Top 9 Practices of Effective Vendor Risk Assessment

by Procurement Freelancers Team
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An essential step to screen dealers and other third-party members is to assess the risks imposed by vendor management. It is critical as it supplies continuous checking of various vendor relationships in order to identify the changes that could impose risks to the company. By checking the risks properly, sourcing agents can clearly understand the inherent risks posed by these relationships. The sourcing agents can also perform risk-based due performance by maintaining several vendor relationships. Moreover, they can control the numerous factors to get an obvious picture of the residual risks that will be possessed by maintaining relationships with these vendors.

In a nutshell, getting the due performance right can only become possible by correctly getting the vendor risk management. Given below, are a few best practices for the sourcing agents to include in the process of vendor risk management.

  • The first and the foremost step in assessing the risk with vendor relationship is structuring a questionnaire. In this questionnaire, the sourcing agents will make questions that will essentially cover all the key aspects of the information, strategy, regulations, operations, financial transactions, information, and regulations. In other words, the questionnaire must directly align with the risks that the agents are managing through their third-party program of managing risks.
  • The prime responsibility should be given to the sourcing owners who manage the relationship with various vendors because these are the people who work with the vendors regularly. They also negotiate on the various contracts, and this makes them understand the relationship best. These owners should be made responsible for answering various questions related to the risks and capturing other data related to the process.
  • Pulling out the right people during exact times is one of the best ways of dealing with vendor risks. The best way possible is involving the subject matter experts. Bringing in these experts when appropriate, can be the ideal way of getting everything done accordingly. If you are exchanging various data, involve in the CISO. If you are processing the financial transactions, involve the finance team. Relationship owners alone do not have all the subject matter expertise needed to manage all the inherent risks. Therefore, it is always better to correctly understand the situation and get the right people into work.
  • In order to maintain consistency in the risk management process, you must be sure that all the stakeholders are properly coordinated. Ensuring this is a crucial factor and should not be left to the relationship owners to control. This is because the owners will be mainly focused on hurrying up the process. This may mean that they will overlook certain risks that can impose more significant problems to the vendor management process. Therefore, the vendor management office must be assigned to coordinate various stakeholders and eventually ensure a quality and timely risk management process.
  • Being a sourcing agent, you must make sure that someone reads the draft contract effectively. This stuff, when not maintained, have high chances of getting missed. Even in this case, a VMO must be appointed. He can possibly go through the entire contract and identify various inherent risks in the vendor management process.
  • Just like the sourcing agents have various vendors, the vendors also have their own vendors. They are basically the fourth party. These parties are essential as they will be providing services critical to the third-party vendors. Therefore, it is obligatory to clearly have a list of all these fourth-party vendors so that you have the knowledge to know the risks that they can bring to your relationship.
  • For providing more compliance to the business, the sourcing agents must get the vendor risk management process done conveniently. Generally, the marketplace is flooded with risk assessment tools. You can use one of them to manage the imposed risks with vendor management smoothly.
  • If you want to acknowledge all the risks imposed thoroughly, you need to assess the vendor relationship at the service or product level. You need to entirely go through all the products or services instead of evaluating an entire vendor relationship at once or just one vendor risk assessment. So, you want both. A risk management program that measures every relationship maintained with vendors as well as individual risk management on services or products provided.
  • Several companies look at the risk management program as a one-and-done process. Vendor relationships keep changing with time. Therefore, you need to make sure that you continue to re-assess the risks periodically. Keep looking for triggers that could change the relationships such as module additions, new data types, or contract modifications.

All you desire to do as a sourcing agent is to set the stage for an excellent foundation for the company you are sourcing. This can effectively be done by implementing the practices mentioned above.

Read: Guide to Creating a Profitable Vendor Management Strategy

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