5 Ways to Get Visibility of Third-Party Risk and Automate Vendor Risk Management

Third-party suppliers play a critical role in the success of an organisation. However, poor performance, financial instability, data breaches, or compliance failures from a vendor can create significant risks, affecting operations, finances, and reputation. Proactive vendor risk management is key to mitigating these threats – ensuring that third-party partners align with organisational standards and regulatory requirements and that they meet the requirements outlined in their contract.

Failure to monitor and manage vendor risk effectively can lead to costly disruptions and reputational damage – eroding customer trust. For example, a critical vendor experiencing a cyber breach can expose an organisation’s sensitive data. A supplier struggling with financial difficulties might fail to deliver essential services, causing operational bottlenecks. Regulatory non-compliance by a vendor could result in penalties and reputational damage for the hiring organisation. Given these high stakes, implementing a structured vendor risk management approach is crucial.

To effectively monitor third-party risk, organisations must implement structured processes. In this blog, we share five key methods to monitor and manage vendor risk and we share insights on how Governance, Risk and Compliance (GRC) software can streamline and automate these efforts to achieve best-practice vendor risk management.

1. Build a Comprehensive Vendor Register

To begin to understand vendor risk exposure, firms must identify their critical vendors and build a vendor register to capture the important details about each supplier. A vendor register will support firms to understand potential vendor risk exposure and serves as the foundation for managing third-party relationships. It should capture all the critical details about each supplier, including:

• Contract Information: Length, renewal dates, and termination clauses.
• Financial Data: Cost of services, payment terms, and financial stability assessments.
• Key Contacts: Relationship managers, escalation contacts, and support channels.
• Service Level Agreements (SLAs) and Key Performance Indicators (KPIs): Performance benchmarks and expectations.
• Compliance Status: Certifications, regulatory requirements, and past audit results.
• Risk Classification: Categorisation based on risk exposure (e.g., high, medium, low risk).

Maintaining this register manually can be time-consuming and prone to errors. Many firms use a GRC platform to automate data collection using automated workflows and online forms – with data governance rules ensuring information is captured consistently. This process centralises vendor records in a structured database, ensuring that all necessary details are captured and readily accessible. Additionally, these software platforms can flag contracts approaching renewal, remind teams to reassess vendor risk periodically, and provide a central source of truth for vendor-related decision-making.

2. Carry Out Regular Vendor Risk Assessments, Questionnaires, and Surveys

Conducting vendor risk assessments is vital to understand the risks associated with your network of vendors. These assessments should not be a one off and should be conducted on a regular basis to detect new and emerging risks over time.

Regular vendor risk assessments help organisations ensure vendors comply with security, financial, compliance, and operational requirements. These assessments should:

• Be conducted periodically (e.g., annually, bi-annually, or quarterly).
• Cover areas such as cybersecurity, regulatory compliance, certifications, financial health, operational resilience procedures, performance against SLAs, ethical practices, outsourcing, and any fines, penalties, or pending prosecutions.
• Include structured surveys and questionnaires that vendors can easily complete.

Conducting these assessments manually can be time consuming as it requires gathering information from multiple vendors, consolidating responses, and manually analysing the results. Unstructured processes that rely on spreadsheets and emails often lead to inconsistencies and inefficiencies – leaving potential risks undetected.

Many firms use GRC software to enhance this process – using it to create an online vendor portal where suppliers can complete risk assessments online. The system ensures consistent responses thanks to data governance rules like menus, drop downs, and mandatory fields. Rules can be set to flag potential risks based on risk assessment answers and automated workflows trigger notifications for follow-up actions. All risk assessment data is automatically synced to the vendors profile in the vendor register.

Automated scoring mechanisms can alert teams of high-risk vendors, allowing staff to prioritise critical concerns first. This improves efficiency and ensures issues are addressed promptly, reducing the chances of an unforeseen vendor-related incident.

3. Subscribe to Third-Party Risk Intelligence Feeds

You can’t rely solely on the results of vendor risk assessments to evaluate third-party risk exposure – as vendors will always paint themselves in a good light to win business.  Therefore, firms that are serious about managing vendor risk use third-party risk intelligence providers to further evaluate their supply chain.

Third-party risk intelligence services are a subscription service that provides real-time updates on vendors, alerting organisations to potential risks such as financial instability, data breaches, legal disputes, or regulatory changes.

These feeds offer continuous monitoring of vendor risk based on external data sources, like news sites, social media, AI, and regulatory bodies. These providers hold data on thousands of organisations and firms can filter their notifications based on the vendors they are using. The notifications provide actionable insights that can be linked to vendor profiles to help organisations stay ahead of potential threats relating to their suppliers before they materialise.

