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

We all understand the importance of overseeing our vendor ecosystem, but today we’re paying it a bit more attention as we realize the critical governance oversight it provides us. Our systems are uniquely positioned to act as a bridge that connects all of our stakeholders.

We have traditionally managed our vendors ourselves, as we feel this gives us better control over our vendors—allowing us to keep a hand in what is going on. However, more established enterprises are seeing the benefits of third-party management, bringing these specialists in to manage the day-to-day oversight of their vendors. Vendor management specialists can help manage transactional activity, collect operational data and even come up with suggestions for improvement.

By outsourcing management of our vendors, we can reduce our costs, improve service delivery, and place our focus on internal resources to help us develop richer relationships and higher strategic value.

Outsourcing certain jobs frees up everyone else in your business to focus on the areas they add the most value. An outsourced job usually requires a particular skill set unique to that industry, so having your existing employees pick up jobs they aren’t particularly trained for will take time away from their own specialized work, and will result in less-than-desirable results. You can’t expect your director of sales to also be an expert at marketing, just like you can’t expect anyone else in your company to quickly pick up the skills required of your own job.

When one individual is responsible for developing and managing an internal vendor management system, that information is often held by just that single person. When that person goes on vacation, takes time off for life events, or quits, the work is shuffled off to a backup who doesn’t necessarily know what to do. This can result in two problems:

1. The backup does it wrong. Tasked with vendor management, the backup will give it his best shot, but if he doesn’t know what he’s doing, he can easily make costly mistakes. This can create problems down the road.
2. The backup wastes a lot of people’s time asking questions. The backup wastes time reinventing the wheel and asking a bunch of questions that the vendor manager already asked.

Outsourcing creates stability. Losing an employee won’t mean losing systems, policies, and procedures. They are already developed and stored in an easily accessible place.

While there are many reasons why your organization would benefit from outsourcing your Vendor Management … Here are 6 of them.

6 Ways Outsourcing to a Fully Managed Vendor Software Solution Adds Visibility and Efficiencies to your Organization?

1. Cloud Based Repository. Increased Efficiency and Productivity.