Governance is an important tool which allows a business to effectively manage resources and avoid failures and poor performance. It involves the development of formal regulations within the company around how different processes are handled and codifies how the business should react in any given situation.
A failure to manage governance around any process within a business can have a very serious impact on the business as a whole.
True governance will span the entire culture, organisation, policy and practices of a business. It provides for management control across five key areas:
- Alignment – this provides the strategic direction of a given process.
- Value delivery – this ensures that the business is deriving the maximum value from any business processes through the assessment of ROI.
- Risk management – this allows a business to ascertain that processes are in place to ensure that risks have been adequately managed.
- Resource management – this provides a high-level direction for sourcing and use of resources.
- Performance management – this allows businesses to verify strategic compliance or the achievement of strategic objectives.
One aspect of corporate governance is vendor or supplier governance. This looks at making sure a business manages suppliers properly, so as to avoid costly and damaging service failures.
Some of the benefits of good supplier governance to a business include:
– Increased accountability through shared ownership and clarity of responsibilities
– Improved communication between the business and suppliers
– Ensuring that the business needs are matched with what the vendor is supplying
– Allowing for performance measurement so that the business has a better understanding of the value being delivered
Two of the key areas around supplier governance are compliance and risk management.
Compliance management ensures that vendors work to specific standards across all their deliverables. These can be internal standards that the company has put in place as part of its governance strategy, or external regulatory requirements that are compulsory on a legislative level.
In supplier governance it is important that vendors provide ongoing compliance with any policy and standards that they have committed to. This ensures that the company receives the full value out of the supplier and reduces risk around supplier performance.
The management of risk is a cornerstone of supplier governance as it ensures that the strategic objectives of the business are not jeopardised by a vendor’s failure to deliver services.
Managing supplier risk can be a challenging experience for businesses, especially when there is a high level of technical complexity around what the supplier is providing, but the first step to managing this risk is to create awareness around it.
Once an area of risk has been identified, the business can formulate an internal governance process to adequately manage it in alignment with the broader strategic business objectives. Successful supplier government will be seen in organisations that identify and manage risks most effectively in their relationships with suppliers.