Senior management in most organizations in varied market segments recognize they are becoming increasingly reliant on third-party vendors to support critical business functions, but with the providing access to a business’s internal networks comes cyber risks and data breach threats. It is estimated that more than 50% of businesses using third-party vendors have experienced a cybersecurity breach involving confidential information.
Considering the current supply chain issues impacting several industries combined with inflation and overall economic concerns, senior management is aware of the constraints they operate under, especially with it comes to depending on third-party vendors to provide crucial supplies, services, and products.
As business’s supply chain continue to grow more complex and the concern regarding third-party risks increases, types of third-party risks to be aware of along with practical strategies to lessen the impact of related risks.
Cybersecurity Risk
Ransomware can impact firms of all sizes and market segments, taking their systems offline and making them unable to operate their business. The largest ransomware attack such as the Colonial Pipeline hack highlight that cybersecurity attacks do not solely impact firms processing of confidential data. The supply chain impact from just one piece of its critical infrastructure supporting fuel distribution was critical for companies that needed fuel to deliver goods or operate their equipment.
Are your key suppliers providing strong cybersecurity safeguards to guard against ransomware attacks and resilient enough to quickly recover their operation should an attack find success? Do you have a plan to address – if and when a key supplier goes offline unexpectedly?
Compliance Risk
Companies including those using third-party vendors, operate with risk from violations of laws, regulations, and internal compliance procedures that your organization must follow to conduct business. The laws that apply to each organization vary by sector. Non-compliance with these government regulations usually results in substantial fines, so it is crucial that you ensure your vendor’s cybersecurity compliance efforts align with your firm’s regulatory requirements.
Are your third-party vendors operating in a manner that maintains compliance with your industry’s rules and regulations? Have the vendors provided require documentation of their cybersecurity policies and procedures such as SOC2?
Reputational Risk
Reputational risk concerns the overall market perception of your company. Third-party vendors can impact your firm’s reputation by acting inconsistently with your standards, disclosing confidential information or by violating laws or regulations.
Have you identified relationships that might put your firm’s reputation at risk? It is recommended that all critical vendors and suppliers be assessed with a background due diligence evaluation and other due diligence analysis.
Operational Risk
Operational risk occurs when there is a shutdown of vendor processes that directly impact a company’s operation. Third-party operations are integrated with organizational operations, so when vendors are unable to provide their goods or services as promised, organizations are usually unable to perform their own activities.
To limit operational risk, your organization should create a business continuity plan so that in the event of a vendor shutdown, you have a plan from which to operate.
Financial Risk
When vendors are unable to meet the fiscal performance requirements established by your organization from either excessive costs or lost revenue and litigation, liens and judgements their performance on your behalf is likely to be impacted.
Companies need to assess the financial health of key vendors and suppliers. Are you monitoring the financial viability of key vendors with a combination of tools and processes such as business credit reports, vendor assessments and continuous monitoring?
Geographic Risk
With the volatility in the world today, where a key third party operates geographically can present risk to your firm. Are you aware of the location from which key vendors are delivering goods or services to your businesses?
Strategic Risk
Strategic risks occur when vendors make business decisions that do not align with your organization’s strategic objectives and core company culture. Strategic risk can influence other forms of risks across the board. Do you monitor key vendors for strategic risks?
Ways to mitigate and monitor third-party risk
Conducting investigative third-party vendor due diligence vetting during the onboarding process can help identify risks that a new vendor/supplier may pose. Ongoing due diligence vendor risk rating and monitoring provides the detailed information companies need to determine whether to continue a business relationship. Doing business with a high-risk vendor can be extremely detrimental to any companies bottom line, reputation and enforcement actions by international regulators are often costly.
The Modevity Third-Party Vendor Risk Management Services will provide clients with a powerful automated branded process for vendor assessment questionnaires and a powerful due diligence background vendor risk rating reporting service with continuous vendor monitoring.
Modevity has implemented the full range of powerful global database technologies, vendor risk management systems, and open-source tools that enable our team of due diligence analysts to quickly obtain a complete vendor risk profile. Our client companies will no longer need to implement costly Vendor Risk Management & Assessment systems and FTE staff resources – providing substantial organizational cost savings to their organization.
Modevity Contact info:
Tom J. Canova, Co-Founder, CMO
Office: (610) 251-0700 tomc@modevity.com
