Managing risks posed by suppliers

Mar 03, 2014

Ongoing economic struggles and an increasingly strict regulatory environment have pushed many corporations to take a look internally to identify their own risks. However, in a globalized business world, it is not enough to insulate the business, risk mitigation of contractors is also necessary. In the battle to reduce vulnerabilities, the pressing problem is figuring out how much to spend on risk solutions such as new processes, personnel and software, Tada Yamamota, a consultant in the strategy and operations practice at The Hackett Group, writes for Spend Matters.

Yamamota notes that to determine this, companies have to determine how risk averse they should be and he acknowledges that "Supplier risk is one major area where companies typically have less control and where a variety of third party solutions exist." Citing Hackett Group research, he outlines the various types of supplier risk, such as operational, financial, business continuity, and technology.

Contractor compliance risk can also be an issue, Yamamota says, since there is a chance that the third-party suppliers will fail to observe regulations, ethical standards, prescribed practices and/or laws. Additionally, companies need to be on the lookout for physical security and people security risks. "At the end of the day, a risk management program can only make a company aware of and mitigate the potential risks it faces, but there will always be some left over," he says. 

Of course, many major companies may have dozens, hundreds, or even thousands of contractors, which can make it time-intensive and cost-prohibitive to monitor and vet every third-party vendor or service supplier. Contractor management solutions such as those offered by BROWZ may be helpful in expediting the process while providing assurance that all contractors are observing best practices. 

Category: risk management