Creating a well-functioning vendor risk management (VRM) system can be a formidable task to undertake. This is due to the delicate nature of the job at hand, which requires the system to collect information about all of the vendors in one convenient place and categorize them according to their riskiness and then decide whether to remediate or terminate these contracts. Despite this challenge, having a fully automated VRM system for your business can prove to be very advantageous as it results in:
Reduced Costs and Time
When creating your VRM system, it is recommended to set it up as a centralized process. This means that the information on the program will be accessible to multiple departments such as finance, legal, IT, accounting, etc., rather than just those who are involved in dealing with vendors.
This will save the business precious time and various costs associated with having to retrieve data about vendors from a different department and going through the company hierarchy, as would be the case in a decentralized program.
After all of the organization’s vendors are entered into the VRM system, that will give the business a good idea of which vendors are the riskiest. It is recommended to classify the vendors according to their high, medium, or low-level risk.
After this classification is made, the organization can focus on high and medium-risk vendors on a priority basis. Through the use of VRM, you will be able to pinpoint these vendors and work on reducing their risk by conducting a risk assessment for these vendors. If the assessment results in an undesirable result, you can either ask the vendor to remediate their risky practices or terminate their contract as a vendor for your business.
Compliance has become a crucial requirement for organizations to maintain nowadays, and a proper VRM system can aid massively in that. A sound VRM system can ease your regulatory concerns as they collect and store information about all third-party vendors, which can be easily accessed and viewed, thus putting the business in a favorable position when regulators come for compliance checks.
When the infamous third-party breach of Target occurred, many companies began to understand the importance of creating thorough reports of vendor relationships. A VRM system helps in this as it compiles information present in the company’s database about third-party vendors, and it contains a reporting component that can create detailed reports such as executive summaries and vendor risk management reports.
Defense and due diligence
In the case of a breach, it is essential for a company to have a solid defense that can help prove the company was not liable and complied with due diligence. A company could be liable even if the breach were due to one of its third-party vendors. A robust VRM system can aid with defensibility as it shows the company’s due diligence when it is used to track the vendors and determine their riskiness for the company.