Glossary

Vendor Assessment

Businesses have to purchase goods and services from third-party vendors regularly in order to develop their products and maintain internal operations. Since you’re often buying from the same set of suppliers in the long-term, these buyer-vendor interactions constitute a business relationship and thus deserves some attention from your management teams.

Vendor assessment is the process a company undergoes when monitoring and managing its list of active suppliers. The firm checks the risk level of the third parties by looking at their information security postures, especially with regards to the handling of sensitive consumer data. A potential breach impacting a vendor can have its consequences impact you as well, so vendor assessment is a natural step in developing supplier relations.

Vendor Assessment

What Is a Vendor Risk Assessment?

Any company benefits greatly from working with third-party suppliers, but any business relationship comes with some degree of risk. Cybersecurity breaches impacting a third-party might leak your own corporate data, or legal issues like trade sanctions might come up putting your relationship at risk. Either way, you certainly don’t want the disruptions and impact on your reputation associated with vendor risk.

Whether you’re onboarding a brand new supplier or continuing your interactions with a current one, performing a vendor risk assessment regularly is important for ensuring long-term security and risk mitigation.

Once you’ve started implementing risk management practices, you’ll end up with an excellent list of high-value, low-risk vendors to choose from. Keep in mind though that the perfect vendor assessment program doesn’t pop up overnight. It makes sense for your teams to tackle individual risks over time and make improvements regularly.

How Vendor Risk Assessments Work

There’s no one type of assessment. A business might even use different assessments for different types of suppliers. In fact, there are many frameworks, criteria, templates, and methodologies to use when inspecting how a vendor operates. The best one for you depends on your own circumstances.

However, almost all assessments focus on particular types of risks, the most common of which are:

  • Compliance: Legal risks carry with them the threat of government sanctions and fines.
  • Cybersecurity: Data breaches, malware attacks, and other IT-related risks can expose your sensitive data.
  • Monetary: You might experience issues with the transactions themselves, such as fluctuating foreign exchange rates or fraudulent billing.
  • Operational: Supply chain woes or disruptions in shipments can cause problems on your end.

Risk assessment reports are recorded regularly, giving your teams the chance to compare the performance of your suppliers. If one is underperforming, give it a chance to rectify the situation. Otherwise, remove it from your business relationships.

Best Practices For Developing a Vendor Assessment Policy

Companies in the past were satisfied with merely sending out a vendor assessment questionnaire to each of their suppliers. But as the risk landscape changed and businesses became more wary of the dangers of vendor risk, assessments have evolved and vendor management requires more due diligence than ever before. Below are a few best practices to keep in mind.

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to give you immediate value and run a full risk assessment in less than 30 days

Know What You Expect

If your assessment involves a questionnaire, think about what answers would be ideal. Risk management is a lot more complicated than just “good” or “bad.” Have in mind what response you want to hear from your suppliers. If there’s a discrepancy with the actual response, consider how you should identify the risk and whether you want a follow-up from the vendor.

Survey the Nature of a Vendor’s Risk First

To make your risk assessment more focused and efficient, don’t waste time looking at aspects that just don’t apply to that specific supplier. For example, a critical vendor will naturally call for a more comprehensive analysis than a non-essential one. And a supplier that does not require access to your sensitive corporate data will naturally not need a thorough Information Security assessment.

Contrasting to risk management in the past when the same questionnaire was sent out to every company, scoping out and looking for these inherent risks first ensures that only relevant topics are covered on the risk assessment.

Provide Suggestions on How To Improve

Not every supplier will have a perfectly clean record. That’s fine. However, it’s important to define your risk appetite- how much risk you are willing and able to absorb. Also, it’s important that you address the risks as they are detected and come up with suggestions on how to remediate them.

Brainstorm what types of risks you might encounter and think of what course of action would help address them. Providing guidance is one of the most helpful things you can do to improve vendor risk.

Don’t Just Rely on a Supplier’s Responses

While helpful, regular assessment questionnaires can’t be your only defense against vendor risk. These procedures rely on the accuracy of the supplier’s own self-reporting, and they only tell you the security posture right when the assessment is made.

You need to apply your own real-time data collection and analysis to your vendors for best results. Only then can you ensure compliance continuously. A combination of questionnaires and your own monitoring is truly the best vendor risk assessment program.

How do you achieve real-time monitoring of all your suppliers at once? Vendor assessment tools and services are available on the market for this purpose. Compared to organizing everything on spreadsheets, risk management platforms are far more scalable and automated and can cover all the tasks you need to ensure proper compliance among your vendors: distributing questionnaires, identifying risks, and developing remediation strategies.

Start Getting Value With
Centraleyes for Free

See for yourself how the Centraleyes platform exceeds anything an old GRC
system does and eliminates the need for manual processes and spreadsheets
to give you immediate value and run a full risk assessment in less than 30 days

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