What Are Vendors & Suppliers in Third-Party Risk Management? 

Every company has vendors, and every company has suppliers. These terms are used interchangeably in third-party risk management and, although they both fall under the umbrella of “third party,” they are not the same thing. Vendors and suppliers can present different risks to your business and may require different tactics for accurately assessing risk. This post will detail why a vendor is different from a supplier and how to manage and mitigate the distinct risks each presents.  

What is a third party?

A third party is any external company, individual, or other entity that provides goods or services to your organization. Your business relies on these external entities, which include suppliers, vendors, contractors, service providers, and business partners, to conduct regular operations.

What are some examples of third-party businesses? 

Third parties can range from small-scale suppliers to large companies that offer comprehensive solutions. Some examples of third-party businesses include:

• Software Vendors: These companies develop and sell software products or provide software-as-a-service (SaaS) solutions to businesses. Think Microsoft selling its Office Suite or Salesforce providing its CRM platform.
• Hardware Vendors: Manufacturers or suppliers that provide physical equipment or infrastructure, such as computers, servers, networking devices, or other hardware components. Think Cisco for networking equipment or Apple for laptops and cell phones.
• Original Equipment Manufacturers (OEM): These suppliers provide semi-finished goods or components to the final products your organization sells to its customers, such as automotive parts or computer software. Intel is a good example. They sell their processors to computer makers, such as Dell and HP.
• Consulting or Services Firms: External firms that offer expertise and advice in specific areas such as management, strategy, technology, finance, legal, or human resources. 
• Logistics and Transportation Providers: Companies that specialize in shipping, warehousing, or transportation services, ensuring the smooth movement of goods and materials for businesses. FedEx and DHL are two examples.
• Marketing and Advertising Agencies: External agencies that assist businesses with marketing strategies, campaigns, creative services, media buying, or public relations. 
• Payroll Providers: Companies that manage employee payroll and ensure that all applicable payroll taxes are accurately paid. ADP is one of the biggest names in this space.
• Security Services: Vendors that provide cybersecurity solutions, physical security, risk assessment, or other security-related services to protect businesses from threats. 
• Cleaning and Office Services: Companies that are contracted to clean offices, destroy data, or provide office supplies are also considered third parties. 

Any one of the vendors or suppliers mentioned above may have different levels of access to your critical systems and data. They may be able to move through your physical workspace at will, as with cleaning services, or have a special log-in to corporate files as with marketing and advertising agencies. This access means that they also add the risk of negative impacts to your business. Understanding how to think about the relationship you have with different types of third parties should inform your third-party risk management (TPRM) strategy.

What is the difference between a vendor and a supplier in third-party risk management? 

The terms "third party," "vendor," and "supplier" are often used to define the context of business relationships. As referenced above, a third party is any entity outside your organization's direct control that affects your core operations and/or final product. Third parties can provide goods, services, or other resources to support the main business relationship. They can be individuals, organizations, or companies.  

While all vendors and suppliers can be considered third parties, the terms "vendor" and "supplier" provide additional context about the nature of the business relationship. A "vendor" offers a product or service ready for final use, whereas a "supplier" delivers a component to be transformed or resold. While a vendor aids a company, a supplier contributes inputs to it. For example, a legal vendor provides a specific service (data storage) to law firms in support of that law firm, while an auto parts supplier provides components to build a car or truck. 

What is a vendor? 

A vendor is a company that provides something your company uses to conduct its ordinary business operations. This is a finished good or a service that you or your company uses as a customer. Think of something like a web content management system for your marketing team, or accounting software in your CFO’s office. The company that sells your IT team the laptops that your employees work on? That is your hardware vendor.

Vendors may or may not create and build their own products from scratch. For software vendors especially, they often use components from other companies or open-source code repositories to create their applications. Hardware vendors might have OEM relationships with other companies as well.

Or they could be purely services vendors such as marketing agencies, accounting firms, or managed services companies. The point is that vendors offer a finished good or service that can be used by their customers – your company – to conduct its own business.

What is a supplier? 

A supplier is a third party that provides essential specialized goods, services, or raw materials to another organization. Suppliers play a crucial role in your value chain, offering everything from raw materials and components for manufacturing to technological infrastructure for SaaS platforms. They may be involved in the buyer's supply chain and play a critical role in the buyer's operations. For instance, a company that sources raw materials or parts from another company on a regular basis would consider that company a supplier. 

Supplier Risks vs. Vendor Risks in Third-Party Relationships

In the context of third-party relationships, supplier risks and vendor risks, though similar, have distinct differences based on the nature of the services or products they provide and the role they play in a company's operations.

Supplier Risks:

Supplier risks are exposures associated with companies or individuals that provide raw materials, components, or services that are essential for a company's production or operational processes. Supplier risks may include:

• Cybersecurity Risks: Risks of data breaches and cyber incidents affecting suppliers and their extended networks.
• Compliance Risks: Challenges in meeting regulatory standards and industry best practices, such as those set by NIST and ISO, across the supply chain.
• Business & Financial Risks: Risks related to the financial stability of suppliers, such as bankruptcy, M&A activities, and regulatory penalties.
• Event Risks: Risks stemming from natural disasters, political instability, or other significant events causing global supply chain disruptions.
• Corporate Social Responsibility and ESG Risks: Risks related to environmental, social, and governance factors, including labor practices and regulatory pressures.
• Capacity Risks: The risk that suppliers may not be able to meet delivery schedules due to various factors ranging from economic stability to regulatory changes.
• Performance Risks: Risks associated with suppliers' ability to meet quality and consistency metrics, on-time delivery, and other service level agreements.

Vendor Risks:

Vendor risks are exposures associated with companies or individuals that provide finished products or services directly to the business for resale or operational use. Vendor risks include:

• Cyber Risk: Risks that can compromise business operations due to data breaches, DDoS attacks, ransomware vulnerabilities, software supply chain attacks and/or other malicious activities. Recent examples include the PJ&A healthcare breach and the MOVEit supply chain attack.
• Compliance Risk: Risks associated with vendors not adhering to various data protection regulations and the potential legal and financial consequences of non-compliance.
• Financial Risk: Risks due to a vendor's financial instability potentially impacting their ability to deliver products or services.
• ESG Risks: The increasing investor focus on ethical business practices, including human rights and environmental responsibility.

• Reputational Risk: Risks associated with threats to the name, goodwill, or credibility of a business that can affect its revenue.

While there is overlap, supplier risks often focus more on the production and supply chain aspects, whereas vendor risks emphasize end-product quality, compliance, and service delivery. Comprehensive third-party risk management requires understanding and mitigating across multiple types of risk.  

The Significance of Third-Party Risk Management 

Engaging with any third party introduces risks that can potentially negatively impact operations, reputation, and compliance. Effectively managing these risks involves assessing, monitoring, and mitigating threats. A robust TPRM program mitigates the risk of financial losses, reputational damage, and legal ramifications, ensuring business operations remain resilient and secure.