Commentary | IT Matters

Keeping Vendor Risk Under Control During the Holiday Season

Tags: 3PL, Inventory Management, Logistics I.T., Supply Chain Management, Risk Management

Sonal Sinha, Associate Vice President at MetricStream, 650-620-2955

‘Tis the season to be jolly. Yet, for logistics managers, ‘tis perhaps the most stressful time of the year. With businesses offering customers attractive deals and promises of just-in-time delivery, logistics managers are under tremendous pressure to make sure that customer orders are fulfilled in time. Nobody wants to see their name in front-page headline news, and nobody wants a repeat of last year’s delivery fiasco, in which packages failed to reach their destination on time.

This year, 56 percent of holiday shoppers plan to do at least some shopping online. Logistics managers will have to scale up their network of drop-shippers, distribution centers, and transportation service providers to ensure that their products reach their end-customers on time. Engagements with each of these vendors brings a unique set of risks – delivery schedules might be delayed, products might be damaged during transport, or products might be delivered to the wrong customer. Even if it’s the vendor’s fault, the seller’s brand and reputation are the ones at stake.

This is precisely where logistics managers play a key role. Logistics managers can help protect the reputation of the business, and keep customers satisfied by effectively mitigating and managing their vendor risks. Here’s how:

  1. Make it easy to manage vendor information. Coordinating thousands of orders across multiple distribution vendors during the busy holiday season is no small feat. Simplify this process by consolidating all vendor information into a central database, and mapping each vendor to the associated product or service, along with delivery schedules and other key data. This helps in tracking vendor activity, and quickly tracing any delivery or quality issues back to the source.
  2. Identify high-risk vendors. The first step to managing risks is to know where they lie. So, list out the most critical vendor risks (i.e. delivery delays), and evaluate each vendor against those risks. Categorize your vendors into high-risk, medium-risk, or low-risk categories. Then, proactively audit all high-risk vendors to determine if they have the adequate controls in place to mitigate all of the identified risks. If they don’t, work closely with them to resolve the issue. Have a contingency plan in place if a vendor failure is likely.
  3. Report and analyze data. Adopting a federated risk model is a common best practice that gives logistics teams the flexibility to manage vendor risks independently, while at the same time rolling up risk data to the top for reporting and analysis. Monitor risk data against pre-defined vendor KPIs and KRIs to identify trends and areas of concern. Engage key stakeholders who can help mitigate vendor risks and resolve issues in a timely manner.
  4. Automate wherever possible. When dealing with vendor risks, especially during the holiday rush, speed and agility are crucial. Minimize the use of cumbersome spreadsheets and manual tools, and instead, automate vendor risk assessments and reporting processes. This approach not only saves a lot of time and effort, but also helps logistics managers focus more on strategic activities and tasks, such as vendor risk analysis, which is crucial. Cloud-based risk management and automation tools can be implemented quickly and cost-effectively.
  5. Put the customer front and center. Listen to your customers. Understand what they’re asking for. Is it better service? Faster deliveries? Choose vendors who can help achieve these demands. Also, develop internal policies in line with what customers want. Communicate those policies clearly to your vendors, so that they understand what is expected of them. The idea is to create an enterprise-wide culture that extends throughout the organization’s ecosystem and is focused squarely on delighting your customers.

The holiday season is a great opportunity to build customer loyalty and strengthen your brand. Mitigate vendor risks effectively, and you’ll be in a great position to keep your customers coming back.