There aren't too many organizations out there that can truly go it alone. Businesses of all sizes, across every industry rely on third-party support to boost profitability, reduce costs, and build competitive advantages. 

Though they have the potential to bring value, third-party relationships also present a variety of potential risks. These include:

  • Strategic Risk - These arise from bad business decisions or failure to implement decisions that will effectively serve 
  • Reputation Risk - These risks involve negative public opinion and dissatisfied customers. They might arise due to interactions that are inconsistent with policies, inappropriate recommendations, security breaches that expose customer data, or any illegal activity. 
  • Operational Risk - These risks arise from inefficient policies, ineffective people, broken systems, or other external disruptions. 
  • Transaction Risk - These arise from issues with product or service delivery. 
  • Compliance Risk - Similar to reputation risks, these can arise from violations to the law, rules, or regulations. In worst case scenarios, these violations and non-compliant activities are intentional. 
  • Information Security Risk - These risks arise from any unauthorized use, modification, disclosure, or destruction of information. The term applies no matter what form this information takes. 

Third-Party Risk Management (TPRM) programs empower organizations to identify, manage, and mitigate these risks throughout the lifecycle of their third-party relationships.  In leading organizations, the program starts during the early stages of the Procurement process and evolves all the way through off-boarding. 

The sheer volume of risk factors has compelled Procurement groups to evolve in their risk management efforts. What was once a mere 'check-the-box' exercise has become a nuanced function complete with its own adaptable policies and systems. Those companies who take third-party risks seriously are taking a comprehensive approach to ensuring compliance, protecting confidential information, and proactively addressing every possible disruption. 

At minimum, an effective TPRM apparatus provides: 
  • Visibility into third-party relationships and their contracts.
  • A formalized process for risk assessment and due diligence.
  • Standardized contractual terms and provisions designed to mitigate risk.
  • Risk-based monitoring and oversight processes. 
  • A formal off-boarding process for the end of third-party relationships. 

An optimal function will also involve selection and assessment processes for fourth parties (the third party's own suppliers and distributors). Risk factors don't end with third-party providers, so the more visibility the better. 

Remember, it's your third-party partners aren't responsible for mitigating risk on their own. It's up to you to take a proactive approach to protecting your organization's profitability and reputation. Standards for business ethics are continually rising, that means it's more important than ever to build an effective risk management plan. Why not let Procurement take the lead? 

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