Vendor Risk Management (VRM): The Critical Defense Against Supply Chain Attacks

The modern business environment can no longer operate in isolation. Companies are interconnected in increasingly complex supply chain networks, requiring the support of third parties such as vendors. However, while this dependency increases efficiency, it also opens significant security gaps that often escape oversight.

Vendor Risk Management (VRM) is not merely an operational concept, but a crucial defense layer to prevent sensitive data exposure through business partners. Amidst a threat landscape where supply chain attacks are drastically increasing, understanding and implementing VRM is an operational mandate for every IT and GRC leader.

What Is a Vendor in the Context of Modern Business?

A vendor is an external party (individual, company, or organization) that provides specific goods, services, or solutions to a company (acting as the client or buyer) based on a formal agreement.

In a modern business context, vendors are not just suppliers of physical goods. They are strategic partners supporting operations and innovation, especially in technology. Vendor categories include:

• Goods Vendors: Providers of IT hardware, furniture, or raw materials.
• Service Vendors: Providers of IT services (cloud providers, data centers), consultants, cybersecurity services, software development (software houses), cleaning services, and others.
• Solution Vendors: Providers of subscription-based platforms or applications (Software-as-a-Service like Google Workspace, Salesforce, or ERP).

Vendors become an extension of the company’s operations. They gain access, either directly or indirectly, to the client’s internal data, systems, or processes, which creates interconnected risks.

Why Do Companies Rely Heavily on Vendors?

The decision to involve third parties is not without cause. Companies use vendors for strategic, financial, and operational assistance. This decision is often driven by:

• Focus on Core Competencies: To concentrate on key areas that provide competitive advantage, companies handover support functions to more expert vendors (e.g., IT services, payroll, logistics).
• Accessing Specialized Expertise & Technology: Rather than building from scratch with high costs and time, companies hire vendor expertise for areas like cybersecurity, data analytics, or application development.
• Cost Efficiency: Outsourcing models are often more economical as they convert fixed costs (employee salaries, infrastructure) into scalable variable costs.
• Enhancing Scalability & Agility: Vendors, especially cloud services, allow companies to quickly add or reduce capacity to adjust to demand fluctuations.
• Accelerating Time-to-Market: Collaboration with vendors possessing ready-made solutions can speed up the launch of new products or services.

What Is Vendor Risk Management (VRM)?

Vendor Risk Management (VRM) is the continuous process of managing risks related to the use of third-party service providers or IT vendors. This is not an activity that ends immediately once a contract is signed.

VRM covers the entire vendor lifecycle management, from the due diligence process during selection, ongoing performance monitoring, to collaboration termination strategies (offboarding). The goal is to ensure that the use of external services does not disrupt operational stability or trigger company financial losses.

In a cybersecurity context, VRM focuses on third-party risk assessment to ensure they have controls equivalent to your internal standards. Without solid VRM, your organization essentially entrusts sensitive data to entities whose risk profiles you do not understand.

Vendor Risk Management vs. Enterprise Risk Management (ERM) vs. TPRM

Conceptual confusion often occurs between VRM, TPRM, and ERM among executives. Understanding this hierarchy is important to avoid siloed risk or fragmented risk management.

Here is a comparison of their roles and scopes within an Integrated Risk Management architecture:

This understanding confirms that VRM is a tactical line of defense that must align with your company’s ERM strategy.

Why Is Vendor Risk Management So Important?

Statistics show that a significant percentage of major data breaches originate from vendor access, not direct attacks on the target company. Based on a PYMNTS report, approximately 30% of data breaches involve third-party suppliers and vendors who have access to victim systems.

Post-incident recovery costs (data breach costs) involving third parties are often far higher than internal incidents. This excludes the impact of reputational damage which is difficult to recover when customers know their data leaked through a selected vendor.

Additionally, regulations like UU PDP (Law No. 27 of 2022) in Indonesia demand full responsibility from data controllers for the actions of data processors (vendors). Failure to supervise vendors can lead to heavy administrative fine sanctions.

Therefore, VRM is a vital component in Third Party Risk Management (TPRM) to maintain operational resilience and ensure the Business Continuity Plan (BCP) remains valid.

Types of Risks Vendors Bring to Organizations

When you grant network or data access to vendors, you import various risk categories into your internal environment.

1. Cybersecurity Risk

This is currently the most dominant risk. Vendors with poor cybersecurity posture can become entry points for malware or ransomware to infiltrate the corporate core network. A vendor’s failure to patch their systems is a direct threat to you.

