Building Stronger Partnerships: Vendor Management Lifecycle Explained

In a recent Gartner survey, 84% of risk committee members reported that gaps in third-party risk management significantly disrupted their business operations. This statistic underscores the critical importance of adopting a structured process to manage risks and operations associated with external vendors.

For organizations relying on third-party vendors for essential business functions, establishing and maintaining a robust vendor management lifecycle is critical. A well-crafted framework minimizes the likelihood of security breaches and operational disruptions and lays the foundation for resilient and secure vendor relationships.

In this guide, we’ll explore the key elements of an effective vendor lifecycle, best practices for crafting one, and why it’s indispensable for safeguarding your business.

TL;DR

The vendor management lifecycle is a structured framework for handling vendor relationships, from onboarding and engagement to relationship management and offboarding.  Vendor management involves assessing vendor fit, monitoring performance, mitigating risks, and ensuring compliance to protect sensitive data and business operations.  Strong vendor lifecycle management enhances efficiency, minimizes risks, and ensures seamless vendor collaboration.

What is a vendor management lifecycle?

Vendor management lifecycle refers to the end-to-end systematic framework on how a company handles relationships with their business partners and third-party service providers. The lifecycle starts at the initial contract agreement and onboarding and ends with the termination of the contract and offboarding. 

When you develop and implement a structured framework for managing vendor relationships, it helps you helps to monitor vendor performance, adherence to compliance, and ensure transparency throughout the process, establish relations with them, and boosts efficiency. 

Seven stages of vendor lifecycle

Organizations often fail to actively manage their vendor lifecycle actively, leading to significant operational challenges. Here’s what to focus on each stage to improve vendor performance and streamline the lifecycle.

1. Initial engagement and assessment 

The first step of the vendor lifecycle involves evaluating them. At this stage, you are looking at multiple options to analyze the best fit to meet your unique business requirements. This involves on-site visits, surveys, scorecards, live demos, and due diligence for some vendors. 

Upper management and other key decision-makers use other aspects such as cost, past performance, reputation, scalability, peer reviews, cost concerns, quality of service, and other business-critical factors to complete their evaluation.

2. Document verification and due diligence

This is part two of the initial assessment. Your team will verify if the vendor has any issues that can become potential roadblocks in the future. Ideally check for your supplier’s financial stability, market reputation, past performance issues, operational capabilities, and internal team bandwidth. 

Verify documents like their full legal name, legitimacy of the website, business license, tax identification number, registration documents, insurance coverage, and code of conduct. Your onboarding team is responsible for communicating with the partner to establish the process for collaborating without any hassles. This involves sharing your expectations from stakeholders, providing training resources, internal polices and procedures, and sharing access to necessary systems. 

Once both the parties have signed above the dotted line, collect the contact information, email and office addresses, primary and secondary points of contact, and document them in your systems. You would also want to collect bank details and settle on the preferred payment method.

3. Compliance and quality check

Apart from conducting due diligence, another critical aspect of onboarding vendors is conducting compliance and quality checks. Your partner should not only have internal governance processes and policies, but also have a fair understanding of your compliance obligations and regulatory requirements such as ISO 27001, SOC 2, or HIPAA. 

Address compliance gaps, if any, at the earliest stages to reduce risks later. Ensure they meet all quality requirements and standards. Compliance and quality checks are not a one time item on your vendor management checklist, but an ongoing process that helps to ensure that your vendors don’t fall into non compliance. 

4. Onboarding and contract management

Once you have narrowed down on a vendor and done the due diligence, proceed to onboard them to your system. At this stage, you should work towards ensuring the highest level of transparency and accountability from you as well as from the partner. 

During the onboarding process, introduce members from the vendor’s team to your employees who will work directly with them. Review and finalize all agreement documents, questionnaires, and ensure that all stakeholders are on the same page. 

5. Risk assessment

New tools, people, processes, and partners are added to the ecosystem as your business scales. While this is necessary to expand growth horizons, it widens risk exposure. 

New vendors introduce security vulnerabilities, compliance gaps, legal issues, and performance failures, all of which ultimately impact your bottom line. Given that vendors have access to your sensitive data, it is critical to thoroughly assess whether they have the right controls in place to minimize the probability of a security breach. 

We recommend using a third-party risk management framework to identify and mitigate risks. A framework helps you contextualize each risk associated with a particular vendor by scoring risks against their potential impact. This way, you can proactively minimize risks based on their level of damage. 

