An inaugural survey by Supply Wisdom, reveals a concerning lack of understanding among businesses about the risks associated with their third-party vendors, suppliers, and contractors. The survey highlights the need for more effective risk management strategies, particularly in the context of increasing outsourcing.
The Growing Reliance on Third-Party Vendors
In an increasingly volatile world, businesses are outsourcing functions to third-party vendors more frequently to stay competitive and reduce costs. This trend, according to Tom Thimot, CEO of Supply Wisdom, is not slowing down. However, this extensive reliance on third-party vendors introduces new challenges and risks. Alarmingly, the survey found that most participants lack a clear understanding of their supplier, vendor, and contractor populations and the potential risk levels within these groups.
The Need for Effective Risk Management
Outsourcing can offer organizations time and cost savings and potentially unlock new revenue streams. However, it also introduces potential risks within supply chains and vendor relationships. Therefore, assessments of vendors, suppliers, and contractors are crucial to a successful third-party risk management strategy. Yet, not all assessment methods are equally effective.
Embracing Technology for Risk Monitoring
Many companies are realizing that traditional assessment methods are no longer sustainable in today’s risk management landscape. Instead, they need to adopt innovative technology to monitor risk. The survey found that nearly 80% of respondents view technology as very or extremely important in risk management programs. However, there is a disconnect between perception and action, with 57% of respondents reporting that they do not currently use AI in their risk assessment.
Key Findings:
- The top risk types monitored are Financial Risk (65%), Operations Risk (64%), Compliance Risk (51%), and Cyber Risk (51%).
- Less than 15% of procurement and supplier management professionals report using continuous monitoring tools to assess suppliers, indicating an underutilization of technology in risk assessment.
- 62% of businesses do not strongly believe their risk monitoring program meets contractual and regulatory requirements.
- North American companies use fewer third-party & Nth party vendors than European companies. 47% of European companies reported vendors in as many as 49 countries, compared to 22% of NA companies who said the same.
Effective risk management in supply chains requires a deep understanding of the potential risks associated with third-party vendors, suppliers, and contractors. By embracing innovative technology and adopting more efficient risk monitoring strategies, businesses can better protect themselves from the challenges and uncertainties of today’s volatile business environment.
