How to Mitigate Third-Party Risk With Intelligent Category Management Software

Category management has been a priority for CPOs over the last few years, but both internal and external challenges are holding category managers back from delivering value.

Internally, few companies are able to get accurate, detailed visibility into their spend and contracts. Externally, companies have difficulty forecasting market changes or predicting disruptions or changes in supply or supply chain risks, including third-party risks.

Third-party risk management, or TPRM, refers to identifying, internalizing and mitigating risks associated with third-party suppliers, which might not be in a company’s direct control but that they are still legally liable for. Third-party risks can damage your company’s reputation and expose you to legal compliance issues around labor, safety or environmental regulations.

With global supply chains and the increasing complexity of supplier offerings and services, it is almost impossible for companies to avoid association with third-party suppliers.

However, organizations must ensure due diligence and compliance and, most importantly, protect themselves from any potential illegal or unethical practices.

For category managers overseeing highly regionalized distribution and manufacturing hubs, it is an especially daunting task to unify a TPRM approach across vendor networks with different types of suppliers.

Most companies are limited to two choices – complex and expensive solutions or continuing exposure to local and ineffective workarounds.

Also read: Category Management: What It Is and Why It’s Important

An intelligent category management solution can help clarify goals and alleviate risks associated with TPRM. Digital transformation of complex processes can make third-party onboarding less challenging and help you manage risks and compliance issues across the lifecycle of your supplier relationships, especially in the following areas:

1. Due Diligence and Vendor Selection

An intelligent category management solution can assist in thoroughly assessing potential third-party vendors before entering into a business relationship. This includes evaluating their financial stability, operational capabilities, compliance with regulations and overall risk profile. An ideal solution features market intelligence alerts to keep category managers updated on industry news, changing regulations, governance frameworks.

2. Contractual Agreement and Third-Party Onboarding

Companies should consider effective contractual clauses and KPIs that ensure suppliers are legally bound to governance frameworks (ICM frameworks and access to KPIs).

3. Continuous Monitoring

Monitor supplier profiles and data to track performance against key metrics and implement action plans to meet contractual requirements.

4. ESG Risks

Managing scope 3 emissions is challenging when it comes to third parties. It’s crucial to train smaller suppliers in compliance and diversity and ensure supplier diversity. An intelligent category management solution enables your organization to ensure that suppliers are in line with your goals and that your third-party network is adhering to your carbon emission targets.

To mitigate third-party risks, an AI-powered intelligent category management solution can help increase visibility into supplier performance to highlight potential category risks, as well as provide the insights required to anticipate disruptions and take action to mitigate those risks.

Some capabilities that category managers should look for include:

Category Intelligence With Performance Tracking

AI-driven category intelligence empowers users with in-depth market insights, supplier information, and industry benchmarks. Solutions enable users to define KPIs to track category management performance in areas like cost savings, risk mitigation, sustainability, compliance and stakeholder satisfaction, thereby enabling development of effective category strategies.

Supplier Competitive Analysis

The integration of supplier intelligence, such as data sources like Dun & Bradstreet or EcoVadis, enables businesses to conduct thorough competitive analysis, set objectives and track sourcing activities to identify suitable suppliers that align with business goals – and have the necessary certifications, governance and compliance to meet your KPIs.

This holistic approach helps optimize costs and allows users to incorporate other targets such as diversity and sustainability goals, rationalize suppliers and mitigate risks.

Identification of Cost and Value Drivers

An ideal intelligent category management solution should provide advanced cost modeling and scenario planning capabilities. Businesses can identify cost-saving opportunities, understand the impact of different sourcing strategies, and assess KPIs like cost, risk and ESG goals. This strategic approach ensures compliance, accelerates development and strengthens upstream and downstream connections.

Transforming Third-Party Risk Management

Intelligent category management powered by AI software can be a game-changer for mitigating third-party risks. AI-driven tools and insights help identify potential risks and empower businesses to adapt proactive category strategies, ensuring negative impacts on the business are minimized.

By providing a comprehensive view of supplier performance and industry insights, these solutions let category managers to proactively develop strategies and navigate uncertainties. In addition, solutions with integrated alerts and newsfeeds can keep businesses informed about supply, suppliers and supply chain risks, enabling agile responses to emerging challenges.

With supply chain complexity continuing to increase, the ability to anticipate disruptions, track supplier performance and prioritize sustainability and resilience will be crucial.

With advanced capabilities like category, supplier and market intelligence, supplier competitive analysis, risk assessment and cost identification, intelligent category management solutions will alert the user whenever there are changes in the category dynamics and recommend timely actions, enabling them to identify opportunities and drive value in a rapidly evolving marketplace.

Learn how GEP can help your procurement organization transform category management with AI.

Read the first part of the blog series on next-gen category management.