Most companies sit in the middle of a supply chain. So, if your business wants to reduce the chance that one or more of your vendors could expose you to security, financial, or other risks, then you’ll need to embrace best practices in supply chain compliance.

To safeguard your business against security, financial, or other risks that could arise from your vendors, it’s essential to adopt best practices in supply chain compliance. Not only does a robust supply chain compliance policy help avoid accounting errors, which is crucial for maintaining financial integrity, but it also plays a pivotal role in gathering data for Sarbanes–Oxley Act (SOX) compliance, ensuring adherence to necessary regulatory standards.

 By implementing these practices, you not only lessen the risks to your company but also enhance your reputation as a reliable and compliant business partner, which is highly valued in your target market.

What Is Supplier Compliance Management?

Supplier compliance management eases the burdens of mandatory supplier risk assessments and due diligence questionnaires. Through these assessments, you can consider risks associated with vendors’ corporate governance, safe working conditions, cyber security, sustainability, and environmental concerns.

Supplier compliance management is a high-risk and high-reward function in a contemporary company. The amount of money firms spend with suppliers reflects this; for example, according to the Australian ISO 20400 Committee for Sustainable Procurement, most Australian businesses now consume 40 to 80 percent of their budgets on their supply chains. That said, managing suppliers throughout the entire lifecycle can be difficult due to the many vendors and suppliers typically used by a corporate organization.

What Is the Difference Between Supplier Management and Supplier Compliance?

Supplier management is about the performance of your suppliers and implementing initiatives to streamline communications and drive efficiencies with those suppliers. It encompasses the entire lifecycle to ensure high performance and a mutually beneficial relationship.

Supplier management uses KPIs, metrics, and scorecards to monitor defect rates, lead times, and order accuracy. These tools help drive efficient supplier management by setting targets and establishing timelines for corrective actions.

On the other hand, supplier compliance is related to regulatory compliance and assuring that your suppliers meet the same standards that your business does. It protects your business from compliance issues and cybersecurity risks that your supply chain and service providers could cause.

Why Is Supplier Compliance Important?

Supplier compliance is a cornerstone in highly regulated industries such as finance, banking, healthcare, pharmaceuticals, government, retail, and corporate sectors. Adhering to SOX, which mandates stringent financial disclosures, particularly for publicly traded companies, is non-negotiable. A supplier failing to comply with industry regulations exposes your company to significant financial and reputational damage.

To mitigate these risks, it’s crucial to implement Governance, Risk, and Compliance (GRC) strategies. This involves conducting regular internal audits and leveraging tools like Excel, Microsoft solutions, and specialized software like AuditBoard to monitor your partners’ and suppliers’ compliance and security posture. These practices are integral to maintaining the health of your entire ecosystem.

For businesses relying on SaaS solutions, ensuring that these services are SOX-compliant is a key aspect of risk control. By systematically assessing the business processes, internal and external auditors can provide valuable insights into the compliance levels of suppliers. 

Applying frameworks like Control Objectives for Information and Related Technologies (COBIT) can further enhance your ability to manage supplier compliance effectively, safeguarding your company against potential breaches in SOX compliance and other regulatory requirements.

What Are the Challenges of Supplier Management?

Supplier management (vendor management) often proves challenging because you can only exert so much control over your third-party business partners and their operational practices.

You can perform due diligence and comprehensive vetting at the start of a supplier relationship to ensure that they provide safe working conditions, operate with sound environmental practices, and have robust information security. Still, continuously monitoring your suppliers can be a challenge.

Some supply chain risks are complicated to identify and control. Regardless, non-compliance from your vendors jeopardizes the entire supply chain, including your organization and any customers you interact with during a risk event.

Here are examples of the challenges of supplier compliance management.

Global Risks

International suppliers may operate under different national compliance requirements from your organization.

For example, the European Union General Data Protection Regulation (GDPR) is required for companies that operate within the EU or handle EU citizens’ data. Therefore, if you have clientele in the EU, you must ensure that your suppliers comply with GDPR demands regardless of location.

The GDPR incorporates a 72-hour breach notification requirement for all “data controllers” (companies that collect personal data), even for breaches arising from their “data processors” (companies that process personal data, even if they didn’t gather the data from EU citizens directly).

This means that you are responsible for notifying your customers within 72 hours if one of your vendors is processing EU personal data on your behalf and suffers a breach. In addition, if the vendor wasn’t in compliance with the GDPR, you could face fines since you’re the data controller.

Patch Management

Any IT device using outdated software is a security threat, including IT devices utilized by your vendors. If your vendors don’t follow a strict patch management program, their devices could be the entry point for a cybersecurity breach that threatens your data or IT systems – and all the financial damage that might ensue.

Your vendor risk assessment should include reviewing your vendor’s patch management program and evaluating their processes for consistency and sustainability to mitigate this risk.

Paper Processes

Many supply chain management processes still happen on paper, making it too easy to lose records, mismanage shipments, or cause other errors. Moving your supplier management to a digital platform will reduce opportunities for mistakes and allow you to automate inefficient processes.

