Key Elements of Comprehensive Vendor Governance Program
Contracting the right vendors, monitoring their performance, and managing associated risks—they all pose significant challenges that too many organizations are still ill-equipped to deal with. In today’s uncertain business environment, a comprehensive vendor governance program is more important than ever for helping businesses cope with increasing risk levels and other vendor governance concerns.
These key elements will make your organization’s vendor governance program as thorough and effective as possible.
Build the Team
Choosing the right vendors to work with can be difficult and many organizations still trust their gut when going with one vendor over another, continuing with an existing vendor for the sake of familiarity. Metrics and data help you make more educated vendor selection decisions.
Before creating a vendor governance program you need to research and identify who your vendors are. Keep in mind that a “vendor” is any third-party, associate, or contractor your organization does business with.
Other critical components of the vendor governance process include:
- Obtaining pricing quotes and/or bids
- Establishing vendor capabilities
- Researching turnaround times and quality of work
Careful Contract Negotiation
“Standard” vendor contracts come with potential risks and costs. In organizations with a high volume of third-party vendors, some contract details may get overlooked. All contracts should be carefully scrutinized and negotiated to make sure they:
- Adhere to industry best practices
- Are mutually beneficial
After all the hard work of research and contract negotiation, it makes sense to monitor and manage vendor performance. Performance incentives should be considered, KPIs established, and penalties defined.
Collaboration and Transparency
Frequent collaboration helps vendors understand what they need to do to meet your organization’s goals. So, too, does mutual transparency which lets vendors know not only when they’re not meeting expectations, but when they’ve done a good job. In order to make sure any established compliance procedures and checks are not being missed, vendors should regularly update you on changes to their processes as well. All disputes should be swiftly addressed and resolved to facilitate a strong relationship.
Clear terms of invoicing and payments should be established upfront and should be structured to your organization’s benefit. A dispute resolution process should be put in place and terms should be regularly reviewed to optimize cash flow.
Risk Management and Compliance
It’s important to know when any of your vendors pose a risk to your organization. While there’s no one-size-fits-all solution to third-party risk management, two factors are crucial to any vendor governance program:
- Identify risks using assessments. Data-driven reports let you know how well a vendor is performing and whether they’re meeting their contractual obligations.
- Mitigate risk by applying the right controls. Internal and external controls ensure contract terms are performed accurately and efficiently and that issues are flagged before they become huge problems. They also give you greater confidence in data security, minimize fallout from breaches, and allow for business continuity.
Develop Long-Term Vendor Relationships
To fulfill organizational missions and goals, it’s almost always advantageous to work with good third-party vendors in a long-term, mutually beneficial way.
Whether your goal is cost savings, improved vendor delivery, procedural standardization, or a combination of all three, the right vendor governance program goes beyond essential procurement functions to deliver strategic value. It also brings transparency to vendor evaluation and selection and helps ensure the way you select third parties to work with is based on value, not sentiment or habit.
ComplyScore offers comprehensive vendor governance solutions that simplify the entire vendor management process including risk assessment, due diligence, and contract performance tracking. We’re committed to providing you with the expertise, technology, and processes you need to transform your vendor management strategy, enhance security, and mitigate compliance risks. Contact us to learn how we can add value to your vendor governance program.