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The Critical Nature of Managing Vendor Risk

Business management is a trust game. Every day, managers trust that the people they hire will perform competently. They trust that the equipment will function correctly. They trust that customers will pay promptly. Indeed trust is essential to management theory as far back as Henri Fayol, who more than a century ago identified management as composed of five parts: Planning, Organizing, Command, Coordination, and Control.

Each of the five components carries risk. The risks involved in planning include having the wrong information to plan correctly or making bad plans with the right information. A manager risks organizing the business poorly with the wrong people and equipment in the wrong place. Command risks include interfering with optimal employee performance. Coordination risks include employees failing to work together toward the organization’s goals. Control risks include submitting to the temptation to let things be.

Vendors are critical to the function of most enterprises. This is especially true for manufacturers, who rely on raw materials sourced ably from distant locations and precisely made components that make the assembly process operate smoothly. It’s only marginally less accurate for creative businesses, where the final product still requires materials and experts to combine effectively on deadline.

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