Four Steps for Better Vendor Compliance Management

Third party risk management is often tougher for organizations to manage when compared to internal compliance. It is tougher because of a very simple reason; the vendors are not in the organization’s control. It is easy to train and monitor the employees within the organization, ensuring that third-party vendors also comply with the same standards is not easy when the logistics are considered. This is why many businesses are now using third party compliance management solutions to monitor quality and compliance in products and services provided by vendors. It gives businesses data about issues from vendors.

Vendors are an integral part of doing business, but they increase risks of non-compliance. Businesses are responsible for any non-compliance in their own services even if the non-compliance was committed by a vendor. It is the responsibility of every business to ensure that every part of them business process is compliant.

If the vendors commit a compliance violation there are two possibilities. The business using the vendor’s services may detect the non-compliance. The business will then have to spend a lot of time and resources to fix the problem. Things are even worse if the business does not detect the non-compliance – if the non-compliance reaches the customers then the bank will be legally liable for it as well. Total compliance management is only possible if compliance is also managed for vendors.

What is vendor compliance?

Vendor compliance refers to the business practice of ensuring that all the vendors that work with the business are complying with the necessary and recommended legal and safety rules and regulations. Businesses that operate in heavily regulated industries such as the financial sector and the healthcare sector must abide by multiple types of special regulations that only apply to their industry. Any vendor that works with them must also ensure that their services and products are in compliance .Vendor compliance management ensures that all vendors have the right training and certifications.

Here are 4 steps that can be taken by management to vastly improve vendor compliance management:

Step 1: Maintain Historical Records

The first step is to keep a record of every notable deviation from the norm in service delivery. Often there are minor issues which are ignored which can lead to them becoming major issues in the future. If a supplier is a few hours late occasionally, it may not seem like a major problem. Most businesses schedule deliveries a few days in advance, so a few hours will not cause any real problems. However, if the vendor is not consistent with the delivery time, they may soon start being days late. Keeping records of all deviations allows you to see trends which can reveal future risks.

Step 2: Rethink the Way your Requirements are Delivered

If the vendors keep making a mistake when it comes to compliance requirements it is possible that they do not understand the requirements properly. Start by sending the vendor an explanation of your organization’s requirements. Instead of simply stating the requirements try to explain why those requirements should be adhered to. If you have the time and resources, the best method is to ask the vendor to send someone over who you can fully explain the requirements to. Having this knowledge will enable them to deliver more consistent and compliant services to your organization.

Step 3: Stop Making Complaints and Start Giving Feedback

The key to consistently improving the service quality level of vendors is to provide them continuous feedback. Businesses generally think of services as acceptable or unacceptable. The real world is not so binary. Instead of only communicating with the vendors when there is a complaint or when the services or materials delivered are unacceptable, give them feedback whenever possible. If the last service delivery was slightly lower in quality than before, mention it. If the last service delivery was excellent, beyond anything the vendor had delivered before, then mention it too. Let the vendor know what works by providing continuous feedback.

Step 4: Create a Management System

To sustain vendor compliance, it is necessary to have a systematic approach towards vendors. Instead of simply keeping all the vendor information scattered in documents, focus on how this information can be made useful for your organization. This is one of the reasons vendor management systems are so helpful. They collect information and data about vendors and store it in one place where it can be easily accessed and processes. This allows quality managers to quickly see vendor performance and slice the data any way they need to generate insights. It will only take a few clicks to compare the quarterly performance of a vendor to see how their performance is improving, something that would take almost an hour of data collection without a management system.

Compliance management system is too important to leave to chance. A compliance issue created by a vendor will be a bigger problem for your organization than it is for the vendor itself. They will simply lose your business as a client, but your business may face reputational losses as well as regulatory penalties. Thus, even though it is the responsibility of the vendor to be compliant, the right approach is to assume the responsibility for their compliance as well. Help them improve their own service delivery because it will help your organization’s compliance goals.

About the Company

360factors, Inc. (Austin, TX) helps companies improve business performance by reducing risk and ensuring compliance. Predict360, its flagship software product, vertically integrates regulations and requirements, policies and procedures management, risks and controls, audit management and inspections, and on-line training and qualifications, in a single cloud-based platform based on artificial intelligence.

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