Vendor risk management (VRM) is assessing and managing risks that may impact a company’s ability to do business with its end customers. By implementing quality VRM practices, companies can protect themselves from potential losses caused by vendor bankruptcy, fraud, regulatory fines, reputational issues, or other disruptions. 

This article will discuss the basics of vendor risk management, why VRM software is essential, and the steps to establish VRM in your organization.

What is Vendor Risk Management?

Vendor Risk Management (VRM) empowers organizations to proactively identify, assess, and mitigate risks from working with vendors. The goal is to protect the organization from potential threats these relationships pose.

Organizations should have a VRM plan to protect themselves from potential threats. The annual BCI Supply Chain Resilience surveys have often shown in excess of 70% of organizations suffering significant supply chain disruptions.

A VRM plan outlines how risks will be identified, assessed, and mitigated and should include due diligence to ensure that vendors are reputable and can be trusted. Due diligence is the process of investigating a vendor to assess its suitability as a business partner in terms of financial stability, ownership, reputation, and track record. 

However, due diligence is daunting in today’s environment. Searching for and curating information can be overwhelming. Those performing due diligence have to sift through massive amounts of data and attempt to find insights. 

Exiger’s DDIQ risk analytics platform helps businesses to accelerate due diligence. It zooms in on the risks that matter most and to help you make critical business decisions faster.

Vendor risk management software is essential for businesses because it enables at scale the identification, assessment, and management of risks associated with vendor relationships. By using this type of software, companies can protect themselves from potential financial losses and other reputational damage. 

Why is Vendor Risk Management Software Essential?

As global supply chains become more complex and businesses rely on an ever-growing vendor network, VRM software has become essential to ensure business continuity and maintain a high level of quality control.

In fact, third-party risk is considered the top threat by many compliance leaders. By using software to automate the risk assessment process and track vendor performance over time, businesses can ensure that they are identifying and mitigating any cyber threats lurking in their supply chains.

Vendor risk management software is a critical tool for businesses to ensure that the products and services will be received and do not open up the business to reputational or financial harm. By assessing vendor risks and understanding the potential impact, businesses can make more informed decisions about which vendors to work with and how to mitigate any potential problems.

Vendor risk management software can help businesses in several ways:

Exiger’s Supply Chain Explorer can help your organization rapidly surface, understand, and mitigate critical threats to your entire supplier ecosystem—from fourth-party level down to the Nth tier—with just one click. It enables reviews of your trade supply chain and cyber supply chain. Supply Chain Explorer pulls in more than a billion contact records and more than 31 million structured and unstructured data sources. Register now for a free, comprehensive trial to discover how you can instantly identify and assess the criticality of threats in your environment.

How to Establish Vendor Risk Management

There are several elements to include when establishing vendor risk management, such as how to identify risks associated with each new vendor, developing risk mitigation strategies, ongoing monitoring of vendors, and updating your risk management program as needed. 

Here are specific steps to help maximize your organization’s vendor risk management capability:

  1. Choose a vendor risk management software
  2. Standardize procedures
  3. Determine a management lifecycle 
  4. Categorize vendors
  5. Automate risk management workflow
  6. Monitor the reporting dashboard
  7. Continuously improve vendor risk management

1. Choose Vendor Risk Management Software

Here are a few tips on how to choose a vendor risk management software that’s right for your business:

2. Standardize Vendor Risk Management Procedures

One way to reduce risk is to establish and follow standard procedures for vendor risk management. Having a clear and consistent process for evaluating and managing vendors can help ensure that risks are identified and third-party risk management is streamlined. As part of this it is important to have an appropriate governance process supported by the executive team to ensure relevant functions and objectives are properly aligned.

There are several factors to consider when developing your vendor risk management process: 

Once you have a good understanding of these factors, you can develop standard procedures for vendor risk management. Here are a few tips to get you started:

3. Determine a Vendor Risk Management Lifecycle 

By understanding how often and long your organization working with a particular vendor, you can manage the risks associated with that relationship more effectively. 

You may need to cycle through vendors more or less frequently. Establishing a standard risk management lifecycle will help ensure that all stakeholders are aware of the risks associated with each vendor and that those risks are being effectively mitigated.

Here are a few key considerations to keep in mind when determining a vendor risk management lifecycle for your organization:

4. Categorize or Segment Vendors

Categorizing vendors is a way to clearly understand which vendors pose the most significant risk to your organization. This will help you prioritize your resources and take appropriate action to mitigate risks.

There are a few different ways you can categorize vendors and use should be made of external risk data sets to provide further insights:

Exiger’s RiskIQ is an automated risk rating product. RiskIQ sources over 300 data points on every third party from the DDIQ report to create a consistent and reliable risk score, empowering you to perform solid third-party risk management.

5. Automate Risk Management Workflow

Automating your workflow can be a huge help when managing risk. Automation will save you time, but it can also help you track vendor performance over time and ensure that risks are adequately mitigated. 

Here are four ways that automating your risk management workflow can help with establishing vendor risk management:

Powered by DDIQ, Exiger’s Insight 3PM workflow tool seamlessly facilitates the vetting of your most important vendor relationships. It allows for third parties to be assessed by criticality, determining the depth of due diligence and documentation of risk mitigation. This also helps your company meet regulatory and compliance needs such as complying with the Uyghur Forced Labor Prevention Act and managing ESG, financial, reputational, and jurisdictional risks.

6. Monitor Reporting Dashboard

By establishing a vendor risk management program, you can ensure that your organization minimizes vendor risk. A monitoring dashboard should provide instant visibility into vendor performance and risk.

A monitoring dashboard also enables you to track and analyze vendor performance data, such as identifying trends and issues that may indicate future problems. 

7. Continuously Improve Vendor Risk Management

Establishing a vendor risk management (VRM) program is vital to nearly any organization given that they nearly all rely on third-party vendors to provide goods or services. A robust VRM program can help an organization avoid or mitigate the risks of using external vendors, including financial, legal, disruption,and reputational risks.

Continuous improvement is a proactive approach to managing vendor risk. It involves:

There are many ways to improve VRM continuously, but some key steps include:

Implement Quality Vendor Risk Management with Exiger

Exiger offers comprehensive VRM services that help organizations identify, assess, and mitigate risks associated with their vendors. Our team of experts has the experience and knowledge to help you create a customized program that meets your specific needs. Exiger’s experienced compliance professionals provide complete coverage, from design and implementation to ongoing training and development.

We’ll leave your program in better shape than when we found it.

Please get in touch with us today to learn more about how Exiger can help your business establish effective VRM processes.

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