Third-party suppliers can make or break your supply chain. They can improve profit and give you a competitive advantage, or they can be the source of supply chain disruption that throws everything into disarray. Increased reliance on third parties increases financial, regulatory, and cyber security risk. Penalties for non-compliance can impact not only finances but a business' reputation as well.
Mitigating third-party risk and ensuring adherence to regulations can often be complex for compliance and legal teams. Here are some ways third-party risk management (TPRM) can protect your business from various types of risk.
Due Diligence
Due diligence can often be supported by using external data sources such as LexisNexis and Dun & Bradstreet. These investigative tools are essential to identify, authenticate, investigate, and monitor businesses and individuals. TPRM software solutions can integrate with these external data sources to perform background checks that combine public record sources and private data sources into a single report.
Risk Profiles
Risk profiles rate risk for performance, quality, financials, data exposure, service, security, and the drivers behind them. It is also important to include in the risk profile current regulations, data protection, and evaluation of the increased risk to ensure any future agreements do not break compliance regulations.
Once a business has the required information to make an informed risk assessment, there should be an analysis process in place to compare the data against available information sources. You may also have to request and manage any extra information from the third party that you think may be pertinent when researching and comparing against any data sources for risk. This should help determine if or where in the chain, businesses are exposed by any relationship with a third-party and ensures that such a relationship is both best value and that it will not cause unnecessary risk and disruption to the running of a business.
Once a business has chosen the right third party to form a relationship with, it is imperative that any contracts are carefully written with consideration of any risks that have been identified during the risk profiling or assessment.
Monitoring Risk
Managing your third parties is an essential process within a TPRM system and an example of a best practice. Proper management of risk can prevent any gaps or delays in the extended enterprise of a business. Regular monitoring of the overall lifecycle of third-party contract and the risks identified during the assessment process can highlight any non-compliance with regulations that may have negative and costly consequences and help reduce the impact non-compliance has on the business. It is also important that any other risks, or risk areas are continually identified so that steps can be taken quickly to avoid any damage to your business or your business reputation.
Efficiently managing your third parties in your extended enterprise once the onboarding process has ended does not mean the diligence and research process stops. Regular auditing and reviews protect businesses and minimizes risk. KPI’s can play a large part of any contract management, but they are particularly pertinent when dealing with third parties. By negotiating and setting KPI’s in the initial stages, it can pay dividends during the monitoring phase of a contract lifecycle. Not only do they help protect both businesses and third parties from poor standards and performance, KPI’s can help identify any possible risks and ensures any decisions made are done with a basis in fact and data.
Digitalization
As pressure grows on large, enterprise level companies to keep up with regulatory compliance across global third-party networks and the increased regulation around the handling and transmission of what can sometimes be sensitive data, third-party risk management software is an excellent solution. Rather than spending a lot of time and resources on inefficient ways of dealing with the processes associated with management and third-party information, businesses can streamline their corporate governance into one easy to use system. By automating this process, there are a series of strong protections in place to help ensure businesses stay compliant with both internal policies and outside regulatory bodies across their third-party network by assessing, monitoring and mitigating risks that can have a detrimental effect on their relationships and business.
By optimizing your third-party risk management by using the tools and features included with TPRM software, you can continually monitor any KPI’s or renewal of contracts, allowing you to assess risk and project long-term revenue. The reporting and auditing features ensure a business is always alert to compliance and regulations regarding third parties, avoiding fines and litigation. If you already have a TPRM system in place, many software providers can integrate any features a business needs to improve into existing systems and risk framework and as part of a broader governance and risk strategies.
By implementing third party risk management software, and by embracing this digitalization, businesses can benefit from having the framework in place for scalability and to protect against future risks.
