Vendor Risk Management Best Practices for B2B Companies

Vendor risk management is a vital aspect of B2B firms. It can determine a firm’s success or failure. Vendor relationships come with risks. It can include reputational damage, financial loss, and operational disruptions.

Clearly, having a robust vendor risk management program is essential to mitigate these risks. The market for vendor risk management has been steadily growing, and more so with newer vulnerabilities and threats in the market.

According to the report, Vendor Risk Management Market Size & Share Analysis – Growth Trends & Forecasts (2024 – 2029) by Mordor Intelligence, the market size of Vendor Risk Management is estimated to grow from USD 11.98 billion in 2024 to USD 21.59 billion by 2029. It will have a CAGR of over 12.5% during the forecast period (2024-2029).

This article discusses some vendor risk management best practices. B2B firms should consider implementing these in their process.

Vendor Risk Management Best Practices

1. Establish A Strong VRM Governance Committee.

The first step for an effective vendor risk assessment process is identifying leaders and members with a stake in hiring the vendor. A strong governance committee should be in place, comprising these team members. Then, establish a communication, assessment, and measurement process of metrics and SLAs.

The strength of a robust governance process is clear communication and transparency- both with the vendor and internal members.

Clear communication will reduce misunderstandings and hence, help to avoid challenging situations.

A channel that shares information constantly helps to fight the risk of an incident. this channel should share information like the existing security measures, the plan for mitigation, and the monitoring process updates.

2. A Robust Vendor Assessment Process

A high-risk vendor can compromise all of a firm’s information and data security efforts. Traditional ways of assessing vendors do not work any more.

The conventional vendor questionnaires are subjective and time-consuming. They do not serve the purpose and offer only a point-in-time snapshot of a vendor’s security posture.

To stay prepared, firms are investing in tools that automatically create, send, and assess security questionnaires to prospective vendors. This can get objective data and help to reduce the operational overhead of manual assessments.

Using a vendor risk assessment questionnaire template can help organizations streamline their vendor onboarding process.

A Vendor risk assessment questionnaire template can help firms conduct due diligence regarding vendor risk management. it will also save time and resources.

This process also minimizes the risk of introducing vendors that could compromise their information and data security. Today, many industries require vendor questionnaires as a regulatory requirement.

The template can be used as a baseline and customized according to an organization’s risk tolerance. This template is the starting point of the vendor assessment process.

But if it stands on a strong base, the onboarding of the vendor is based on the facts of their abilities and the advantages they deliver.

3. Define Vendor Performance Metrics

When engaging an IT vendor or service provider, defining cybersecurity metrics alongside operational service level agreements (SLAs) is crucial. This will ensure that your organization’s sensitive data is always protected. 

Additionally, vendors who have access to this type of data should be required to do third-party risk assessments on their vendors as well. This will help to minimize the risk of a fourth-party breach.

It’s important to note that you are ultimately liable for vendor data breaches. Even if you’re not legally responsible, data breaches can still cause reputational and financial damage to your organization.

Therefore, it’s essential to thoroughly vet any vendors who will have access to your sensitive data and ensure that they have proper security measures to protect it.

By taking these steps, you can help minimize the risk of a data breach and protect your organization from potential liability and damage.

It’s worth investing the time and resources to ensure that your IT vendors and service providers take cybersecurity seriously and do everything possible to keep your data safe.

Also Read: Lead Cybersecurity Risk Management in Three Crucial Steps

4. Maintain Accurate Vendor Records

Enterprises must maintain an accurate and updated inventory of all the third-party and fourth-party vendors. These records need to include their details and also their regular risk assessment.

Without these records, there is no way companies can track the risk each of the vendor introduced to their systems. The major reason could be that each vendor you onboard may not have the same security policy postures or even tools that a company has.

Unfortunately, not many companies take this exercise seriously. The results can be devastating. The T-Mobile data breach in early 2024 impacted 37 million customers due to a compromised API.

Another instance was the Dollar Tree breach, which affected almost 2 million people after the hack of service provider Zeroed-In Technologies in November 2023.

So, an accurate and updated inventory of vendors and their security stance helps to track the risks and keeps a company prepared in case of an incident.

This needs continuous monitoring and asses meant of every vendor. It is no doubt a tedious process, but definitely a critical one.

Analyzing the data from these deep insights enables security teams and leadership to comprehensively understand the end-to-end risk from third-party vendors.

5. Define Vendor Risk Metrics along with SLAs

Defining the SLAs or SOA in any vendor contract is no longer sufficient. The risk metrics need a space alongside the basic terms and conditions. The devastating effect of an unsecured entry point through a third party is huge.

The exposure risks should be defined and patched immediately, even before business information is shared with the vendor.

Another critical point is that it is critical to monitor the fourth-party vendors as well. There is no saying where an attack vector will worm its way into the company.

Since your contract is only with the third party, there is really no control on fourth-party connections. If your vendor manages their vendors as you manage them, its fine.

If not, you need to know the gaps so your company is prepared with a security process, tool, or update.

So, protecting through a comprehensive analysis of third and fourth-party vendor security stances is essential.

6. Identify Risk points, then Plan for the Worst Case Scenario

Firms often depend on third-party vendors to provide services and support. While this can be a cost-effective way to operate, it also introduces significant risks. Only some vendors will meet your standards, and it is critical to identify these.

If a third party experiences a disruption or security breach can cause considerable damage to your organization. The attack on data could reach down all the way to the partner companies like yours.

To mitigate these risks, it’s critical to have a strong vendor risk management (VRM) program in place. This should include stringent tools, strategies, and policies for business continuity, disaster recovery, and incident response planning.

By staying ready for potential disruptions, you can reduce the impact of any incidents that do occur.

A critical aspect of VRM is the need to account for the removal of vendors who often fail to mitigate risks promptly. This can be a tough decision, mainly if a vendor provides critical services to your organization.

However, it’s important to remember that your customers rely on you to maintain the continuity of your services. This will require you to take decisive action to protect their interests.

Business continuity planning is essential when it comes to third-party management.

By ensuring that your vendors have robust business continuity plans, you can reduce the risk that your clients will suffer from extended outages caused by third parties.

Effective VRM requires a comprehensive approach for safer vendor engagements. These include preparing for potential disruptions, removing vendors who fail to meet your standards, and ensuring that your vendors have robust business continuity plans.

By taking these steps, firms can reduce the risk of disruptions and protect their customers’ interests.

Summing Up

Vendor risk management is a vital aspect of B2B business. Businesses must recognize it. Every vendor relationship comes with a certain level of risk. It can harm a firm’s reputation, finances, and operations.

Using various tools and services available in the market, B2B firms can quickly implement these best practices.

It will further safeguard their business interests.

By prioritizing vendor risk management, B2B firms can establish a culture of accountability and risk awareness. It will ultimately lead to long-term growth and success.