SimplifyVMS gives you the power to see everything—and act fast.

70+ reports at your fingertips

Your own custom dashboards

Supplier scorecards that tell the real story

Real-time insights = better decisions, better performance.

🔗 See how it works

Enhance your vendor management using Velocity's VMS platform, providing Vendor Management as a Service (VMaaS) for real-time tracking of vendor performance. Make informed decisions that lead to faster, higher-quality placements while reducing costs through competitive vendor bidding. Unlock data-driven insights to maximize vendor relationships and streamline operations. Get started today to elevate your vendor performance!

In today’s blog, we will help you discover proven strategies to enhance supplier performance.

Given the present economic climate, many companies are looking to trim the fat and specialize in core specialties. In order to realign their priorities, corporations are outsourcing key functions to third-party vendors or suppliers, starting from accounting tasks to manufacturing. This practice is effective therein it can essentially reduce costs, enhance performance, release vital resources – like time – and streamline the way a corporation works.

But while this practice may alleviate some tedious or arduous functions and enable the business to shine at what it does best, it also opens companies up to varied risks through the actions of these third-party vendors. This is especially the case when it involves large corporations handling multiple vendors or suppliers.

Bigger companies are inherently more complex, and managing a mess of supplier and vendor relationships adds even more volatility that must be tracked. Different departments may conduct communications with vendors through a spread of means, which makes it difficult to spot potential risks. In many situations, there's little accountability for the management of those relationships and therefore the subsequent risks they will have.

Risks Associated With Vendors and Suppliers

Suppliers and vendors are effective for outsourcing the day-to-day nitty-gritty details of a time-consuming process or activity. But ultimately, the corporate that hires these vendors remains liable for what they are doing and key stakeholders must confirm vendors are meeting all the compliance requirements that their business is in charge of.

There are several risks associated with the vendor-company relationship, the Consumer Compliance Outlook notes. While that isn’t to say these partnerships are always risky, corporations still need to be aware of these issues any time they enter into a new partnership.

Legal Risk: Compliance standards have grown more complex over the years, with many companies spending the extra money to make sure they don’t fall on the incorrect side of the law. This is particularly the case in some heavily regulated industries, like financial services. When various tasks are assigned to third-party vendors and suppliers, it's paramount to make sure whatever business practices they follow don’t find yourself getting the corporate in trouble. Contractual obligations are another issue that would cause potential legal risks for a business.

Reputational or Brand Risk: When companies outsource any part of the production, they're essentially putting their brand and reputation within the hands of another company. If the supplier or vendor breaks compliance and consumer laws or practices other bad habits, it’s likely to affect the perception of the corporate also. Just note the problems Apple has had with its Taiwanese supplier, Foxconn. The awful work conditions at the manufacturer have cost Apple some bad publicity, and now the Cupertino, California-based electronics giant is reanalyzing its entire supply chain to make sure future incidents don’t occur.

Operational Risk: Finally, there are substantial operational risks related to using third-party vendors. If companies are looking to save lots of money, they'll prefer to use a vendor that isn’t very expensive. Of course, this might cause lower-quality work also, hindering company performance and negatively impacting end-line customers.

For example, if a corporation hires an accountant who is overworked and booked with other clients, this might cause missed details. This will have a trickle-down effect on the corporate that hired him, giving them bad information and maybe resulting in unwise operational decisions being made.

Supplier and vendor risks usually occur due to key relationship mismanagement faults. Inconsistent cataloging, sloppy recording of communications and details, the challenges of doing business across time zones and business units, lack of security, and inconsistent testing are all pitfalls that can cause risks becoming meaningful threats to a corporation, KRAA Security notes.

Assessing the Vendor/Supplier Relationship

To that end, it’s crucial to perform risk assessments on these outside organizations to mitigate any potential threats. Prevention is vital, and therein respect, due diligence is often leveraged as a way to nip these non-productive relationships within the bud.

The risk assessment must be considered as an endless process when handling third-party vendors, not something performed once then forgotten about. In that regard, a well-documented vendor risk management model can help ensure key issues are being addressed.

“[Companies] that outsource a service or product must adopt appropriate controls, policies and procedures, and oversight to mitigate outsourcing risks effectively,” the buyer Compliance Outlook report notes. “Institutions should focus on five key areas for effective risk mitigation: vendor selection, vendor contract, vendor management, and monitoring, human resource management and contingency planning.”

Vendor Selection: Due diligence is paramount to avoiding issues in the first place. Companies should make certain to carefully research a supplier or vendor before signing on with them, asking relevant questions, and requesting references when suitable.

Contracts: Determining the contract is additionally important. Companies should know what they need out of a partnership and contracts should help them achieve those goals. Contracts also protect the corporate against future legal threats.

Vendor Management: After a contract has been signed, don’t just ditch a deal. Monitoring an account is vital to make sure success and further mitigate risks.

Human Resources Management: Operational risk is a very real concern to many management teams and turning over key functions can create a distracting situation. HR can help alleviate any of these issues.

Contingency Planning: Sometimes, things don’t undergo needless to say. An effective backup plan will help mitigate any risks from outsourcing efforts, not understanding.