Are unclear expectations in your RFPs, contract confusion, or lack of vendor communication causing business disruptions and declining client satisfaction? Studies show that 73% of organizations faced a disruption in their operations due to third-party issues, making vendor risk management more vital to a company’s business strategy than ever. With a comprehensive vendor risk management plan, your purchasing woes can be a thing of the past.
You can build strong vendor relationships and focus on your company’s growth by implementing risk mitigation strategies right from the vendor selection process and throughout the partnership. This blog article will cover 7 strategies to mitigate vendor risk and technology’s role in streamlining your processes.
1) Start your vendor selection process through an RFP
Reducing risk in your vendor relations process begins with a detailed request for proposal (RFP). An RFP allows you to carefully evaluate vendor proposals by outlining the scope of your project and the quality of services your company is seeking. Factors such as service requested, reputation, experience, pricing, and the ability to meet your company’s needs should all be considered during the RFP process. Additionally, requesting references and verifying insurance requirements will further ensure that you select vendors who meet your standards. A well-conducted RFP can save your company time and money by identifying promising vendors while eliminating those that don’t meet your requirements.
RFP management software can streamline your RFP process and manage vendor risk at the outset. With RFP Plus’s tracking software, you can send your requirements to multiple vendors and monitor their responses in one place. Additionally, it allows you to send RFPs for internal approval to ensure that your team agrees on the RFP requirements.
2) Evaluate vendor risk
In fast-paced companies, there may be some pressure to onboard a vendor quickly, which can result in monetary or legal issues. It’s important to take the time to carefully evaluate vendor proposals you receive and look for any red flags.
Questions to ask when evaluating vendor proposals:
- Quality of Response – Did vendors answer all of the questions in your RFP?
- Compliance – Do vendors have the necessary licenses or insurance to perform the job? Do they comply with all laws and regulations?
- Experience – Does the vendor have the experience to fulfill your project’s requirements?
- Turnover – A high turnover in vendor companies can lead to project delays. How often do vendor companies change the point of contact?
- Data Security – How do vendors handle sensitive information? Do they have measures in place to protect your company’s data? This is especially critical if you seek RFP responses for any technology.
- Financial Stability – Do vendors have the financial means necessary to fulfill the contract?
- Pricing Structure – What does the vendor’s pricing structure look like? Are there any hidden costs or fees?
- Reviews – Are customer experiences with the vendor positive or negative?
Once you’ve evaluated vendor responses, you can categorize them based on their level of risk. During the RFP evaluation process, it’s important to communicate any questions or concerns with vendors.
With RFP Plus, you can track vendor license expiration dates and receive notifications when it is close to expiring. That way, you can stay informed about which vendors are at risk of their licenses expiring soon.
3) Create a clearly understandable vendor contract
After you have selected a vendor, it’s time to send the vendor the contract. The contract should clearly state the terms and conditions, leaving no room for confusion about project expectations. In the contract, outline all responsibilities and expectations that both parties should follow:
- Services or products that will be provided.
- Agreed milestones for the project and timeline for completion. The timeline should also allow for buffer time if there are unexpected delays.
- Pricing terms agreed upon.
- Service level agreements (SLAs) and other metrics to review vendor performance.
- Certifications required and regulations that vendors need to comply with.
- Security requirements to ensure both parties’ data are protected.
- Liabilities and dispute resolution.
4) Monitor and review vendor performance
Monitoring and reviewing vendor performance is important as you collaborate with them on your project. Regular performance reviews are important because they hold your vendors accountable and identify potential issues early on. When reviewing performance, ask the following questions:
- Contract – Is the vendor meeting all contract requirements related to scheduling, pricing, and services provided?
- Compliance – Is the vendor complying with regulatory requirements?
- Security – Were there any security issues, and how have they handled them?
- Vendor staff – Are you working with the same point of contact from the beginning of the project? If not, how many times have POCs changed? What is your company’s difficulty level when the vendor POC changed?
- Cultural fit – Do the vendor’s actions and work ethic continue to align with your company’s culture?
RFP management platforms can help you review and track vendor performance. In RFP Plus, you can monitor vendor performance internally by rating their services and adding notes to the vendor record. In RFP Plus, you can also keep track of your vendor’s contact information. Our platform also tells you if a vendor’s email is no longer valid, so you can contact your vendor and get the most up-to-date contact information.
5) Create a vendor risk management plan
As a project is ongoing, it is possible for issues to occur that may cause delays or financial risks. Creating a mitigation plan to avoid as much risk as possible is important. This includes contingency plans if there is a failure on the vendor’s part or a data breach. To reduce financial risk, you can also require vendors to maintain appropriate insurance coverage as part of your RFP and contract requirements.
6) Build strong vendor relationships
Throughout the partnership, creating and building a strong relationship with your vendors built on regular open dialogue, transparency, and collaboration is important. Meeting with vendors regularly allows you to review their performance, address any concerns, and identify opportunities for improvement. These interactions also give your vendors an opportunity to share their concerns or ideas, creating a more collaborative environment.
7) Train employees on vendor risk management
Educating your employees on identifying and reporting vendor risks early can help prevent delays, financial losses, or risk to your company’s reputation. Reporting issues or concerns early in the vendor relationship enables your team to resolve issues and get back on track. Your employee training should include the full cycle of vendor risk management, starting from the RFP to after the project is complete. Here’s what your employee training should consist of:
- RFP management – How to manage the RFP process (Request for Proposal), from writing the RFP to evaluating vendor responses and managing contracts.
- Regulations – Staying up to date with the latest industry regulations that can impact your projects and that your vendors need to adhere to.
- Technology – Technology stack your company has to manage and mitigate vendor risk.
- Case studies – Have your employees review past vendor projects to learn first-hand what strategies worked and what didn’t.
Conclusion
Vendor risk management is an ongoing effort that starts with your request for a proposal process and continues throughout your business relationship with the vendor. You can effectively reduce potential risks and improve your vendor management process through these strategic steps. From the initial stages of creating an RFP to training your employees to identify risks, every step plays an important role in building a strong vendor relationship.
