If you’re a business that relies on third-party products or materials to offer your own products or services, relationships with vendors are going to be crucial to your success throughout the lifespan of your business. But when you’re first starting out or when you need to make the switch to a new vendor, it can be difficult to tell who you should be doing business with. To streamline your vendor search, here are three ideas for doing a risk assessment for third-party vendors.
1. Identify Organizational Risk Management Practices
When you’re thinking about developing a relationship with a third-party vendor, you shouldn’t be focused solely on characteristics like reliability. A vendor can be reliable and yet still be vulnerable to industry challenges and market changes that put them and you in a precarious position. Leveraging risk assessment software to see how well they’re organized, if they can manage market and supply chain issues, and whether there are other risk considerations like compliance risks or financial risks is a valuable way to make sure you’re working with the right vendors. The more research you conduct, the more confident you can be in your third-party vendor decisions.
2. Conduct Surveys With Business Owners Who Have Used Specific Vendors in the Past
The most valuable information at your disposal is qualitative data. Past client experiences can greatly inform you as to how a vendor does business, the advantages of working with them, and the potential disadvantages and warning signs that you need to be aware of prior to forming a business relationship with them. You can acquire this information by searching online for client reviews and by reaching out directly to past clients to get more information straight from the source. If past client reviews are mostly positive, chances are that the risk of working with that specific third-party vendor is fairly low.
3. Check Their DUNS Profile
Nearly every business you encounter is going to have a DUNS profile. Dun & Bradstreet is one of the top business credit bureaus, and they offer a host of useful resources that are necessary for your own business and for gaining insight into other businesses you may develop relationships with. Much like personal credit, business credit can tell you a lot about the risk profile of a business and how it conducts itself. If a third-party vendor that has been around a while has poor business credit performance and other red flags on their business credit profile, there’s a good chance that this is a third-party vendor that could present problems or even go out of business when you need them most.
Third-party vendor relationships are necessary for any business that relies on parts or products that they need to conduct business. However, not every third-party vendor is going to be a good fit for your business, and it’s important to figure this out on the front end instead of waiting for your business to be negatively affected by it. The wrong choice can wreak havoc on your profitability and operability. Use the ideas above to assess risk for third-party vendors so you can be confident you’re forming the right relationships.
