Between COVID-19 concerns, reputational risks, cyber-attacks, and an increasingly complicated supply chain, companies across all industries need to be ahead of the game when managing third-party risks and building resilience. Yet, organizations are finding that a traditional, one-size-fits-all, and/or manual approach to third-party management (TPM) is no longer able to tackle complex challenges and an evolving vendor landscape. Instead, organizations are needing to enhance their TPM software programs (or even begin by investing in one) to ensure that operations are secure, personnel are safe, products are delivered to market on time, and positive ROI is measured.
According to Gartner research, 60% of organizations have over 1,000 suppliers. With more suppliers comes a wider threat landscape. In Aravo’s 2021 TPRM Benchmarking Survey, an overwhelming 90% of respondents reported that their organization had experienced at least one incident related to a third party that either did or could have caused business disruption and/or reputational damage.
Despite this, many organizations still rely on manual processes and systems (such as spreadsheets and emails) to manage their third parties and risks. This can no longer cut it, and organizations need to embrace the ROI that a robust TPM solution can provide.
Managing the number of qualified suppliers and third parties helps control vendor management costs. Deloitte recently published research citing, “In organizations that rely heavily on third parties, up to 80 percent of direct and indirect operating costs and 50 to 100 percent of revenues can be attributable to third-party relationships.”
An effective TPM platform ensures that you have the right suppliers, the right vendors, and the right sourcing to effectively manage vendor costs and contribute to your organization’s business goals.
The right platform streamlines and automates vendor onboarding and management. Capabilities that support this include:
Technology plays an important role in simplifying the process of both engaging with existing third parties and requesting new suppliers to fulfill business functions.
Aravo’s TPRM Benchmarking Survey shows a direct link between third-party incidents in mature programs vs. siloed and fragmented approaches to TPRM. 80% of respondents with immature programs reported significant business disruption or reputational risk incidents, against only 10% of respondents experiencing incidents with a more mature program. This points to increased risk exposure for organizations when the third parties are not subject to risk-driven workflows and oversight that starts at onboarding and third-party engagement.
Good TPM software streamlines and automates the vendor onboarding process using robust capabilities that helps you mature your programs while managing day-to-day activities.
Managing rising numbers of suppliers and third parties can no longer be accomplished using manual or office-based products. Aravo’s Benchmarking Survey shows continued fragmentation as different business units invest in their own solutions and a lack of standardization across multiple business processes causes difficulties.
This is further shown in a recent Deloitte Survey, where only 23% of organizations have been able to make significant progress on the integration of their TPRM program.
The right TPM platform streamlines and automates ongoing vendor management, helping you to improve the productivity of your users. Key capabilities include standardized and centralized process for managing third parties, and pre-configured assessments that can be leveraged as part of the third-party evaluation process.
Disparate systems and the use of manual and office-based tools creates inefficiency in the onboarding, risk assessment, evaluation, and approval of third parties and associated engagements. An integrated TPM platform streamlines entire end-to-end workflows from initiation to completion.
By moving away from manual systems, you can maintain a single organizational-wide inventory of all your third-party relationships, their firmographic data, and their risk profiles. Customers can use best practices, pre-built workflows, or configure the program to match your business processes from request/intake, to due diligence, to transactional-based data integration, and more.
Doing business with high-risk third parties can be risky and lead to revenue loss, higher cost of operations, and damage to your organization’s brand.
A risk-based approach to managing your third parties ensures that you have the right suppliers, the right vendors, and the right sourcing standards to support business goals before they are activated and can cause negative business impacts for your organization.
A TPM platform like Aravo provides a flexible assessment process, modeling your organization’s enterprise risk framework to assess your third parties and suppliers. Capabilities you can leverage include initial risk assessments, enhanced due diligence, ongoing continuous monitoring, risk intelligence data integration, and more. When evaluating your current software (or shopping around for a new one), it’s useful to ensure these capabilities are possible through the solution.
Third-party management that is not consistent with applicable laws, regulations, ethical standards, or an organization’s policies and procedures can lead to non-compliance fines, reputational damage, and plenty of headaches.
According to Stanford Law School’s Foreign Corrupt Practices Act (FCPA) Clearinghouse, the 10-year average sanction is $176m USD. Outside FCPA, other regulations such as GDPR and the UK Bribery Act can result in significant fines and penalties and cause severe reputational damage.
A risk management platform that enables organizations to assess third parties across multiple domains can protect the organization and demonstrate to regulators the robustness of their program. A platform does this by enabling organizations to assess third parties in multiple risk areas, e.g., Anti-Corruption, Modern Slavery, Information Security, ESG, and Data Privacy. Pre-configured best practices built into the platform should include:
Major disruptions to your supply chain, such as COVID-19, have been reshaping the risk landscape. Climate risk and more frequent major weather events are also forcing organizations to build more resiliency into their supply chain management processes. Getting products to market, maintaining essential services, and protecting customers due to the lack of supply are a few of the risks that organizations need to manage.
According to Deloitte’s 2022 global third-party risk management survey, while 60% of organizations say that resilience and business continuity planning is a strength; only 36% have a high/very high global supply chain contingency management capability.
Technology has a significant role to play to help you assess the risk and resiliency of your supply chain, identify the impact of disruptions on your business operations, and the risk mitigation measures you can adopt to minimize potential costs and loss of revenues.
A good platform combines a supplier-oriented view of disruptions and hazards that could impact your supply chain with business process automation needed to respond quickly to those threats. Capabilities include:
In many cases, third parties can struggle with completing risk assessment questionnaires in a timely fashion. In addition, approval rates can be low, leading to delays in onboarding which will ultimately impact your organization’s ability to bring new products to market.
A recent Deloitte survey identified there can be as much as a 30% contribution to net revenue from supply chain improvement initiatives. Furthermore, in our Aravo 2021 TPRM Survey, organizations reported 89% faster supplier onboarding times when their program was fully integrated across the organization.
TPM software does this by enabling you to onboard and approve third parties quickly by reducing the burden of the onboarding process for third parties, business owners, risk experts, and procurement teams.
There’s a lot to consider when investing in a new TPM (or TPRM) solution, or deciding how to evolve and improve upon an existing one. The capabilities listed here can provide a checklist of features to look for when evaluating software (new or your own), and the ROI benefits can help make your business case. In a risk landscape that is evolving into new risk domains, heightened regulatory scrutiny, increased threats to cybersecurity, and new focuses like ESG, it’s important that organizations have a solution that works for them, keeps them proactive, and leads to ROI.
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