What is Third-Party Risk Management in Procurement?

Emma Craney explores Third-Party Risk Management, and how it affects Procurement Functions.

For most organisations, outsourcing to a third party can be cost-effective and an efficient way to utilise a service they may not have in-house. But if the third party fails to deliver, there can be costly and long-lasting effects.

Often at the forefront of this challenge, Procurement professionals must consider a range of Third-party Risk Management factors and implement a robust and compliant strategy that can safeguard the business and maintain a resilient, compliant, and sustainable supply chain. Relying on third parties can leave organisations vulnerable if a well-thought-out Third Party Risk Management strategy is not in place.

Read on to learn more about the critical factors Procurement experts should consider when it comes to Third-Party Risk Management.

Complex Supply Chains:

Modern supply chains are intricate and interconnected, as organisations around the world depend on numerous suppliers, vendors, and partners.

Specific Supply Chain third-party risks include cyber threats, economy and inflation, and global political unrest. It is therefore essential to implement an effective Third-Party Risk Management strategy to help mitigate these risks by assessing and monitoring third parties.

This can ultimately help to avoid detrimental results such as financial instability, operational disruptions, or compliance violations.

Regulatory Compliance:

Regulatory third-party risk refers to the risk that a change in laws or regulations will negatively impact an organisation, sector, or market.  These regulations could include Data Protection, Anti-Corruption and Environmental Policies.

For Procurement professionals, it’s important to be aware of upcoming changes to these regulations so their organisation can remain compliant. Regulatory bodies will impose stringent requirements on businesses and severe penalties will be issued to those who are no longer compliant.

Procurement teams must also ensure that their third-party partners also adhere to relevant regulations, and that their Third-Party Risk Management plan aligns with any legal requirements.

Cybersecurity Threats:

An effective Third-Party Risk Management plan will identify cyber vulnerabilities and support the enforcement of robust security measures to minimise the likelihood of a cyber attack. These attacks can be extremely dangerous as third-party partners often have access to an organisation’s sensitive data.

For Procurement teams, its essential to evaluate all third-party cybersecurity practices to ensure their sensitive information is protected from data breaches.

Reputation Risk:

Any misconduct from a third-party partner ultimately reflects poorly on your organisation.

That’s why it’s important for Procurement professionals to be aware of any reputational risks associated with a supplier’s actions and take necessary action should any misconduct arise.

It’s crucial to factor this risk into your Third Party Risk Management plan to protect and safeguard your organisation’s own reputation, as well as your brand, people and culture.

Supplier Diversity and Social Responsibility:

When sourcing goods and services from third-party partners, its important to ensure these suppliers are operating in a fair and equal way.

It’s essential for Procurement professionals to explore the Diversity, Equity and Inclusion policies of a organisation’s partners, as well as any Corporate Social Responsibility initiatives, and factor these into the Third Party Risk Management strategy.

In summary, a structured Third-Party Risk Management strategy is crucial for maintaining a resilient, compliant, and sustainable supply chain, making it indispensable for Procurement professionals.

If you’re looking for more information about Third Party Risk, get in touch with one of our experienced Procurement Recruitment specialists who will be happy to help you.

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