Working with third-party vendors is a fact of doing business these days. It’s often much more cost-effective for most companies to outsource business services like graphic design, marketing, and document services to a third-party vendor rather than hire more staff.
And, of course, you often need to rely on third parties for materials, supplies, merchandise, security, and more. But while these relationships can be profitable and allow you to work together with other business owners, they also come with inherent risks.
Third-party vendors may have access to your facilities or data, which they need to provide their services, but which also increases your vulnerability. Some supplies, materials, and other services may be business-critical, and you run the risk of having to cease operations if your usual vendor can’t provide them anymore.
Identify And Assess The Risks
A specific vendor relationship’s risks will vary depending on what exactly the vendor is supplying and how business-critical it is. A vendor that provides cloud storage, software services, IT support, and cybersecurity may have access to some of your most sensitive data. That means, perhaps counterintuitively, that the relationship carries an increased risk of data breaches other cybersecurity events.
That could cost you time and money, as well as damaging your reputation. A vendor that provides materials or supplies for manufacturing is business-critical in a different way, and you might have to cease operations or even be forced to let down other enterprises if something happens to stop those supplies from coming through.
You shouldn’t wait until you’ve already onboarded a third-party vendor to identify the relationship’s risk level or assess the vendor’s risk profile. You should thoroughly investigate a vendor’s risk profile before you sign the contract. Then you can establish the appropriate risk management protocols and write them into your contract.
Standardize Your Risk Management Strategy
You need to apply the same vendor risk management standards to every vendor you work with, and more than that, you need to apply the same standards to your vendors that you apply to your internal operations.
When you’re all following the same rules, it’s easier to keep track of who’s doing what and make sure that vendors are following the protocols required of them. However, you need to communicate closely with vendors during the contract negotiation process and tailor your protocols to each vendor’s risk level.
There’s no need for strict protocols surrounding, say, server access for a vendor who just drops off supplies or inventory. You’ll save everyone a lot of trouble by tailoring protocols to the risk level of each vendor, and you’ll save a lot of time and money, too.
Keep Tabs On Your Vendors
Once upon a time, it may have been enough to investigate a third-party vendor’s risk profile once, at onboarding, and then assume that it wouldn’t change afterward unless you have some reason to believe it may have. Nowadays, though, you need to monitor vendor risk profiles closely throughout the vendor lifecycle. Changes to a vendor’s risk profile can happen quickly.
One day everything could be fine, and then next, a massive data breach could occur that could jeopardize your business continuity, finances, or reputation. Situations like civil unrest, disease outbreaks, and even weather events could affect vendor operations and need to be monitored to take action if the risks become a reality.
You need to conduct regular audits of security protocols, including reviewing onsite staff, activities, and oversight; data security; and access permissions. Make specific employees responsible for managing each vendor relationship for accountability purposes as well as risk management.
A single point of contact with the company can help vendors maintain their contractual obligations and can help keep expectations and strategies transparent. Every vendor relationship carries risks, but the right vendor risk management strategy can help eliminate some and mitigate others, to keep your vendor risks management.
With a plan in place, you won’t have to scramble for the next steps should something go wrong, and that will help you avoid reputational damage, financial losses, fraud, theft, data breaches, and other events that could hold your business back or even force you to halt operations. It’s a must if you hope to stay in business for the long term.
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