Your risk framework should also include TPRM policies. Share the policies before the onboarding stage and get a sign-in from all the responsible parties. Include the purpose, scope, policy statement, compliance obligations, and areas of shared responsibility.  

Sprinto integrates seamlessly with your cloud to maintain a centralized catalog of all vendors. It allows you to evaluate critical risk factors tailored to your organization, creating a comprehensive risk profile for each vendor. Get a demo now. 

6. Performance monitoring 

Now that the vendor is part of your organization, measure and monitor their performance, just like with internal employees. 

You can use KPIs (Key Performance Indicators) to evaluate where the vendor stands against your expectations: meeting them sufficiently, falling behind, or exceeding them. A supplier scorecard also helps to assess overall efficiency and track metrics like time to resolve issues, quality of service, technical capabilities, and commitment to compliance. 

Do not hesitate to provide valuable feedback and share your assessment to help your vendor improve their services. Use a feedback mechanism that promotes continuous exchange of ideas. Most vendors take feedback seriously and try to work on fallbacks, as they would not want you to switch to a competitor. 

7. Offboarding and termination 

The vendor management lifecycle ends when you terminate the relationship. This could be because your contract is over or you’ve decided to switch to a competitor. 

Either way, certain challenges need to be accounted for during the offboarding stage. During the contract period, individuals outside your organization’s security perimeter had access to sensitive internal information. 

To avoid mishaps, clearly communicate the reasons for terminating the contract and share the notice period. Transparent all outstanding settlements, review if either party cannot fulfill a contractual obligation and check all agreement clauses. 

If both parties meet all obligations, remove vendor access to sensitive files and systems. This process varies depending on the size of the vendor; if they have access to a limited number of systems, it may take a few days. Vendors who are critical to your operations and own access privileges for a large number of systems involve a more complicated and longer offboarding cycle. 

How you can manage compliance while dealing with vendors

When you partner with third-party service providers, you share access to critical systems and sensitive files with individuals who don’t fall within the security firewall. This necessitates implementing strong measures and controls to ensure compliance. 

One way to assess if your vendor takes compliance seriously is by asking them to demonstrate adherence to popular security frameworks like SOC 2 or ISO 27001. Any business partner working with you should comply with HIPAA if you handle sensitive medical data. 

Use a risk scoring framework to evaluate the level of risk they add. Needless to say, high-risk vendors are not worth partnering with as such deals may do you more harm than good. If a vendor adds high risk to your system, they should take remediating actions before it escalates into a costly affair. 

Communicate your expectations and internal compliance culture processes to give your vendor an idea of what environment they are entering. Share SLAs (Service Level Agreements) and policies outlining security and privacy responsibilities. 

Lastly, once a vendor is onboarded and has access to your systems, continuously monitor their activities for unauthorized access or suspicious activity. Review compliance reports and audits and stay on top of major changes that may impact business-critical functions. 

Vendor management capabilities for security teams 

Security teams frequently face a plethora of challenges in evaluating the full range of risks vendors pose. These risks often extend beyond information security to include operational, reputational, and compliance risks. 

The absence of a unified vendor view and a robust, all-encompassing risk assessment framework exacerbates these issues. Without these critical elements, Vendor Risk Management (VRM) programs become fragmented, prone to errors, and incapable of providing an accurate picture of vendor risks.

Sprinto simplifies vendor risk management, turning a fragmented process into a streamlined, systematic approach. 

With tools to assess all vendor risks, categorize vendors accurately, and identify potential threats early, Sprinto empowers you to stay ahead of risks. Gain real-time insights into vendor compliance impacts, enabling you to meet reporting and regulatory requirements precisely and easily.

Automated control tests, workflows, and compliance mapping ensure continuous monitoring of vendor risks and their influence on your compliance posture—all managed effortlessly in one platform. Talk to our experts today.

FAQs

What are the top vendor risk management tools?

Some of the best vendor management tools based on user feedback and capabilities are Sprinto, OnTrust, Security Scorecard, Panorays, Vanta, and Secureframe. 

What is the benefit of managing a vendor lifecycle?

Managing the vendor lifecycle enhances operational efficiency by streamlining vendor onboarding, performance monitoring, and contract management. It reduces risks by ensuring compliance and identifying potential vulnerabilities throughout the vendor relationship. 

What type of risks can third party vendors add to my system?

Third-party vendors can introduce security risks such as data breaches or unauthorized access to sensitive information,  operational risks like failing to deliver services or meet deadlines, and compliance and reputational risks if vendors violate regulations or ethical standards.