As technology continues to advance, organisations are expanding their vendor inventories and supply chain networks. This allows for greater efficiency and competitiveness.
However, this growth also comes with new challenges. A recent survey from Venminder found more organisations are overseeing inventories with 1,000+ vendors. The survey also revealed that 49% of respondents experienced a vendor cybersecurity incident in 2024 and cybersecurity risk was listed as a top concern.
The more vendor inventories expand, the more organisations are exposed to operational and cybersecurity risks. This can cause supply chain disruptions that cost time and money to resolve.
Vendor risk management (VRM) is a critical practice for organisations. Robust VRM practices identify vendor risks and actively mitigate potential threats. Strong governance, effective VRM activities, and vendor management software like Venminder can help.
Key Reasons to Implement Vendor Risk Management
Implementing vendor risk management activities helps prevent the harmful consequences of vendor relationships. This allows organisations to focus on getting the most value out of the relationship and offering the best product or service to customers.
Here’s 4 key reasons to implement vendor risk management
- Protect sensitive data – Data security isn’t just a best practice – it’s an expectation. Customers, key stakeholders, and regulators expect organisations to prioritise protecting data. When vendors access, store, manage, or transmit sensitive data, it’s important to know they can protect it. Implementing vendor risk management identifies who holds your data and ensures the right practices are in place to secure it.
- Safeguard operations – Operational disruptions are costly for organisations. It takes both time and money to restore products and services and manage customer disruptions. Vendor risk management assesses the potential impact of a vendor failure.
- Manage your reputation – A vendor incident, whether it’s a cyberattack or disruption with the product or service, can damage your organisation’s hard-earned reputation. Vendor risk management activities monitor the vendor’s performance and implement vendor incident response plans to address issues quickly.
- Maintain regulatory compliance – Several regulations govern how organisations should manage vendor relationships or require some level of vendor oversight. This includes the Health Insurance Portability and Accountability Act (HIPAA), various U.S. state privacy laws, the Digital Operational Resilience Act (DORA), and the General Data Protection Regulation.
Activities in Vendor Risk Management
An effective vendor risk management program should include the following activities to manage vendor risk:
- Planning – Understand how to manage vendor risks before beginning the relationship. Consider how the vendor will impact your organisation and customers and how your organisation will manage the relationship.
- Due diligence – Conduct thorough vendor due diligence by receiving and reviewing the vendor’s information. Consider the vendor’s financial health, information security, and operational resilience.
- Contract negotiation – Negotiate the vendor’s contract to include provisions like service level agreements, subcontracting requirements, dispute resolution, and data protections.
- Ongoing monitoring – Periodically review the vendor’s performance and risks. You may notice the vendor’s risk level increasing or decreasing. Confirm the vendor’s risk controls are still effective.
- Termination – Consider termination costs, whether the vendor will return or destroy your data, and how termination impacts your customers.
Tips to Implement Vendor Risk Management
Implementing vendor risk management includes creating processes for activities like vendor risk assessments, due diligence, contract management, and ongoing monitoring.
Here’s a few tips to implement vendor risk management:
- Define your vendor risk management framework – Define the scope and objectives of your program. Establish the requirements for vendor risk management. This provides consistency for your program. Some organisations choose to follow industry frameworks like NIST and ISO.
- Establish governance documents – Strong governance documents are the foundation of a vendor risk management program. A vendor risk management policy outlines the rules and requirements of your program. A program document details processes, workflows, and activities necessary for vendor risk management. The procedures provide step-by-step instructions for executing the processes.
- Provide regular training and awareness – Ensure stakeholders – including senior management, the board, and staff – understand why vendor risk management is important. Provide education on best vendor risk management practices at your organisation.
- Leverage vendor management software – Using vendor management software prevents your organisation from spending extra time on manual tasks and ensures vendor management practices are centralised, consistent, and up to date. It provides visibility intothe entire lifecycle.
As organisations continue to expand vendor inventories and supply chain networks, vendor risk management is a critical activity. Identifying, assessing, monitoring, and mitigating vendor risks protects your organisation from operational disruptions, cybersecurity threats, and compliance issues.
