What are the best techniques for managing risk with third-party suppliers?

1 Identify your needs

Before you start looking for potential suppliers, you need to have a clear understanding of your business needs and expectations. This will help you define the scope, specifications, and requirements of the project or service you want to outsource. You should also identify the risks and opportunities associated with outsourcing, and how they align with your strategic goals and priorities. By doing this, you will be able to set realistic objectives and criteria for selecting and evaluating suppliers.

2 Conduct due diligence

Once you have a shortlist of potential suppliers, you need to conduct a thorough due diligence process to assess their capabilities, reputation, and performance. You should verify their credentials, certifications, references, and financial stability. You should also review their policies, processes, and controls for quality, compliance, security, and ethics. Additionally, you should evaluate their culture, values, and communication style, and how they match with yours. By doing this, you will be able to identify and mitigate any potential risks or gaps in the supplier's delivery.

3 Negotiate the contract

After you have chosen the best supplier for your needs, you need to negotiate a contract that clearly defines the roles, responsibilities, and expectations of both parties. The contract should include the scope, deliverables, timelines, and costs of the project or service, as well as the key performance indicators (KPIs) and service level agreements (SLAs) that will measure and monitor the supplier's performance. The contract should also specify the terms and conditions for risk management, such as dispute resolution, liability, indemnity, termination, and change management.

5 Manage the relationship

Beyond the performance monitoring, you need to manage the relationship with the supplier throughout the vendor management lifecycle. You should aim to build trust, collaboration, and mutual benefit with the supplier, and treat them as a strategic partner rather than a transactional vendor. You should also recognize and reward the supplier's achievements, and address any issues or concerns promptly and respectfully. Furthermore, you should seek opportunities for continuous improvement and innovation with the supplier, and adapt to any changes in the business environment or needs.

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?