’s risk to your business doesn’t just evaporate when the contract ends or is terminated. A supplier holding sensitive data must return and/or securely destroy that data; support obligations may outlive a purchase agreement; and organizations must ensure that any supplier access to internal systems is terminated.
Key considerations in your supplier offboarding strategy should include:
While this may seem obvious, Prevalent research found that 43 percent of companies are not actively assessing supplier risks during offboarding.
Build a More Proactive Supplier Risk Management Program
Our best practices guide delivers a prescriptive outline for staying on top of supplier risk from onboarding to offboarding.
To measure your current supplier risk management process against best practices, download Seven Stages to a More Proactive Supplier Risk Management Program. The guide examines:
Contact us today to schedule a demo where we can demonstrate how to take your SRM program from reactive to proactive.
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