Outsourcing business activities to a vendor does not include outsourcing the risk and compliance responsibilities. Relying heavily on vendors, with low or limited visibility into the vendor networks, exposes organizations to high risks. Therefore, understanding and managing vendor risks is crucial to maintain sustainable businesses. With a strong Vendor Risk Management (VRM) program companies can anticipate inherent risks rather than simply reacting to adverse situations and incidents after they occur.
In many organizations, VRM programs are largely traditional. The focus is on managing vendor risk only when selecting a vendor or finalizing a vendor contract. However, for VRM to be truly effective, there is a need for continuous vendor monitoring which helps organizations be well-prepared for unexpected eventualities. That being said, it can be quite a challenging task to define and adopt an efficient VRM program, as multiple factors need to be considered, including dependency on the vendor, the location and financial stability of the vendor, as well as the scope of the vendor relationship. This is where technology can help by significantly automating and simplifying vendor risk assessments.
Companies are increasingly focusing on strengthening VRM through best practices such as:
- Effective vendor selection process
- Streamlined due diligence and continued oversight
- Structured vendor risk assessment approach
- Efficient vendor performance monitoring
- Disciplined vendor governance framework
Technology embedded with these best practices can help companies manage vendor networks, associated risks, and compliance requirements. Here are some of the reasons why a robust VRM technology platform should be a top priority for any business:
- Optimizes VRM processes
- Consolidates vendor information
- Centralizes contract management
- Facilitates early detection and mitigation of risk
- Makes Business Resilient
- Enables Vendor Evaluation and Training
- Provides robust analytics and reporting
An organization’s approach to VRM can significantly affect its ability to achieve its goals. There is a greater need to understand the risks posed by vendors as well as fourth parties, while also keeping pace with regulatory changes. Technology plays an important role in this effort by helping companies map vendor risks to the associated regulations, controls, internal stakeholders, and vendors, thereby improving risk transparency and accountability. It helps ensure that companies have all the information they need to meet the demands of a changing regulatory environment. And finally, it streamlines the flow of vendor risk and compliance data, so that the right information reaches the right stakeholders at the right time.
To view the details of best practices adopted by organizations for effective Vendor Risk Management and the role of technology, you can read more here