March 23, 2020
3 Steps to Better Manage Supply Chain Risk
Understanding where risks arise in your vendor relationships is essential to dealing with them.
Modern business is a complex web of interwoven relationships. As I work with organizations across a variety of industries, I’m amazed at the networks of suppliers, consultants and partners that companies bring together to create competitive products and services. While these partnerships deliver tremendous value, they also bring new risks. In fact, the Ponemon Institute recently estimated that data breaches are roughly 9 percent more expensive when third parties are involved. The bottom line is that you can outsource various business functions, but you can’t outsource risk.
Let’s take a look at three things organizations can do to better manage the hundreds of vendors that compromise their supply chains. This is the core of building a robust vendor performance and risk management program.
1. Identify Risk, Compliance and Performance Issues in Existing Vendor Relationships
Building an inventory of vendor relationships and enumerating the risks involved in these relationships may seem like a daunting task, but it is a crucial first step in managing those risks. You can’t control risks if you aren’t aware that they exist. The best way to approach this process is to prioritize your vendors based on their strategic importance to your organization. Find the Tier 1 vendors that you depend on to achieve your business objectives and identify any risks that might interfere with their ability to meet their obligations to you.
The vendor inventory itself may identify higher-level risks. For example, how many suppliers does your organization depend on today? How does that number compare with the past five or 10 years? Is the growing complexity of your vendor universe sustainable?
2. Develop a Strategic Vendor Management Process
With that inventory in hand, you can begin the prioritization process. Work through a risk-scoring process that evaluates the risk of each vendor relationship based on the probability of an incident and its potential impact on your business. Then work your way through this prioritized list to reduce the likelihood of an issue and minimize the impact on your organization.
Service-level agreements (SLAs) are useful tools in this process. Make sure that each critical vendor relationship is based on clearly defined and measurable objectives. Use these SLAs to drive collaborations between vendors that reduce the risks that you identified earlier in the process.
3. Seek Out Opportunities to Automate and Improve Your Vendor Management Program
Automation helps businesses improve efficiency and reduce risk in many areas; vendor management is no exception. After establishing vendor management processes, work your way through them and look for opportunities to automate common, repeatable tasks.
IT service management platforms can be powerful tools in this process, helping you to move from the error-prone world of emailing Excel spreadsheets between vendors to the highly automated world of programmatic data exchange.
If you’re struggling with supply chain risk issues, our team at CDW can be a valuable partner. CDW’s advisory consultants include subject matter experts in supply chain management who are available to assist with organizational change management planning workshops, process alignment workshops and executive visioning workshops. We’d love the opportunity to work with you.