What do you do if your vendor relationships pose significant risks?

1 Assess vendor risks

The first step is to identify and evaluate the potential risks that your vendors may pose to your business. These could include financial, operational, legal, reputational, or strategic risks. For example, you may face vendor risks if your vendor fails to deliver quality products or services, breaches contract terms, violates regulations, or causes damage to your brand image. To assess vendor risks, you need to conduct due diligence, review contracts, monitor performance, and audit compliance.

2 Mitigate vendor risks

The next step is to implement measures to reduce or eliminate the vendor risks that you have identified. These could include negotiating better contract terms, setting clear expectations and standards, establishing contingency plans, and enforcing penalties or incentives. For example, you may mitigate vendor risks by requiring your vendor to provide guarantees, warranties, or insurance, or by creating backup suppliers or alternative solutions in case of disruptions or disputes.

3 Communicate vendor risks

The third step is to communicate the vendor risks and the mitigation strategies to the relevant stakeholders in your organization. These could include senior management, project teams, legal counsel, or finance department. For example, you may communicate vendor risks by preparing risk reports, updating risk registers, or holding risk meetings. The goal is to ensure that everyone is aware of the vendor risks and their impact on your business goals, and that they support your risk management actions.

4 Escalate vendor risks

The fourth step is to escalate the vendor risks and the mitigation strategies to the vendor itself. This is especially important if the vendor risks are high or persistent, and if they require the vendor's cooperation or intervention. For example, you may escalate vendor risks by sending formal notices, requesting meetings, or initiating dispute resolution. The aim is to resolve the vendor issues and improve the vendor relationship as soon as possible.

5 Evaluate vendor risks

The fifth step is to evaluate the vendor risks and the mitigation strategies on a regular basis. This is essential to measure the effectiveness of your risk management efforts and to identify any new or emerging vendor risks. For example, you may evaluate vendor risks by collecting feedback, analyzing data, or conducting surveys. The outcome is to learn from your experience and to adjust your risk management plan accordingly.

6 Educate vendor risks

The sixth step is to educate yourself and your team on the best practices and trends of vendor management and risk management. This is beneficial to enhance your skills and knowledge and to stay updated on the changing vendor landscape. For example, you may educate yourself and your team by attending training, reading articles, or joining networks. The result is to improve your vendor management competence and confidence.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?