But not every vendor relationship is created equal. A true, risk-based approach requires organizations to first segment their vendors based on pre-determined criteria, and then establish an appropriate level of ongoing due diligence and oversight activities based on the assigned level of risk. And while the specific activities may vary across organizations, there are three types of risk you want to be sure to address.

• Operational Risks
• Financial Risks
• Regulatory Compliance Risk

OPERATIONAL RISKS

Operational risk is the risk that your organization will experience a major failure, shutdown, or unexpected disruption of some segment of your business if a vendor’s processes, people, or systems fail. The operational risk goes hand in hand with your reliance on a vendor and is typically higher with vendors that provide services such as outsourcing, IT systems, and data.

There are two good ways to take a proactive approach and mitigate operational risk: perform periodic on-site and/or due diligence reviews and create a contingency plan should you experience a failure with a risky vendor. These two risk-mitigation activities go hand-in-hand, especially for mission-critical vendors. Monitoring daily performances that don’t meet the standards required is also a good indication that in a time of risk there is a higher risk of disruption or failure.

FINANCIAL RISK

Financial risk is the risk that your organization is negatively impacted financially due to a vendor relationship. This can come in two forms: excessive costs and lost revenue.

Poor Vendor Service due to Finances

Many supplier performance issues are related to finances.

Deliveries were late, and shortages were piling up with no relief in sight. The primary supplier was actively blaming the secondary supplier for the bottleneck, claiming that their supplier was behind in their coating process. They began casting aspersions on the supplier’s lack of process control, communication and even hinted at ethical issues.

While the protocol was for the primary supplier to manage all downstream relationships, this problem had escalated high enough that it was time to call the supplier directly to get to the bottom of the issue and develop a get-well plan.

Negotiating and Enforcing Contract Compliance

Organizations understand the importance of managing competitive solicitations and negotiating good pricing. But negotiating a good price has little to do with managing costs, which comes from enforcing contract compliance, effectively managing the procure-to-pay cycle, and performing periodic cost and contractual audits. It’s the work done after the vendor contract is negotiated that mitigates the risk of excessive costs.

The other financial risk relates to the reliance on vendors who support your revenue-producing activities. Examples include fundraising companies, outsourced service providers, and fulfillment centers, to name a few.

It may also include vendors whose technologies you use to process financial transactions. Problems with these vendors may delay access to revenue or, in the worst cases, result in lost revenue for your organization.

It’s important to identify and segment these types of vendors to design the most appropriate diligence and oversight activities and to also integrate with your vendor management operational risk planning as it relates to contingencies.

Regulatory Compliance Risk 

This has become a HOT TOPIC in many industries. Nonprofit organizations like health plans, healthcare systems, and credit unions, along with those that receive Federal grants, are heavily regulated by Federal agencies. And in many cases, certain regulations pass through to third-party vendors.

Regulatory compliance risk is the risk that a third-party vendor will violate a law or regulation that your organization has placed on them as a requirement for doing business with you.

Ensure your risk management activities enable you to evaluate how well your vendors are complying with the appropriate laws and regulations.

Even though a supplier may be remarkably reliable, the fact that their component or ingredient is essential to your finished product makes them high-risk. Partnering with a company that oversees these risks to proactively avoid business disruption is key to avoiding potential problems.

Audits aren’t just necessary for validating new suppliers––they’re an important tool for maintaining quality and compliance over time. The recent rise in outsourcing only further underscores the importance of having a plan in place to conduct regular evaluations led by skilled quality professionals.

Limitless Technology, LLC has been managing complex indirect spend and vendor documentation since 2006 for some of the largest companies in the USA saving them millions in costs.

Through our Billing Optimization and Vendor Management Solutions proprietary platforms, we utilize technology, processes, expertise, time, and resources to improve our client’s bottom line.

Limitless Technology manages your vendors, so you can manage and grow your business.

For Additional Information Contact us at 407.330.4466

Most businesses at one time or another outsource due to limited internal resources. But what happens when you aren’t in control of your vendors terms, cost of services or even quality of work? How much is that costing your business?

