Guide to Vendor Risk Management
Vendor risk management lets you assess third-party vendor reliability. Discover how you can use VRM platforms to find vendors for your business.
There are many companies, both large and small, that rely on an outside vendor to sell their products. More companies are using a third-party vendor to distribute items and services because of the increase in online stores. There are many advantages to using a third-party vendor. It takes away most of the responsibility from your business. Both shipping and storing products require a great deal of management, as well as financial investment. Vendor risk management does not only refer to companies that ship and sell products on your behalf, but also online companies that host your store and website.
While there are many benefits with third-party vendors, there is also risk as well. As the hosting business, you are still responsible for dealing with any issues your customers encounter. For example, if your online vendor has a data breach and customer information is hacked, your business is viewed as the responsible party for picking that vendor. Vendor risk management (VRM) refers to the process of identifying, monitoring and mitigating the risk of using a third-party vendor.
Using a VRM Platform
There are many VRM platforms that help businesses find the best third-party vendor for their services. VRM platforms are constantly studying third-party vendors, updating their criteria based on the needs of the modern market. For example, VRM platforms had to reevaluate many of their ratings to address online vulnerabilities and risk of data breaches.
Reliability is a top consideration for VRM platforms. This not only refers to how well the vendor performs, but their ability to communicate with their clients and address issues. VRM platforms also identify practical issues, such as whether a vendor specializes in select businesses or if they are open to all types of clients.
Vendors are also divided into separate categories for each type of business. Startup and smaller businesses have a different list of vendors compared to larger companies because their business needs are so different.
VRM platforms use different criteria to evaluate vendor risk. While the official titles may change, the subjects stay the same. An important consideration is legal issues. If your third-party vendor does not comply with rules and regulations for your industry, you may face legal repercussions. Vendors are also rated based on financial risks. This includes what supply chains the vendor uses, costs of production and how much they charge clients.
In 2022, one of the biggest considerations for VRM is cybersecurity. Even if you do not run an online store, cybersecurity is important for a third-party vendor. If the vendor ever has a leak, hackers may gain access to your company's financial information.
VRM platforms also look at the reputation of the vendor. This includes whether the vendor has any previous complaints or past data breaches. It also ensures they are up to date with the necessary certifications for their industry.
Building a Risk Management Strategy
VRM platforms not only help you identify reliable third-party vendors, but it also provides strategies for minimizing risk. At a minimum, you need to establish a strong contract with your third-party vendor. The contract should not only include costs, but the roles and responsibilities of both your business and the vendor. They also recommend what questions to ask your vendor, as well as how you can vet the vendor and ensure they have the necessary certifications.
There is also advice for how to perform audits with your vendor after you establish a relationship. Audits are a good way to make sure the vendor is following your contract and providing the level of quality you hired them for. Audits are also a good way to assess whether your customers are happy with the vendor’s services.
Gartner is considered an industry standard when it comes to VRM. They are one of the largest VRM platforms, with an extensive database on third-party vendors. Gartner works directly with their clients to find the best vendors based on their business needs. Each year, they are responsible for almost 500,000 vendor agreements. They have a large team of researchers, constantly checking vendor certifications and reviews. They also provide consultation, teaching businesses how to make contracts, red flags to look for and ways to save money with third-party vendors.
While BitSight primarily focuses on cybersecurity risks, it also doubles as an effective VRM platform. Despite being one of the newer VRM platforms, BitSight has already rated over 40 million vendors. The company uses sophisticated algorithms to track information on other vendors. This includes tracking any complaints and searching for security breaches. BitSight has become a favorite among businesses because of how quickly the platform updates, providing you with the latest information about each vendor. You must request a pricing plan from BitSight, but on average they charge between $2,000 to $2,500 each year.
Deloitte offers a range of services, including VRM. Deloitte is one of the largest VRM platforms, performing on average close to 200,000 risk assessment checks each year. Deloitte goes above and beyond when looking up vendor information, looking at reviews and checking with clients both inside and outside the United States. The company provides screening and background checks, and offers continued vendor monitoring once you make a selection. They also provide templates for contracts. You must contact Deloitte for a pricing plan. If you sign up for other Deloitte services, you may be eligible for a discount or even receive additional services for free.
OneTrust is another new VRM platform, but it goes above and beyond compared to many other platforms. OneTrust not only offers information about vendors, but it has a number of resources to help you learn how to assess vendors. This includes how to look at privacy impact assessments, map data inventory and perform audits. You can request a free demo to try out the service, then negotiate a price with OneTrust.