Vendor Risk Assessment: What is it and How to Conduct It?

Previously, we discussed the key differences between third-party and vendor risk assessments, focusing on external risks. Now, let’s turn our attention to the details of vendor risk assessment, which centers on managing the risks posed by your direct suppliers.

A vendor risk assessment  is a critical process for identifying and mitigating potential risks posed by suppliers, whether they’re involved in providing raw materials, logistics, or IT services. Each vendor introduces specific risks, and understanding these is crucial for maintaining a stable supply chain that aligns with your business objectives.

These risks range from operational disruptions, like supply delays, to more complex issues like cybersecurity threats. For example, a missed delivery could halt production and delay customer orders, directly affecting revenue. On the other hand, if a vendor’s cybersecurity is weak, it opens the door to potential data breaches, legal complications, and reputational damage.

In fact, Gartner predicts that by 2025, 60% of businesses will prioritize cybersecurity when selecting vendors, underscoring the importance of addressing vulnerabilities early. Regular vendor risk assessments allow you to catch these risks before they escalate, ensuring that your suppliers are secure, reliable, and aligned with your business needs.

One (Among Many) Real-World Examples: How Vendor Risks Can Disrupt Your Business

In 2023, PharMerica Corporation faced a major ransomware attack. The personal data of nearly 6 million people, including names, addresses, and Social Security numbers, was exposed. This caused significant damage to PharMerica’s reputation and led to several lawsuits. This example shows why vendor risk assessments are so important, especially for IT service providers.

If PharMerica had done a stronger vendor risk assessment and focused on its IT vendor’s cybersecurity measures, they could have identified the weaknesses that led to the breach. This incident shows the need for regular monitoring and assessment of vendors to protect sensitive data.

Vendor risk assessment is not a one-time task. You need to continuously monitor and review your vendors to make sure they remain reliable and compliant. By doing this, you reduce risks, improve vendor performance, and protect your business from costly problems.

Steps to Conduct a Vendor Risk Assessment: Leveraging IBM OpenPages

Now, let’s look at the steps to perform a vendor risk assessment. These steps apply to businesses of all sizes that depend on external suppliers. Tools like IBM OpenPages make the process easier, but you can follow these steps even without advanced tools.

• Identify and Categorize Your Vendors Start by listing all your vendors. This includes raw material suppliers, IT service providers, and niche service providers. IBM OpenPages helps you categorize vendors based on factors like importance, compliance needs, and location. If you don’t use IBM OpenPages, you can manually group vendors by their importance. This helps you focus on the most critical vendors and their risks.

• Assess Vendor Risks After identifying and grouping your vendors, assess the risks they bring. IBM OpenPages helps you measure both inherent and residual risks. This includes risks like delivery delays, cybersecurity threats, and compliance issues. If you don’t use a dedicated platform, you can still assess risks by reviewing vendor performance history and their security measures. Interos survey found that 83% of businesses have faced problems caused by supplier failures. This shows why it’s important to assess vendor risks.

• Evaluate the Vendor’s Financial Health A vendor’s financial troubles can disrupt your business. IBM OpenPages connects with external systems to give you real-time insights into a vendor’s financial health. You can track credit ratings and payment history to spot issues early. If you don’t have automated tools, you can conduct financial reviews using public data or the vendor’s financial records. For example, few years ago, a major electronics supplier went bankrupt. This caused delays and higher costs for the businesses that depended on them.

• Examine Vendor Compliance with Regulations Vendors must comply with industry regulations, especially in sectors like healthcare and finance. IBM OpenPages automates compliance checks, ensuring vendors meet standards like HIPAA. If you don’t use automation, you can schedule regular audits or ask vendors for certifications to ensure compliance. IBM OpenPages also works with tools like SecurityScorecard, RiskRecon, RapidRatings, and Supply Wisdom providing real-time updates on your vendors’ compliance and security.

• Review Contracts and Service Level Agreements (SLAs) After assessing risks, review your contracts and SLAs. IBM OpenPages helps map vendor contracts, making sure timelines, quality standards, and security needs are clear. It also helps set penalties for non-compliance. Even without advanced tools, well-written contracts with clear penalties and timelines hold vendors accountable.

• Send and Track Vendor Questionnaires Gathering information from vendors is key to assessing their risks. IBM OpenPages automates the creation and distribution of vendor risk surveys. It standardizes the evaluation process across all your vendors. If you don’t use IBM OpenPages, you can send manual surveys, but it will require more effort.

Bonus Giveaway: Discover how Florida’s Leading Cancer Institute Successfully Utilized This Feature in Real Business Operations

• Continuously Monitor Your Vendors Vendor risk management is an ongoing process. IBM OpenPages integrates with external tools like RapidRatings to give you real-time updates on vendor risks. If you don’t use automated tools, you can still monitor vendors by setting up regular check-ins and performance reviews. Monitoring vendors proactively helps you address issues before they cause major problems, keeping your business running smoothly.

• Manage Vendor Issues and Incidents When vendor risks cause issues, IBM OpenPages helps you resolve them quickly. The platform gives you real-time visibility and tools for collaboration, allowing vendors to take corrective action fast. For example, if a delivery is delayed, you can track the issue, collaborate with the vendor, and resolve it promptly. Even without advanced platforms, businesses should have a process for managing incidents, ensuring timely follow-ups and resolutions.

Conclusion: Strengthen Your Vendor Risk Management with iTech GRC

Vendor risk assessment is essential for managing your supply chain. By following these steps, you can reduce disruptions, ensure compliance, and protect your business from vendor failures.

At iTech GRC, we help businesses manage vendor risks using IBM OpenPages. This tool simplifies the process, providing real-time insights into vendor performance and compliance. Our team customizes the solution to meet your needs, helping you stay ahead of risks and keep your business running smoothly.

Looking to improve your vendor risk management? Contact iTech GRC today to learn more about how we can help your business. We’re here to support you!