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.
By creating a solid supply chain compliance policy, you can lessen the risks to your company, and as a result, become a more desirable business partner to 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 that firms spend with suppliers reflects this; for example, according to the Australian ISO 20400 Committee for sustainable procurement, most Australian businesses now spend 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 assure 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 essential in highly regulated industries such as finance and banking, healthcare and pharmaceuticals, government, retail, corporate, and others.
If a supplier fails to comply with industry regulations, your company risks financial and reputational damage. For this reason, it is vital to monitor the compliance and security posture of partners, suppliers, and service providers to maintain the health of your entire ecosystem.
What Are the Challenges of Supplier Management?
Supplier management (also called 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 assure 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.
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 that handle the data of EU citizens. Therefore, if you have clientele in the EU, you’ll need to assure that your suppliers comply with GDPR demands regardless of their 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 collect 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.
Any IT device using outdated software is a security threat, including IT devices used 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.
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 cut down on opportunities for mistakes and allow you to automate inefficient processes.
At the same time, assuring that these digital tools are secure is critical, especially if you are sharing 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, that 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 their current training program effectiveness.
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 your suppliers to align with your security stance. By using SLAs to define the controls you expect, 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
To monitor your supplier information security controls, you need to set key performance indicators within your SLAs.
For example, you may want to incorporate 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.
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 challenging. A successful compliance management system (CSM) demands the correct tools and compliance software to help streamline your compliance activities.
Also, a digital supply chain is characterized by a network of 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.
Automate Supplier Compliance Management with Reciprocity ZenComply
Managing your internal compliance program can be challenging, and supplier compliance could put you over the edge.
Reciprocity ZenComply can help you streamline your supplier compliance management processes. ZenComply’s single source of truth enables you to manage risk assessments, due diligence questionnaires, supplier data, and compliance documents in one central platform.
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.
ZenComply’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.
Read our ebook Best Practices to Mitigate Vendor Risk Within Your Supply Chain for more information about creating a vendor risk management program.