Are Outsourced Suppliers the Weak Link in your Supply Chain?

Third-party risk management is critical for organisations who outsource services. Having a good plan and technology to back it up can make a real difference.

Outsourcing has become much more common as digital technologies have made the global marketplace more accessible. While this can have a number of benefits, including being a cost-effective business strategy, there is one major drawback – it increases risk. Third-party risk can take many forms, ranging from reputational damage and contract disputes, to the threat of cyber-crime and theft of intellectual property. 

Connections with third parties are points of vulnerability that are largely outside of the control of your organisation. However, Third-Party Risk Management (TPRM) can help mitigate those risks.

Protection of Interest

An effective third-party management plan is essential for the protection of interests in your business. Your staff, customers, and stakeholders all rely on the efficacy of your approach to managing risk. Consider the following to protect the interests in your business:

• Risk Tolerance 

Assess the appetite and tolerance for risk to understand the way that risk created by vendors can impact your operation. Risk appetite is the level of risk deemed acceptable, and risk tolerance is the level of loss a business can safely experience in relation to specific objectives. Once the business has defined the level of risk that is acceptable, a clear framework of risk can be assessed and measured.

• Vendor Classification

Every vendor is different, and the level of risk they pose fluctuates according to factors outside of your control. By classifying vendors according to their risk, organisations can apply resources only where they are needed, and avoid applying resources where work is not warranted. 

• Standardisation of Assessments

Standardising third-party risk assessments, complete with defined risk categories, helps to streamline risk management processes and reduces the risk of human error. Standardised assessments must incorporate external risk factors that also need to be monitored, including: 

• What is the overall financial position of the third party?
• Is the third party dealing with regulatory or legal actions?
• Is the leadership of the third party under investigation?

• Staff Training

If third-party relationships are points of vulnerability, employee skill sets are also potential weak spots in your defence. Employees need to collaborate in ways that do not compromise the cybersecurity of the business, which means the business must address these vulnerabilities in training. Human error is one of the biggest risks in any organisation and can trigger contract disputes and incidents of regulatory non-compliance. 

• Automation

Automation reduces the risk of human error and makes contract management more efficient. Compliance levels are increased, and potential risk is minimized in all categories. 

• TPRM as a Lifecycle

The standardisation of risk assessments becomes easier to automate by viewing each third-party relationship as a self-contained lifecycle. It is important to clarify each stage in the lifecycle as part of this process and understand the risks in each stage: 

• Tender and selection
• Negotiation
• Onboarding
• Performance monitoring
• Management
• Termination 

Breaking down supplier relationships in this way creates a more structured approach to third-party risk management and increases the overall efficacy of the plan.

Software Solution

Once you have created your Third-Party Risk Management plan, you need to be able to manage it in an effective and efficient way. This is where technology and software come in.

Data location is one of the foundational principles of third-party risk management. Knowing where your data is at any given point in time is imperative to keeping it secure. Every third-party relationship requires the exchange of data at various levels, so data plays an important role in any third-party risk management plan.

• Risk Model Configuration

Third-party risk management software can be configured to match predefined risk models, allowing the organization to enforce streamlined standards and processes across the operation.

• Intelligent Questionnaires

As data accumulates in a centralized repository, that information can be used to design, build, and publish intelligent questionnaires to support third-party due diligence. Only authorized personnel have access to the latest versions and up-to-date resources, meaning that the system cannot be gamed by someone with inside information.

• Automated Audit Trails

Third-party risk management software uses permission-based access and centralizes data. Every user action is automatically logged and tracked, ensuring better compliance with regulatory and contractual requirements by increasing transparency and accountability.

• Security Profiling 

Third-party risk management software can connect with external databases to automatically perform background checks and security profiles of third parties. These external databases, such as Dun & Bradstreet, Dow Jones, LexisNexis, and Thomason Reuters, scrutinize both businesses and individuals with third-party risk management software, providing organisations with greater insight than their own data might.

• Automated Workflows

Automation minimizes risk by reducing the potential for human error. Workflow bottlenecks are often caused by issues with training and professional development. Automation of workflow processes flags the right people at the right time, so deadlines and milestones are successfully met. This reduces the probability of conflict and disputes incurred as a result of errors.

• Customizable Reporting

Third-party risk management is all about gathering information and making decisions from a fully informed perspective. The customizable reporting function turns information into actionable data and can be built to match the overall needs of the business as well as the risk models created to support third-party risk management planning.

Are your third party connections putting your cyber security at risk? Concerned about the risk your supply chain poses to the organisation, but don’t have any way to manage this? Maybe it’s time for some expert guidance to help you start your journey…