As an organization grows, it becomes increasingly difficult to handle all workloads internally. Suppliers, service providers, and other third-party vendors are often necessary to meet your goals and to create a positive experience for your customers.
That said, outsourcing tasks to vendors also means taking on new or additional risk. The vendors’ reputational risk, financial stability, cybersecurity risk, and other concerns can quickly become problems for your organization if not handled appropriately.
Mitigating these risks and developing appropriate remediation plans is a crucial component of your company’s supply chain risk management process.
Benefits of Vendor Risk Management
Creating a robust vendor risk management program (VRM program) at your company has numerous benefits.
Any regulatory compliance requirements that apply to your company will also apply to your vendors, and future audits will take your entire supply chain into account. You can prevent compliance issues in the future by performing your due diligence on vendors before entering into agreements with them.
While managing your vendor risk may seem labor and cost-intensive at the start, having these safeguards in place is likely to save you time and money in the long run. Managing your vendor risk ensures business continuity and will keep you prepared for any threat that may arise in the future.
Provide Quality Service
Your vendors are a critical part of your workflow, and threats to their procedures can cause chaos within your supply chain. To provide the best quality service for your customers and clients, you’ll need to protect your operations from external threats.
Discrepancies in risk management practices can lead to complications with your vendors, as well as dissatisfaction from your customers and loss of trust from your senior management and stakeholders. Managing your risk will go a long way towards solidifying these relationships and maintaining them over time.
How to Conduct Risk Assessments for Vendors
Onboarding new vendors should include a robust third-party risk assessment to determine whether the vendors’ own risk management is sufficient.
Understand Your Risk Tolerance
Before beginning the vendor risk assessment process you should determine exactly how much risk your company is willing to shoulder. This tolerance level will be different for every company, and it will be up to your risk management team to decide the metrics by which your risks and opportunities should be weighed.
Identify Potential Risks
Understanding all the possible kinds of risks you might face is a critical part of managing vendor relationships. To determine whether these vendors meet your risk management standards you’ll need an exhaustive list of all the vulnerabilities your new vendor might cause.
Do Your Research
When hiring new vendors, look carefully at their existing security practices and risk management efforts; consider asking for a SOC 2 audit to review the vendor’s security controls and processes. Performing this due diligence up front and vetting potential vendors will save you time and money later.
Should You Automate Vendor Questionnaires?
Many companies choose to automate their vendor questionnaires, since this is usually faster and more efficient. Questionnaires can also become complicated when fourth-party vendors come into play, and automation can make this process easier and more transparent.
Creating a Vendor Risk Management Program
Every vendor risk management program will look different, and yours will likely change over time as your company grows and more contractors are brought on. To manage your vendor risk appropriately, consider the following:
Examine Your Current Vendors
An important part of managing vendor risk is determining which of your vendors are most critical to your operations. You’ll also want to examine what level of access each of your vendors needs to perform its duties efficiently.
Rank Vendors By Risk Level
Consider which of your vendors pose the highest level of risk. High-risk vendors should be monitored more carefully and controlled more tightly than those rated as lower-risk.
Risk management is not a one-time task. A successful program will require ongoing monitoring of vendor performance to assure that changes are accounted for and faulty controls are remedied quickly.
Control Third-Party Risk Management With ZenRisk
If you’re looking for risk management solutions for your supply chain, ZenRisk (powered by the Reciprocity ROAR platform) can help. This innovative software platform provides a thorough, real-time view of your company’s entire risk landscape – including third-party relationships.
ZenRisk also makes vendor risk management easier than ever before by automating vendor questionnaires, tracking risk assignments, and providing a single source of truth for all of your risk and compliance efforts. Schedule a demo today to learn more about how ZenRisk can streamline and simplify your third-party risk management program.