The vendor risk landscape has evolved rapidly over the last few decades, with third-party relationship risk management becoming more and more difficult to manage as technology advances and the supply chain evolves into more of a supply web encircling the globe. A failure in one area of the web could mean failures all over the web, as happened when, in 2011, a tsunami devastated Japan and seriously rattled the global supply chain.
Now more than ever, it’s vital that you keep tabs on the risk levels of each of your third-party vendors. Without prudent vendor risk management, your company could find itself the victim of a vendor-related security breach, or liable for the criminal conduct of a vendor overseas. You could suffer reputational damage or even be forced to cease operations due to a lack of the vital service your vendor provides.
You need to make third-party risk management an ongoing, continuous process of monitoring vendors’ risk profiles. Build risk management processes into all of your interactions with the vendor, and train all your employees on the importance of managing vendor risk. Work with each vendor to provide the level of oversight necessary to protect yourself, whether it’s from a cyber attack, bad PR, or something else.
Maintain Risk Monitoring Throughout Your Relationship
An initial risk assessment should be performed before onboarding any new vendor, and it’s important that any initial assessment be both thorough and objective. But it’s not enough to just perform an initial assessment anymore. These days, when vendors can develop significant changes to their risk profiles literally overnight, it pays to be vigilant about risk monitoring throughout the vendor relationship.
Third-party risk affects most companies eventually. In one survey, 87 percent of respondents reported a third-party risk event significant enough to interrupt operations, and 11 percent said the event severed the vendor relationship. Vendors can’t always be trusted to let you know when they’ve experienced an event that could put your organization at risk. Forty-four percent of firms have experienced a business-altering data breach because of a vendor breach, but only 11 percent of firms report vendors notifying them of such a breach.
Make Risk Management Processes Central to Your Interactions
Every interaction you have with a vendor should have risk management in mind. Train employees in what they need to do to mitigate risk in vendor interactions. For example, employees should know which company systems and data vendors should have access to, and under what circumstances they’re allowed to access it. Transactions with vendors may need to be carefully documented.
Employees should know what risk management red flags to look for when interacting with vendors. They should know the signs of a poor security protocol or what signs point to the use of forced labor or other corrupt or criminal acts in the supply chain. Identifying red flags in vendor interactions can be an important source of ongoing risk management.
However, your entire risk management program should be constructed under a company-wide framework for assessing and managing vendor risk. Processes should be put in place to mitigate risk at every level of the organization and throughout the vendor relationship. While individual employees might be tasked with keeping an eye out for red flags in a vendor relationship, you should always have team members dedicated to monitoring the risk profiles of each vendor. When vendors create more opportunities for risk through the fourth and fifth parties they work with, or through their own practices, you need to know right away so you can take steps to mitigate the risk, including increasing oversight or terminating your relationship with the vendor altogether.
Vendor risk can leave your business vulnerable to supply chain failures, data breaches, regulatory sanctions, and even reputational and operational risks. You can’t afford to work with vendors on the good faith assumption that they’re doing all they can to manage their own operational and security risks — that’s just not how it works anymore. These days, you have to be more savvy about who you’re working with, and willing to end vendor relationships that put your organization at risk. With the right vendor risk management tools, you can protect your business and enjoy lasting, fruitful vendor relationships.