2. Compliance & Legal Risk

If your vendor violates compliance regulations (such as failing to protect data privacy according to GDPR or UU PDP), your company as the data controller, shares the legal consequences. Contract violations or software licensing issues on the vendor side can also drag your company into court.

3. Financial & Operational Risk

This risk concerns vendor solvency. If a key vendor suddenly goes bankrupt, your supply chain is severed. This disrupts business operations and forces the company to find sudden replacements at premium costs.

4. 4th Party Risk

Your vendors also depend on other vendors. Disruptions, whether due to geopolitical risks or operational failures at that level, can cascade and paralyze the services you receive.

Main Challenges in VRM Implementation

Despite the clear urgency, VRM implementation in the field often hits technical obstacles and organizational culture barriers.

1. Poor Vendor Visibility (Shadow IT)

The biggest challenge is business departments purchasing SaaS services or applications without the knowledge of IT or Security teams. This Shadow IT phenomenon creates dangerous blind spots because security teams cannot assess the risk of vendors whose existence they do not even know.

To overcome this, comprehensive access visibility like Adaptist Prime is needed to help detect unnatural access patterns, providing insights into exactly what applications are accessed by employees, so IT teams can proactively identify Shadow IT.

Read also: IT Governance & Compliance Tools for Enterprises

2. Manual Processes and “Spreadsheet Hell”

Many companies still manage hundreds of vendors using fragmented spreadsheets and emails. This manual approach causes assessment fatigue, outdated data, and loss of vendor risk historical context.

Without a single source of truth, your team risks missing vendor security certification expirations or failing to track important contract changes. When an audit occurs, gathering compliance evidence from thousands of Excel rows will take weeks and is prone to human error.

3. Monitoring 4th Party Risk

Knowing who their vendors are is a different challenge. Deep supply chains make identification of fourth-party risks very difficult without advanced threat intelligence tools.

This risk is often called concentration risk; for example, if your vendor’s cloud service provider experiences a leak, your company’s data stored there is also threatened. Without visibility into this sub-processor layer, you have a “blind spot” that hackers can exploit to infiltrate the core network.

4. Dynamic Regulatory Compliance

Privacy and security regulations constantly change. Manually adjusting vendor audit questionnaires to the latest standards (like ISO revisions or UU PDP derivative rules) requires massive and time-consuming administrative effort.

In Indonesia, non-compliance with new UU PDP standards can lead to significant fine sanctions. Legal and IT teams must work extra hard to map new regulatory articles into existing vendor contracts (re-papering), which is often impossible to do quickly manually.

VRM Frameworks, Questionnaires, and Tools (Resources)

To run effective VRM, you don’t need to reinvent the wheel. Various industry-standard instruments exist that can be adopted and adjusted to your company’s modern GRC needs.

It is important to apply a risk-based approach in choosing these instruments; do not burden non-critical vendors with high-level audits. Standardization using the frameworks below makes it easier for you to compare security postures between vendors evenly before making business decisions.

Here is the matrix of main VRM instruments along with their implementation strategies:

Using these frameworks must be integrated with internal data mapping. Adaptist Privee with its ROPA (Record of Processing Activities) feature, helps you map data flows to vendors, making risk assessment more contextual and accurate.

FAQ: Frequently Asked Questions About VRM

How often should vendor audits be conducted?

Audit frequency should be based on risk-tiering. Critical vendors (Tier 1) processing sensitive data should ideally be audited at least once a year or monitored in real-time. Low-risk vendors may suffice with audits during contract renewal.

What is the main difference between Due Diligence and Continuous Monitoring?

Due Diligence is a deep assessment at the starting point (before the contract). Continuous Monitoring is periodic oversight during the contract term to ensure vendor security scores do not decline over time.

How to handle vendors refusing to be audited?

If a vendor refuses an audit, ask for independent certification like SOC 2 or ISO 27001 as a substitute. If they do not have it, reconsider the partnership or implement strict internal compensating controls, such as access restriction using internal application access monitoring.

Is VRM only the IT team’s responsibility?

No. VRM is a cross-functional responsibility involving Procurement (Legal), IT Security (Technical), and Business Units (Operational). This collaboration prevents service purchasing without security approval.

With the support of Adaptist Privee, your company can build a digital ecosystem that is secure, time-efficient, and ready to grow without sacrificing data protection or user convenience.