Vendor compliance has moved well beyond checked boxes and printed contracts in filing cabinets. In today’s interconnected and complex landscape, organizations need to manage vendor relationships with an eye toward reducing unneeded spending and protecting against risks. As 21st century supply chains become increasingly intricate, 20th century vendor compliance management programs will struggle to keep up. To get your program in shape for modern challenges, take these four steps:

Classify your vendors by criticalityStep 1: Classify Your Vendors by Criticality

Systematically evaluate and categorize your vendors based on their importance to your business. Classifying vendors according to criticality — by those that handle essential software, hardware, or back-office processes, for instance — allows you to focus on high-impact areas when prioritizing time and resources. Without this kind of risk-based approach, your program will lack needed depth and flexibility.

Step 2: Assess Your Standards and Policies

Effective vendor compliance management requires clear and comprehensive policies, standards, and contracts. Good vendor policies extend beyond contractual language to cover broader aspects of the relationship, like onboarding processes, norms, data and technical interaction requirements, and security standards. Clear vendor policies establish accountability within the relationship and help minimize the financial and operational disruptions of noncompliance. For example, policies often include indemnification language to define responsibilities of each party in the event of legal claims. Make sure your policies are written in a way that is easy for your partners to understand. Also account for vendor insurance and regulatory compliance issues relevant to your industry. A well-structured policy framework sets the stage for successful vendor compliance since all parties know what is expected.

Step 3: Enforce Your Policies Using Best Practices

Once you have well-defined policies in place, communication, transparency, and due diligence are essential. Create a scorecard system to assess vendor compliance and performance, using metrics that align with your organization’s goals and standards. Common performance indicators might include on-time delivery, quality of products or services, adherence to security protocols, and responsiveness to issues. Weigh each metric according to its significance to your business objectives. Regularly update and share the scorecard with vendors to foster transparency, set clear expectations, and provide a basis for constructive conversations during performance evaluations. In addition to the scorecard framework, establish a regular cadence of communication to align on expectations, address concerns, and celebrate successes. Open and consistent communication helps prevent misunderstandings and resolve issues swiftly. For any issues that do arise, map out a clear escalation process and specify corrective actions, penalties, and deadlines for rectification. Should there be persistent noncompliance, establish termination criteria to end the partnership.

Find technology that matches your needsStep 4: Find Technology That Matches Your Needs

Staying on top of the complexities of a vendor compliance program is much easier and more effective with technology. Leverage dedicated vendor risk management software to automate vendor risk assessment and consistently monitor performance. The right third-party risk management technology will help you:

  • Lower risk exposure. Third-party risk management technology helps you identify risks early, which reduces your risk exposure and contributes to a more secure operational environment.
  • Speed up reporting time. Unlike error-prone, manual reporting processes, third party risk management software offers point-and-click, real-time reporting, which saves time and ensures the information is both accurate and up to date for informed decision-making.
  • Strengthen vendor relationships. The right vendor risk management technology provides a reliable channel for effective communication with vendors. It also can provide valuable insights into vendor performance metrics, which can be used to improve the partnership.
  • Validate third-party status. Third-party risk management technology stores data in one centralized location, providing a single point of truth that all parties can easily access and reliably trust.

Taking control of vendor compliance with clear standards, shared expectations, and consistent enforcement will ultimately help build stronger relationships. Managing the process with the right software will also reduce unnecessary spending and risk exposure – which will become increasingly important as your vendor network expands.

For help finding the right vendor risk management software, download this RFP template, and check out Riskonnect’s Third-Party Risk Management software.