Six Strategies to Manage Supplier and Third-Party Risk

Organizations today and for the foreseeable future must have visibility into supplier and third-party operations in order to mitigate risks and achieve compliance. But, that is often easier said than done. The visibility challenge is compounded by the growing volume of data flooding the typical accounts payable and procurement organizations from multiple, disparate systems. Spend, supplier, contract, and third-party information can overwhelm organizations’ procurement, AP, Finance, contract, and risk management teams and preclude them from taking prudent action.

Strategies for Success

Gaining visibility into and control over supplier and third-party risk can be challenging even for sophisticated enterprises with dedicated risk-management teams. The task requires constant monitoring of multiple sources of information, different perspectives on risk, and a willingness to reach across the enterprise for help in managing risk and achieving and maintaining compliance. As a result, Ardent Partners offers the following recommendations:

1. Form cross-functional enterprise risk management teams to holistically manage enterprise risk. Since risk and compliance take multiple forms, it is prudent for Chief Procurement Officers(CPOs), procurement, and finance leaders to enlist help from across the organization in order to round out their enterprise risk management teams. Representatives from legal, IT, and the business can work with procurement to collaboratively sketch the supply and supplier risk management landscape with greater detail and be better prepared.
2. Put “feet on the street” wherever possible to learn firsthand about local laws and customs. Part of the challenge of operating overseas is that experienced business leaders and practitioners often lack knowledge of local laws and cultures, which can imperil business processes and expose organizations to myriad risks. Sending advance teams, or enlisting local representatives who can help orientate the business in the culture and business customs is key.
3. Collaborate with suppliers and enlist their help to manage risk and achieve (and maintain) compliance. Suppliers know their markets as well as if not better than their customers. Suppliers are also (or should be) familiar with laws and regulations, and can be valuable business partners when it comes to managing supply risk and achieving/maintaining internal and external compliance.
4. Leverage third-party information and risk management services to round out risk management teams. When internal and supplier data fall short of painting a complete picture of a supplier or category’s risk, there are third-party information services available that can provide organizations with the financial, legal, operational, and security information to add granularity to the picture. Other third-party service providers can provide tailored risk assessments and risk management programs for enterprises that cannot stand up or scale up their own programs in time.
5. Digitize and Automate CLM and SIM processes for efficiency gains and greater scale. Modern contract lifecycle management (CLM) and supplier information management (SIM) solutions can perform much of the heavy lifting involved in managing contract and supplier information, allowing practitioners to shift their focus to building collaborative internal and external relationships, analyzing risk, and strategically planning for the future. CLM and SIM adoption correlates with enhanced enterprise performance in the form of greater spend under management, identified and realized savings, and greater internal compliance.
6. Link CLM and SIM to integrate supplier information pre- and post-contract execution. The value of these solutions can be extended even further by linking them to leverage the full supplier information lifecycle. Cloud-based, user-friendly solutions and suites can enable users to aggregate and manage supply, supplier, and third-party risk from across the enterprise in one location, which can streamline the process, improve user experience, and round out risk profiles for more accurate assessments.

Conclusion

Enterprises today operate in a complex and often dangerous world that is fraught with risk; and the risks are as wide as they are deep in complexity. The most important thing that business and procurement leaders can do is to increase their visibility into internal and external operations, third-party contracts, their supply base, and their extended supply chain. Here, SIM and CLM solutions can make quick work of what can be long and paper-intensive processes. Separately, they are robust solutions that can help to drive value, risk management, and compliance. But when linked together, they are stronger. SIM and CLM have the potential to fuse supplier information from across the enterprise onto one platform. And they can simplify the compliance, risk management, and risk avoidance process for end users who value speed and precision over weeks and months of contract review and years of inaction on issues that are vital to the organization.