Manufacturers depend on a diverse network of external partners to keep production running efficiently. From raw material suppliers to logistics, finance, and technology providers. Yet, as this reliance grows, so do the associated risks. Hence, there is a need for vendor risk management.
As a manufacturer, it is essential to constantly prioritise the quality, cost, and timeliness of raw material delivery. These factors greatly affect customer satisfaction and company profitability.
In this detailed guide, we’ll explore the vital role that vendor management plays in helping you achieve this. We also consider some practical tips that can guide your process of managing Vendor risks.
Before we get into Vendor risk management, let’s understand the holistic concept of third-party risk management.
What is Third-Party Risk Management (TPRM)?
As a manufacturer, you cannot do it all. So, to reduce the burden on your business, you must outsource some things. From suppliers to vendors to resellers and agents to technology partners to logistics partners, various parts of your business can be driven by partners, otherwise called third parties.
To reduce costs and ensure compliance, your partnership with a third party must be governed by strict rules. By doing this, you can ensure the reliability and integrity of such partners.
Why is Vendor Risk Management Crucial?
Working with third-party vendors can introduce risks that negatively impact an organisation’s reputation. For instance, in March 2022, Toyota Motors had to cut a third of its global output from a cyber attack on one of its key plastic parts suppliers (Kojima Industries).
Manufacturers identify, assess, and mitigate associated risks in vendor risk management when working with third-party vendors/suppliers. These sorts of risks affect operations, compliance, and overall brand reputation.
Hence, you need to have a solid risk management framework throughout all the stages of the vendor lifecycle. Below are some reasons why VRM is crucial for African manufacturers;
- As manufacturers, you must safeguard your Critical Business Functions (CBFs). A well-structured Vendor risk management framework ensures this.
- Vendor risk management is especially crucial for African manufacturers because it streamlines operations and minimises disruptions. It also helps manufacturers build trust as we aim to enhance the value of African-manufactured products globally.
- African manufacturers can identify potential physical and cyber security vulnerabilities by ensuring real-time tracking and rigorous assessment of vendors’ security practices.
- Vendor failures or inefficiencies often have fatal financial costs, and a solid VRM system helps organisations avoid these problems.
- Manufacturers with a well-structured VRM system reduce the risks of incurring regulatory signs and penalties.
Common Vendor Risks and How to Identify Them
Understanding and identifying vendor risks early can mean staying in or out of business. Here are the key risk areas and what to look for:
Financial Risk
Relying on vendors with unstable finances can disrupt your entire supply chain. It is crucial to look for indicators such as credit ratings, financial statements, and payment histories. You must also know local economic conditions that may affect a vendor’s cash flow.
Compliance Risk
Non-compliance can expose your business to regulatory fines and damage your reputation. You must ensure your vendor’s adherence to industry standards globally and regionally. When partnering with vendors who fail to meet ethical and operational standards, you may also run at risk of legal challenges and penalties.
Cybersecurity and Data Privacy Risk
In today’s world, data is a superpower. Weak cybersecurity practices in your vendor network can jeopardise sensitive data and disrupt operations. Hence, it’s essential to evaluate vendors’ cybersecurity measures.
Operational Risk
Vendors that fail to maintain quality control can affect your production line and product standards. This is why you need to review the vendor’s internal documentation, performance metrics, and adherence to Service Level Agreements (SLAs). You must also monitor data on delivery times and product quality to ensure reliability.
Reputational Risk
Your vendor’s behaviour and practices can directly impact your brand. This is why you must consider their public image, assess media coverage, and gather feedback from other clients or peers regarding the vendor’s reputation.
You can identify threats and implement the necessary controls by monitoring these critical risk areas.
Access Hundreds of Verified Vendors on Matta
With Matta, you don’t need to endure lengthy verification processes or risk working with unverified suppliers. Our digital marketplace features over 200 vetted vendors worldwide, making it the ultimate procurement tool for manufacturers. Matta takes the hassle out of vendor verification so you can focus on driving production and business growth.
Matta offers a comprehensive suite of services designed to simplify your procurement process. We ensure you can access credible vendors no matter where they are located. Our platform verifies vendor credentials, assesses the quality of their processes, and even supports seamless cross-border payments. Whether you’re sourcing raw materials or complex components, you can trust that every vendor on Matta has been thoroughly vetted for reliability and quality.
By outsourcing your vendor verification to Matta, you gain peace of mind and save valuable time. Access some of the biggest suppliers of various commodities—all verified, secure, and ready to meet your manufacturing needs.
Let Matta streamline your procurement process so you can concentrate on what you do best: growing your business.