We recently came across a company that used 3 companies for network support. One company was more expensive than the other one and took longer to complete work needed, but the quality that was performed always met their standards. Because they had a limited schedule and were more expensive the company had to at times opt for a couple of other vendors that did not meet the same quality of stands. They did not show up when scheduled, had poor work habits and didn’t complete the job fully so they had to make several trips. Sometimes they would return with a different technician which presented other issues like familiarity with the systems, software, project or service.

In many cases they were also overcharged because they would charge the company for multiple trips or charged to fix other issues while they were there without informing the company first. We have also come across companies like this where they feel they must continue for one reason or another working with certain vendors due to relationships or knowledge of equipment or software or just general familiarity with the business itself.

These vendors know this and unfortunately some of them take advantage of the company’s inability to find someone else. Do you have vendors like this? What have you done if anything to resolve the issue?

Vendors inability to perform to the standards agreed upon in a contract can be costly, involving losses of hundreds of thousands of dollars. So, it’s important that businesses know how to deal with these circumstances.

With a Vendor Management Solution contract experts can negotiate a fixed rate for a particular service. The contract terms must be met ensuring that both parties are aware of what is expected and any variances will be flagged and the vendor will be held accountable for any charges and changes outside of the agreed terms.

If you have questions about any of our VMS benefits contact us today at 866-504-4050 to learn more about our Vendor Management Solutions

Todd Talks Expense Reduction

https://youtu.be/N7WEY-ae9s0

2. “When in doubt, go without.”

This really applies to every business regardless of size. Should you actually make that purchase? Do you truly need to replace something? Think it through instead of just going for something larger or newer. Use what you have until you are certain you need something else.

3. Stay on top of your accounting.

When money is tight, things like late fees on bills or a client who doesn’t pay on time can be a huge problem. Pay your bills on the due date, and take time to ensure that your collections are on time and that the outstanding balances are minimized.

4. Use online sites for printing.

How much are you over spending on Business Printing?

If you’re headed to big box stores to print any marketing materials, you’re probably dealing with steep markups. Rather than paying high prices – use online websites. You can save hundreds on marketing and business branding materials by finding less expensive alternatives online.

5. Get the most out of Vendor Relationships. Bottom Line Revenue – What’s Missing? Align Terms and Conditions and Increase Profits – Todd Talks https://youtu.be/pHmds9L0vUk

6. Save on Shipping Costs

Have your shipping manager constantly check and compare prices on shipping, negotiate better terms, and make sure that they save every penny they can. If you save a few pennies in shipping on each of your products then imagine the SAVINGS over time!

7. Does your business really need landlines?

If it’s been a while since you looked at how much you’re spending on phone, utilities, internet service, overnight delivery costs and similar expenses, it could be worth your while to look now. As technology brings new options to small businesses, such as #VoIP, you can cut your costs by finding more affordable services.

If you’re a “solopreneur” or have just a handful of employees who are always on the go, then mobile phones along with Google Talk and/or Skype might be all you need to run your business.

8. Check credit card for overlooked recurring charges

How much is overlooking credit cards (with recurring charges) costing your business?

Scour your credit card statements for overlooked recurring charges. You may find monthly fees for rarely used web/online subscriptions. Out of sight, out of mind. Unless you review your statements each month it’s easy to forget that money is going out of your account on a regular basis and you’ll continue to pay for it each month.

9. Why pay for what you don’t need or use? Take it to the cloud and save on monthly business expense.

Cloud Servers and online storage let you pay for what you need, and they allow you to ramp up or down as your business needs change. If you have in-house server, you know they can be costly to maintain and update. Also, if you have a sudden increase in activity, it can be difficult to ramp up to accommodate, short of buying more servers.

Cloud software eliminates the need to keep software updated, install patches and keep it operating—this can reduce costs. You can also eliminate hefty up-front license fees, replacing them with lower monthly costs

For more on how your business can maximize profit and minimize expenses contact us.