In the global market today, no organisation or business is an isolated entity. Most organisations work with vendors or third-party suppliers to achieve their goals, and as the business grows, the need for more vendors also grows. Vendors supply equipment, raw materials, and products, provide software and applications for operations and do much more for companies. Vendors also provide businesses with services that they cannot provide for themselves or services that could affect the timing and functionalities of their business if they try to offer it for themselves.
Who are Vendors?
Vendors are businesses or third-party agents that organisations outsource services to. They include consultants, contractors, retailers, manufacturers, service providers, suppliers, wholesalers, freight forwarders, and 3PL partners.
What is Vendor Risk Management?
Vendor risk management (VRM) is identifying, assessing, and mitigating the risks associated with engaging third-party vendors or suppliers who provide goods or services to an organisation. It is an essential aspect of enterprise risk management, as vendors can introduce risks that can negatively impact an organisation's operations, reputation, existence, or compliance posture. Vendor Risk Management activities should be conducted throughout all stages of the vendor engagement, including the sourcing to termination stage.
Why is Vendor Risk Management Necessary?
For any organisation or business, getting vendors is a simple task; however, securing credible vendors who will not pose any risk to your business is where the difficulty lies. It is essential to painstakingly assess every vendor before they are onboarded to work with the company for the following reasons.
Need for vendors: In most cases, there are certain services that organisations cannot provide for themselves, and as the organisation grows, the need for vendors increases. The fact that organisations rely a lot on external vendors for sensitive services means that it is essential to carry out a risk management assessment to identify and mitigate potential risks associated with these vendors and ensure they are suitable for the company.
Brand image and reputation protection: A vendor's actions, decisions, or failures can have a significant impact on an organisation's reputation and brand image. Using a vendor known for illegal and unethical practices or one involved in anti-environmental and anti-social behaviour can negatively impact the image or reputation of a brand. Vendor risk management helps ensure that the vendor's values align with those of the organisation and society.
Data/privacy protection: In most cases, vendors can access business's sensitive data and documents. Therefore, organisations sometimes are at the mercy of vendors who can expose the data to competitors or unwanted third parties, thus endangering the organisation's existence. Vendor risk management helps assess the security practices of vendors; this way, you will be sure that your data is safe with them.
Business continuity: When it comes to the resilience and continuity of a business, vendors play a crucial role in maintaining it. If a vendor experiences disruptions, such as natural disasters, financial instability, or operational failures, it can impact the organisation's operations and even existence. Vendor risk management helps to assess the stability of the vendor, how long they have been in business, and how stable they will be in the future.
Regulatory compliance: Every industry has regulations and standards, such as data protection laws or industry regulations, and every organisation in that industry must abide by those regulations. The organisation needs to ensure that the vendors they plan to work with understand these regulations and are ready to abide by them, and that is what VRM does.
Cost optimisation: Effective vendor risk management enables organisations to assess vendor's financial stability and performance. By evaluating vendor's capabilities, organisations can make informed decisions about which vendor to engage with, negotiate favourable terms, and avoid potential financial losses or underperformance.
Many organisations globally rely on external vendors for critical services, products, or components. However, any disruption or failure in the vendor's operations can directly impact the organisation's ability to deliver its products or services.
SARA PROCUREMENT SERVICES LIMITED is that OUTSTANDING and CREDIBLE vendor you have been searching for to meet the supply chain and logistics needs of your organisation.
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