Manually tracking this information requires an extensive commitment to market research, news monitoring, and industry reports. Relying on checks alone can leave gaps, as new risks can emerge rapidly based on changing circumstances. Subscribing to real-time third-party risk intelligence feeds helps mitigate this challenge.

To further automate the process, GRC software can integrate with third party risk intelligence feeds, automatically attaching relevant risk data to vendor records and triggering alerts if a critical issue arises. This allows teams to proactively manage and address potential risks before they impact operations. Additionally, organisations can set up automated workflows that prompt internal teams to investigate alerts and determine necessary actions, such as renegotiating contracts or seeking alternative suppliers – with all mitigating actions captured centrally.

4. Monitor Performance Against SLAs and KPIs to Address Problems

Tracking vendor performance is another crucial aspect of third-party risk management, not only to detect potential risk, but to ensure ongoing service quality and contract compliance. Firms must collect operational data on service delivery and performance to track dips that could indicate substandard performance.

Vendor performance should be measured against the agreed SLAs and KPIs and any issues should be addressed promptly with the supplier – to lower the risk. Supplier performance should be measured over time to maintain continuous transparency.

Without a structured approach to TPRM, supplier performance monitoring can be subjective and inconsistent. Organisations might rely on informal feedback, leading them to overlooked performance issues until they become critical.

Using GRC software can simplify this by pulling operational data relating to vendor performance metrics into the platform via APIs. Pre-configured rules can be set to detect deviations from expected performance, flagging concerns and triggering corrective action workflows.

For example, if a vendor consistently fails to meet delivery deadlines, the system can automatically generate reports, notify relevant stakeholders, and initiate discussions on remediation actions. Over time, this data can also help in decision-making, such as whether to renew contracts with a vendor or explore alternative options.

5. Formalise the Onboarding and Offboarding Processes

A structured onboarding and offboarding process reduces vendor risk by ensuring that vendors are thoroughly vetted before any contracts are signed and appropriately disengaged when contracts end to avoid any fines or penalties.

Assessing financial viability, security measures, and compliance status before onboarding is essential. Initial questions prior to signing a contract should delve into contract terms, including exit clauses and renewal conditions. Firms should also enquire about any recent fines, or penalties, and any compliance violations or cyber security issues. Organisations may also want to ensure their suppliers are certified to certain standards or are meeting any required regulatory requirements prior to signing contracts.

Offboarding suppliers is equally important, such as implementing security controls, such as access revocation, during offboarding. It is also important to understand notice periods when trying to terminate contractual agreements with vendors.

Contingency planning is also important when relying on critical suppliers. As one supplier is off boarded their replacement must be ready to go to avoid any gaps in service delivery. Understanding onboarding timelines is essential to manage any changes in supplier effectively.

Without a formalised process for onboarding, organisations risk engaging with unreliable vendors that lack the necessary credentials, exposing the business to unexpected issues relating to service delivery, security, and compliance. Similarly, failing to offboard vendors properly can leave security vulnerabilities, such as lingering system access or data retention risks.

GRC software standardises these vendor onboarding and offboarding processes by enforcing automated checklists and approval workflows, reducing the risk of oversight. It ensures that due diligence steps are completed before a vendor is onboarded and that all offboarding actions are properly executed to mitigate lingering risks.

Conclusion

Proactively managing vendor risk is essential to safeguard business operations, maintain regulatory compliance, and ensure service continuity. Poor performance by a supplier can directly affect how customers perceive your business – eroding consumer confidence. Ethical misconduct, compliance failures, and data breaches by vendors will ultimately compromise your business and affect your reputation.

GRC software helps firms to automate the key aspects of vendor risk management simplifying the process. These platforms enable firms to create an online vendor register – capturing critical details about each vendor – building a centralised database of all vendor-related information.

Vendor risk assessments can be completed online via a vendor risk portal with all data feeding directly into the vendors’ profile. API integrations with other systems and spreadsheets also means the platform can track supplier performance against SLAs and KPIs, and automated notifications are sent to flag substandard performance. Firms can also integrate third-party risk intelligence feeds into the platform and directly link risks to the relevant vendors’ profile. Automated workflows then trigger risk notifications and capture mitigating actions.

By implementing a best-practice vendor risk management process using GRC software, firms can centralise vendor data, view real-time risk intelligence, automate workflows, and generate insightful reporting outputs enabling them to make informed decisions about their suppliers. Implementing GRC software not only improves vendor risk monitoring but also provides leadership with the necessary insights to make strategic supplier decisions that align with business objectives – ultimately enhancing risk resilience and operational efficiency.

If you are interested in getting full visibility of the risks posed by your network of vendors and streamlining and automating vendor risk management, request a demo.