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No matter your industry, your company can’t function without the suppliers, vendors, and other third parties that provide business-critical services. Your company’s relationships with suppliers, vendors, and other third-party entities could make all the difference when it comes to getting to market faster, lowering costs, increasing profits, and driving innovation. But these relationships are inherently risky, and you must manage that risk.
Third-party risk management is the answer. All kinds of things could go wrong in your relationships with suppliers and vendors, from compliance issues to labor disputes, natural disasters, and more. In 2020, nothing has been more important than business continuity plans to manage risk and adjust operations to account for new conditions. To this end, base your third-party risk management strategy going forward on these five tips.
1. Do Your Due Diligence
You don’t know what risks a third-party relationship presents until you assess the vendor or supplier. Therefore, you need to carefully screen third parties for factors that affect risk, like country of operation. Record all third-party relationships and the company contacts for each one. Assess the level of access required, based on which department or processes the relationship will support. Finally, clarify which metrics you’ll use to measure the third party’s performance over the course of your relationship.
Screen third parties for their appearance on global sanctions lists, regulatory or law enforcement watch lists, and negative reports in the news. Also check other lists or databases, such as those offered by state and local authorities. Ideally, you should take the time to dig into your third-party supplier’s fourth-party relationships. Look into their subcontractors who provide goods and services to them. At this point, supply chains can grow murkier, and you may want to verify that your supply chain is ethically sourced.
2. Prioritize IT Vendor Risks
You should do what you can to restrict third-party access to only those parts of your network that they need to do their jobs. But cybersecurity attacks are on the rise. Moreover, when third-party vendors have access to your system, you need to prioritize a focus on managing IT-related risks. Use the Standard Information Gathering (SIG) questionnaire to gather the information you need about third-parties’ data privacy and security controls.
3. Don’t Skimp on Staff to Run Your Third-Party Risk Management Program
You definitely need to be willing to invest in appropriate staffing to make sure a third-party risk management program is properly run. You’ll need staff to monitor third-party performance and access. You’ll need IT security for real-time threat detection and response. And you’ll need staff to focus on regulatory compliance. And, of course, you’ll need staff to manage vendor relationships and performance.
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4. Keep Your Eye on Third-Party Suppliers
You have to keep monitoring your third-party suppliers and vendors throughout your relationship. This is why you need staff support to monitor their regulatory compliance, investigate fourth-party relationships, and monitor third-party network access. As time passes, third-party relationships can change and new risks can appear. Staff turnover, economic changes, and changes in ownership at a third party can all affect the level of risk a third party brings to your relationship. Therefore, maintain regular risk assessment and continuous monitoring of your third parties.
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5. Manage Risks Across the Business
Ideally, staff across all areas of your business will collaborate to manage the inherent risks in third-party vendor relationships. For example, business teams can monitor third parties’ performance. Meanwhile, risk teams can monitor changes in risk level, and security teams can monitor third parties’ system access.
It’s important to get multiple departments on board with third-party risk management. This is because mitigating risk isn’t the only factor you need to consider when evaluating whether to continue a third-party relationship. You also need to consider the third party’s level of criticality to your business, how well the third party performs, and how viable the relationship is. If, for example, you can’t replace a third-party vendor because of the rare, but business-critical, service they provide, risk management may be more complicated. Turn to Prevalent’s vendor risk management guide for more information.
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Follow These Tips to Minimize Third-Party Risk
The benefits of growing a supplier relationship over the long term are many. To do so, you need a plan in place to mitigate third-party risk. With third-party risk management as a priority, everyone can focus on doing the best possible job.