Why Risk It? Key Ways to Overcome Top Risks in Procurement

Over the past five years, the procurement industry has seen a shift in what is most important to procurement professionals and to the companies they serve. Two or three years ago, almost every response to the question, “What is your number one goal for your program?” was “cost savings.” Now, with growing global complexities surrounding a flexible workforce and with the increased percentage of contingent labor used in companies, the new top response is “risk mitigation.”

In the U.S. and certainly in Europe, the legislation and possible risks surrounding appropriate worker classification have grown so much that companies simply can’t track all of their contingent workers on paper any longer. They must have a system of record to track and audit things like tenure, SOW deliverables, 1099 validation, payroll, and onboarding — to name a few. Maintaining an auditable approval workflow, tenure reports by employee, and decision trees that comply with company policy seem to have trumped reports involving level of spend by supplier and geography. Although all companies still want efficiencies and cost savings, they seem to be much more troubled by risk than ever before. Fortunately, vendor management system (VMS) technology continues to become more sophisticated and can help companies effectively mitigate risk, so they can focus on their business.

Top Risk Areas and the Ways a VMS Can Help:

• Hiring: A company can expose itself to tremendous liability by hiring a contingent worker who is unqualified and not properly vetted. VMS technology helps minimize this risk by capturing supplier insurance information and contract expiration dates, by ensuring that proper security and background checks have been completed on candidates, and by creating an auditable trail of company policy compliance.
• Financial & Regulatory: A VMS assists with critical supplier management strategies such as identifying unapproved suppliers who may have inadequate insurance or who are nearing bankruptcy. A VMS also aids in documenting approval workflows needed for certifications such as SOX, SSAE 16, and ISO.
• Legal: A VMS is also used to assure that proper taxes have been paid based on the worker classification. The system can also help manage tenure and co-employment matters and optimally enforce an organization’s established policies for 1099s, contingent labor and SOWs.