Supply Chain Vendor Risk Assessment: The Definitive Guide

Organizations increasingly rely on third-party suppliers to support critical business functions. This upward trend has accelerated in the last decade and is expected to continue growing. The global shift to outsourcing has resulted in a world where organizations no longer entirely control their supply chain ecosystems and often do not have full visibility into it. Without sufficient control, managing risks stemming from third-party vendors becomes impossible. 

The dynamics of the supply chain ecosystem have evolved significantly, necessitating a comprehensive approach to risk assessment. Today’s supply chains are global, intricate, and interconnected, making them vulnerable to a wide range of disruptions. These disruptions can emanate from natural disasters, political instability, economic downturns, and now more than ever, the cyber safety of vendor relationships. 

The statistics for 2022 are telling. Supply chain attacks took center stage last year, surpassing traditional malware-based attacks by 40%. Malware, once considered the dominant force behind most cyberattacks, has been upstaged by the increasing sophistication of supply chain breaches. The numbers speak for themselves. In 2022, supply chain attacks left more than 10 million affected, targeting 1,743 entities. 

Supply chain vendor risk assessment is at the heart of effective supply chain risk management. This process involves meticulously examining each vendor’s capabilities, vulnerabilities, and overall impact on the organization’s supply chain ecosystem. By implementing robust vendor risk management strategies, organizations can identify potential vulnerabilities and establish a structured approach to mitigating these risks.

Managing the cybersecurity of the supply chain is a need that is here to stay,” says NIST’s Jon Boyens. “If your agency or organization hasn’t started on it, this… can take you from crawl to walk to run, and it can help you do so immediately.”

Supply Chain Vendor Risk Assessment: The Definitive Guide

Understanding the Semantics

Third-party, vendor, and supply chain risk management are often used interchangeably. Following are explanations that define the nuanced differences between some commonly used terms:

Third-party risk management (TPRM) is a broad umbrella term for vetting all parties that supply services or goods to your company. Partners and consultants, as well as vendors and suppliers, are included in this category.

Vendor risk management (VRM) is more specific than third-party risk management and includes any third party you regularly purchase from. VRM is the process of assessing and mitigating risks from vendors-  ranging from companies that provide office supplies and digital equipment to cloud storage providers such as AWS or Google Cloud Platform.

Supply chain risk management (SCRM) refers to managing risk in any vendor that directly helps your business produce a product or service. For example, supply chain management would not include a construction contractor that does office renovations. Supply chains are specific to the lifecycle of the product or service your business provides. Supply chains extend backward and forwards, creating a complex linked chain that stretches from computer equipment to SaaS solutions; from outsourced service providers to physical components used in production processes; from IT technology embedded in a manufactured product to shipping and logistics companies.

Fourth-party risk management refers to the security threats that need to be assessed to determine whether an indirectly related party can gain access to a company’s sensitive data through its third-party relationships. The cybersecurity industry has been developing ways to increase safety for companies throughout the entire ecosystem of the supply chain.

Guide to Vendor and Supply Chain Assessment

Third-party risk assessments uncover vendor and supply chain security risks before threat actors exploit them. 

Know your vendors

Make a comprehensive list of all third-party suppliers, and determine how much access (physical and logical) they have to your systems, premises, and information. This may be an arduous task considering that a business can have tens, if not hundreds, of third-party vendors, but it is necessary and worthwhile. 

Understand cyber risks

Once you have an organized inventory of suppliers and vendors, risks need to be identified. Security risks that stem from vendor and supply chain vulnerabilities can be significant. They include, but are not limited to:

  • Intellectual property theft
  • Reputational damage
  • Credential theft
  • Data breach
  • Network intrusion and malicious “insiders”
  • Malware

Streamline the Onboarding Process

Create a standardized process to streamline vendor risk assessment criteria. Using a modern risk management platform that keeps all of your data within a single, unified, and centralized repository can significantly reduce this due diligence process. From the initial vendor onboarding to providing evidence of compliance, following a standardized process ensures that you and your vendor are prepared to start doing business together.

According to Edna Conway, VP and Chief Security and Risk Officer of Azure at Microsoft, efficient workflows encourage successful risk management strategies. “As organizations increase their digital footprint, they need to meet compliance requirements across a complex, interconnected IT stack. Operating in the platform economy requires not only secure cloud resource configuration but assessment of the core security practices of third-party cloud providers,” explains Edna.

Questionnaires are the most widely used third-party risk assessment example. Regardless of industry, data protection is paramount, and security questionnaires are at the core of any vendor risk management (VRM) program. This is particularly true when an industry operates with tight regulatory controls like PCI or HIPAA. Assessment questionnaires are completed by third parties and can be used to calculate a risk profile for the vendor.

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Calculate risks and assign severity ratings

Based on the initial assessment, assign a risk value to each vendor. Managing third-party risk requires the prioritization of higher risk over lower-risk vendors. Risk ratings will help you organize your vendor risk monitoring strategies. The third parties who handle the most sensitive data and operations will be rated medium or high. Vendors who do not interact with internal systems, infrastructure, and data, will be rated lower risk. You can use the following formula to calculate the risk value of a given vendor:

Risk = Likelihood of a Data Breach X Cost/Impact of a Data Breach

Maintaining Control

Once you understand the risk a vendor presents, you’ll need to check that the proper controls are in place to manage that risk over time. Security controls should be mapped to existing regulatory and compliance frameworks like NIST or ISO.

When vendors are categorized according to risk, security requirements will be customized according to risk ratings. Each vendor should be held to appropriate security standards. (Your CSP needs to have higher security controls in place than your cleaning crew.) Avoid situations where all suppliers are forced to deliver the same set of security requirements when it may not be proportionate or justified to do so.


Building security controls into your contracting processes will help you manage risk throughout the contract term, including termination and the transfer of services to another supplier.

Follow-up assessments

Based on the risk level of a vendor, schedule re-assessments. Higher-risk vendors may need to be assessed quarterly, while low-risk vendors are sufficiently protected with annual reviews. 

TPRM is not a “one-time” vetting process: contracts need to be reviewed regularly to monitor vendor performance and stay ahead of the game.

Building Security into the Offboarding Process

A vendor offboarding strategy includes disabling vendor access to data and ensuring payments are up to date. Once again, an automated platform will ensure that you don’t miss any crucial steps in this last step of building a successful third-party risk management program.

How can you optimize your third-party risk assessment program?

Implementing a comprehensive TPRM will take time, but is worthwhile. Leveraging automation can improve overall business resilience and reduce the quantity and quality of security-related business disruptions.

Centraleyes is a scalable digital solution that automates the assessment and monitoring of your supply chain. It will provide you with better security practices and streamline third- (and fourth!) party risk management workflows. Sign up for a free demo to see how Centraleyes’ automated modern risk management platform can secure your organization and take care of all your vendor assessment needs.

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

Do you want to learn how Centraleyes helps with Supply Chain Vendor Risk Assessment?
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