How to Choose a Vendor Management System: 3 Tips + Checklist
- November 20, 2019
- Quantivate
In today’s marketplace, organizations increasingly depend on vendors and other third parties for essential business functions, making maintaining an effective vendor management program both more important and more complex.
Auditors and regulators are also taking a closer look at vendor management programs, compelling businesses to do more due diligence in identifying their critical suppliers and gain a better understanding of the risks associated with those relationships.
Aside from strategic third-party risk and compliance considerations, day-to-day vendor management activities can be a challenge in themselves. Without a dedicated vendor management system, tasks like searching through vendor information, completing due diligence and contract reviews, monitoring risk and performance, and other vendor management essentials are difficult to coordinate.
Choosing the right vendor management system is crucial for meeting these growing demands. Let’s explore a few capabilities to look for when evaluating vendor and third-party risk management solutions that will make implementing your initiatives easier, faster, and more cost-effective.
Centralized Vendor Information
Organizing and managing vendor information like financials, contracts, and insurance certificates is critical for effective third-party oversight. Yet, many businesses still rely on time-consuming techniques like filing systems, spreadsheets, and word processing software to keep track of their vendor relationships. However, these manual methods no longer meet requirements from auditors and regulatory agencies and may increase third-party risk.
→ What to look for:
A centralized database where you can store, organize, and retrieve vendor contracts, due diligence documentation, and other important information.
Third-Party Due Diligence & Risk Assessment Tools
Due diligence requires investigating a vendor’s ability to fulfill its obligations. In its guide for managing third-party risk, the FDIC defines comprehensive due diligence as “a review of all available information about a potential third party, focusing on the entity’s financial condition, its specific relevant experience, its knowledge of applicable laws and regulations, its reputation, and the scope and effectiveness of its operations and controls.”
Due diligence processes should be in place both for vetting potential new vendors as well as for reviewing existing third-party relationships, typically when a contract renews. Vendor due diligence reviews cover a range of categories, including:
- Business operations and performance
- Financial health
- Legal issues
- Compliance
- Fourth parties
- Human resources
- Information security
- Reputation
- Business continuity
For some example due diligence questions, see Getting Started With Vendor Due Diligence Reviews.
→ What to look for:
Tools for creating due diligence questionnaires, classifying vendors by criticality and risk scores, and completing risk assessments.
Integration With Other Risk Management Functions
Integrating data equips organizations to eliminate redundant activities, standardize processes, and consolidate documentation across departments and risk management functions. An integrated vendor management system provides consistent data for clear visibility into all risk management activities. This means that the teams managing vendor risk, business continuity, enterprise risk management, information security, internal audit, and other areas can share a common database, breaking down data silos and reducing duplication. This facilitates a better understanding of enterprise-wide risks and their impact on business outcomes.
→ What to look for:
Platform-based integration that enables cross-functional data-sharing, automated workflows, and configurable reports and analytics.
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