What is Third-Party Vendor Management?
Third-party vendor management consists of all the processes necessary for a company to monitor and manage the interactions with its third-party vendors.
Companies rely heavily on their third-party vendors for help getting their products to market faster, as well as to save money, increase profits, and become more competitive.
But third-party vendor relationships also introduce a number of risks to an organization, such as regulatory, reputational, information security, cybersecurity, and financial risks. Once third-party vendors have access to an organization’s network, they have access to sensitive corporate, employee, and customer data.
And if the networks of an organization’s third-party service providers aren’t secure and put the company’s data at risk, that company is totally responsible for the consequences of whatever happens to that data.
The best ways to identify risks that third-party service providers could introduce to the business include putting strong vendor management practices in place along with implementing third-party vendor risk management systems.
Because of the penalties and damage to their reputations from non-compliance, supply chain disruptions, data breaches, and data thefts involving third-party service providers, organizations are continually updating and improving their third-party risk management programs.
A vendor risk management plan is a company-wide plan outlining the types of behaviors, access, and rules that an organization and its third-party vendors agree on. The details of the vendor risk management plan should include information about the testing and insurance that’s required to maximize the third-party service provider’s ability to do its job.
The vendor risk management plan may also include a checklist of all the steps a third-party vendor must follow. The entire company has to buy into the third-party risk management process, which should provide visibility to the human resources, compliance, and legal teams as required.
In addition, an organization’s leadership and management teams should use due diligence to validate and verify that its third-party vendors meet the company’s requirements. An organization’s executives should also establish an appropriate risk assessment policy to govern its third-party service providers. Management should update the risk assessments regularly in conjunction with its vendor risk management program.
Vendor risk management is an important part of vendor management. Consequently, it’s always in an organization’s best interest to protect itself from third-party vendor risks before it enters into a third-party vendor relationship, as well as during the third-party vendor relationship and even after it concludes.
Third-party vendor risk management requires active and consistent management to ensure a company limits its third-party risk exposure.