Virtually every business today has to outsource work to external vendors. By extension, it needs a plan to handle what Gartner calls vendor risk management, or VRM/TPRM.
Working with third-party vendors exposes businesses to a variety of risks:
- Reputational harm: Security mistakes made by third party vendors could harm your brand’s reputation. Even if your company wasn’t at fault, customers or partners might hold your business accountable because they believe you made the poor choice of working with a risky third-party vendor.
- Operational damage: Problems with third-party vendors could disrupt your operations. For example, if a software product you depend on becomes vulnerable, your supply chain may cease to function until you find a replacement. Or your third party vendor may be hacked, leaving the door open to your organization for breaches or system failures.
- Financial loss: Third party vendor risks that turn into operational disruptions can ultimately lead to revenue loss, exacerbating the operational fallout of the situation and costing your organization money.
- Compliance challenges: You may be required to prove that your supply chain risk management complies with specific security or data privacy frameworks, and mistakes made by third party vendors could expose you to compliance failures. Like customers and partners, regulators aren’t likely to care whether the root cause of the issue lies with you or your vendor; all that matters to them is that you were non-compliant.
To respond to these challenges, especially considering the fact that 89% of businesses experiencing a supplier risk event in the past 5 years more needs to be done to develop an effective third party vendor risk management strategy. Developing that strategy starts with recognizing the mistaken assumptions that businesses often make when attempting to manage vendor risks.
Let’s look at those mistakes, why they’re dangerous and what businesses can do to avoid them.
1. Assuming All Vendors Are Covered
It can be easy to assume that as long as you have some kind of third party vendor risk management operation in place, it covers all of your vendors and gives you complete visibility into the risks associated with them.
The reality is that in many cases, TPRM programs overlook some vendors. The oversights most often result from relying on manual processes to identify and vet vendors, but you can also miss some vendors because your supplier list is always changing and you may not keep it up-to-date.
Not only that, in many cases, coverage itself is partial. Modern supply chains are complex and because of this, long-tail vendors can be easily overlooked or ignored, exposing your organization and supply chain to huge risk.
The solution to these challenges is to rely on automation to track vendors. When you automate, it becomes much easier to find all third party vendors in your supply chain, and to keep your vendor inventory continuously up-to-date.
2. Overlooking Risk Assessment
Simply identifying vendors is only the first step in third-party vendor risk management. Equally important is assessing how much risk each vendor introduces to your supply chain. Risk assessments should reflect factors such as how much harm the vendor could cause to your reputation, operations, finances and so on. However, too often is the risk tolerance or risk appetite in an organization under-assessed so the true effects are unknown in the case of vulnerabilities in your supply chain.
Ideally, risk assessment should happen automatically. Whenever you introduce a new vendor into your supply chain, or when your relationship with a vendor changes, you should be able to determine automatically how the vendor impacts your overall risk and make a valid assessment of exactly what level of risk is acceptable to your organization.
3. Vendor Risk Management Ends With Onboarding Assessment
While risk assessment is important, it’s not the end of the third party vendor risk management process.
Your relationship with vendors may evolve in ways that change the types and extent of the risk that each vendor poses. For that reason, it’s important to be able to reassess risks on a continuous basis. Using automation, you can ensure that your risk assessments are constantly updated and that they remain relevant even as your vendor relationships evolve.
4. Underestimating Vendor Compliance Needs
Sometimes, organizations assume that as long as they’ve met basic third party vendor risk management requirements, they’re covered against compliance mandates related to their supply chain and vendors.
In reality, compliance requirements tend to be complex and business-specific. For that reason, generic vendor risk management is not enough to guarantee compliance. Third party vendor risk management is a step toward compliance, but you also need to step back and assess the unique compliance requirements of your company and supply chain, then determine whether additional steps are needed to achieve compliance.
Simplify Third Party Vendor Risk Management With Findings
Findings takes the hard work out of vetting third party vendors. By automating the processes of identifying and assessing vendors across your supply chain, Findings makes it easy to maintain continuously updated visibility into where supply chain risks lie and how each vendor could harm your reputation, operations finances and more.