Managing third-party risk: four steps to better contractor management

Managing supplier quality and third-party risk is not an easy task. The challenge often isn’t a lack of effort, but the growing complexity of managing suppliers in today’s business environment. 

Globalization, evolving regulations and increasing pressure to improve operational efficiency are just a few of the factors organizations must navigate. 

Operational risk management isn’t a sprint—it’s a marathon that requires a structured, multi-stage approach.

Understanding how to manage third-party risk effectively can help organizations strengthen supplier relationships, reduce operational disruptions and improve compliance. 

Understanding the challenge of third-party risk 

As organizations expand their supply chains and outsource more services, managing operational risk becomes increasingly complex.

Global supply chains introduce additional barriers such as cultural differences, language gaps and varying regulatory requirements.

For example, an American company operating a manufacturing facility in Mexico may rely on international suppliers across several regions. In these cases, the organization must consider how suppliers approach workplace risk, communicate safety standards across language barriers and comply with regulations in multiple jurisdictions.

Even organizations working exclusively with domestic suppliers face increasing regulatory pressure.

Government and industry regulations are evolving to place greater responsibility on employers for workplace safety and compliance. For example, Alberta’s Bill 30 (Service Alberta Statutes Amendment Act) introduced stronger requirements related to workplace health and safety responsibilities.

Why global supply chains increase operational complexity 

Organizations managing third-party suppliers must evaluate multiple factors that influence operational risk.

Understanding these factors helps organizations identify where supplier risks may arise.

Four steps to managing third-party risk 

Organizations can approach third-party risk management using a structured, multi-stage process. 

Understanding the current risk 

The first step is developing a clear understanding of existing risks.

Organizations should analyze several aspects of vendor operations, including:

• Cultural awareness and safety culture
• Performance management processes
• Safety manuals and procedures
• Employee communication practices
• Overall risk awareness

Evaluating these factors helps organizations identify current risks and anticipate potential future challenges.

Establishing a risk management strategy 

Once risks are identified, organizations should prioritize them and develop a strategy to address the most critical issues.

A structured risk management strategy helps organizations:

• Identify potential risks
• Prioritize areas requiring attention
• Implement mitigation plans
• Prepare incident response procedures

This strategy should also inform the organization’s incident management plan for situations where risks escalate into operational issues.

Encouraging a risk-aware culture 

Organizations with strong safety cultures tend to manage third-party risks more effectively. 

Risk awareness should begin with leadership and extend across the entire organization. 

When executives, managers and frontline teams all prioritize safety and compliance, these expectations naturally extend to vendor relationships and supplier selection processes. 

Using centralized systems to monitor risk 

Managing supplier compliance data in spreadsheets is no longer an effective long-term approach.

Modern compliance management systems allow organizations to centralize critical supplier information.

Examples of common supplier compliance records:

A centralized platform allows organizations to track supplier documentation and receive alerts when certifications expire, equipment requires maintenance or insurance coverage lapses.