Driving Risk Management through a Centralized VMO
Written by Casey Alexis
Vendor risk management can span across many internal groups, like sourcing, procurement, and vendor management teams. Trying to manage complex vendor ecosystems across multiple groups can be cumbersome when so many players are involved. Neo Group has seen increasing trends with organizations centralizing their vendor and risk management functions. This allows for standardization of processes, increased transparency, and functions that allow organizations to better manage, monitor and control their vendor ecosystems.
The following is a significant challenge that can occur when not centralizing vendor and risk management functions:
- Multiple teams within an organization that utilizes the same vendor can cause misalignment between business objectives and the services delivered. This can cause risk and misalignment when managing financials, performance, and contracts. More specifically, this causes an inability to leverage buying power to achieve enterprise pricing, a lack of transparency related to the vendor’s performance of services and gaps in core contractual terms.
In an effort to mitigate organizational risk here are some things Neo Group is seeing;
- Organizations are beginning to experience benefits from the execution of mature processes focused on increasing transparency, building strategic supplier relationships and mitigating short, medium and long term risk. Increased focus on the execution of these processes can create a culture that encourages information sharing between multiple operating units and can qualify and quantify perceived versus actual risk well in advance and drive early mitigation. Utilizing a shared performance scorecard between multiple business units can create visibility to important gaps or areas of risk specific to the measurement of financial, performance and contract management.
- With the integration of a mature vendor management function organizations are beginning to understand that having a proven process for the onboarding of a new supplier provides substantial short and long term benefits. Effective due diligence early in the process and prior to contract signing including a review of existing supplier capabilities can substantially lower organizational risk and create the foundations required to foster or establish a long term strategic relationship. In addition, establishing clear objectives from the beginning and clearly communicating these to all stakeholders including procurement and strategic sourcing can assist with making the vendor selection process effective and streamlined. This will assist with reducing the risk of a poor performing relationship or vendor with service quality that does not meet or align with the business expectation.
- Vendor and risk management processes are different from organization to organization and one of the benefits is centralized risk monitoring. Some organizations use outside sources to drive an understanding of new vendor capabilities to ensure visibility and objective risk assessment and mitigation. Some firms today only complete annual risk assessments or they only look at certain risk categories like financial risk or contract SLA’s and KPI’s. By adding a due diligence phase to a vendor vetting process organizations may achieve substantial savings from wasteful vendor selections by identifying upfront issues with that vendor.
Neo Group’s Supply Wisdom risk monitoring is a cloud-based data, alerts and guidance solution that provides real-time risk oversight so that you can take prompt action with fact-based objective confidence. Supply Wisdom offers an interactive and customizable interface that allows you to share, view, download and compare your most important global sourcing partners and locations from selection to ongoing risk management objectively.