At the same time, ensuring these digital tools are secure is critical, especially if you share sensitive or proprietary information. Efficiency gains are no good if they open the door for supply chain attacks.

Employee Training Effectiveness

Just because a vendor has a training program doesn’t mean the training will always work. Phishing attacks, for example, can fool even well-trained employees. So, you should review your suppliers’ training programs to understand the effectiveness of their current training programs.

How to Create an Effective Supply Chain Compliance Management Program

As your organization incorporates more technology suppliers, you must integrate supplier compliance management into your overall compliance program.

Quality Management Systems (QMS) document the processes, procedures, and responsibilities for quality and control objectives, including management of vendor relationships. Focus on the most business-critical vendors first to maintain business continuity and protect your customers.

Establish Control Requirements in Service Level Agreements

Service Level Agreements (SLAs) contractually require suppliers to align with your security stance. By using SLAs to define your expected controls, you can more effectively manage the vendor’s compliance with your risk tolerance.

You can determine whether to maintain or terminate vendor relationships from these requirements. For example, you may want to incorporate a level of at-rest or in-transit data encryption to assure appropriate data protection – and then hold vendors accountable to meet those expectations.

Create Key Performance Indicators

You must set key performance indicators within your SLAs to monitor supplier information security controls.

For example, consider incorporating a baseline for restoring critical business operations during a service outage. This allows you to evaluate a vendor’s resiliency, monitoring, and incident response program.

Establish Communications

Supplier relationships must incorporate ongoing communication among stakeholders, so be sure to assign responsibility for managing the relationship to specific employees in your organization.

Moving to a shared digital portal can also facilitate efficient and streamlined communication and help to improve supplier risk management.

What Is the Best Way to Streamline Supplier Compliance?

Even the smallest businesses may find keeping up with compliance rules challenging. As your organization grows, keeping everyone on the same page becomes more difficult. A successful Compliance Management System (CMS) demands the correct tools and compliance software to help streamline your compliance activities.

Also, a digital supply chain is characterized by interconnected digital and technological enablers. These enablers simplify Supply Chain Management (SCM) and help companies better respond to and satisfy their customers’ evolving demands.

Processes in the supply chain can be automated to save time, improve quality, lower costs, demand less working capital, and increase profitability. Traditional supply chains with silo-based, manual operations cannot provide these advantages at the same level.

As a result, businesses can provide customers across various fulfillment channels with more options, quicker product delivery, and hyper-personalized service.

Supply Chain & SOX Compliance

SOX is crucial in protecting investors by enhancing the accuracy and reliability of corporate disclosures and financial reporting. Let’s delve into how SOX compliance is intricately linked with data security in supply chain management.

How Does SOX Compliance Relate to Data Security?

The Sarbanes-Oxley Act (SOX) aims to protect investors by improving the accuracy and reliability of corporate disclosures and financial reporting. As such, SOX compliance relates closely to data security. Companies must implement internal controls and procedures to ensure the integrity and security of financial data. 

This includes protecting data from unauthorized access and ensuring changes are tracked. Automated SOX compliance software with robust permissions helps centralize financial data and monitors access.

Common SOX Compliance Challenges

SOX compliance presents challenges like centralizing financial data across multiple systems, manually tracking changes, gathering evidence, and coordinating control owners. Dashboards and automation in SOX compliance software solutions enable companies to streamline compliance processes for real-time risk management. This eliminates reliance on spreadsheets and manual tracking.

Gathering Data from Suppliers for Internal Controls

Public companies need evidence that supplier financial data feeding into financial statements is accurate and secure. Organizations can use compliance management software to send assessment questionnaires and gather supplier evidence to support internal controls. Pre-built templates help streamline this process.

How to Prepare for a SOX Compliance Audit in 2024

Companies should review SOX compliance requirements and assess processes against control frameworks like the Committee of Sponsoring Organizations (COSO) to prepare for a smooth SOX audit.

  • Review and Assess: Begin by reviewing SOX compliance requirements. Assess your current processes using frameworks like COSO to identify compliance gaps.
  • Implement Controls: Strengthen your internal controls. Utilize SOX compliance software for efficient management and process streamlining.
  • Centralize Data: Keep financial data centralized in a compliance solution. This ensures clear visibility for auditors.
  • Ongoing Testing and Remediation: Regularly test controls and address any issues promptly. This showcases a mature approach to SOX compliance.

Automate Supplier Compliance Management with RiskOptics ROAR

Managing your internal compliance program can be challenging; supplier compliance could put you over the edge. RiskOptics ROAR can help you streamline your supplier compliance management processes. 

Automated workflows drive action and show task managers the date when a vendor provided a response and a status. These details mean compliance managers no longer need to spend time following up with the organization’s many vendors and can drive better vendor compliance.

ROAR’s unified control management feature allows organizations to map controls across multiple frameworks, standards, and regulations to determine whether compliance gaps exist. This mapping capability will enable you to manage the mundane tasks associated with vendor risk management and ensure a robust program. For more, schedule a demo today!

Best Practices to Mitigate Vendor
Risk Within Your Supply Chain