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.
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.
Third parties can range from small-scale suppliers to large companies that offer comprehensive solutions. Some examples of third-party businesses include:
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.
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.
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.
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.
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 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:
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:
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.
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.
Third-Party Risk Management in 90 Seconds
Third-Party Risk Management, or TPRM, is a critical daily function for many organizations. Learn about third-party vendor risks, and what to do about them, with this quick overview.
With cyber-attacks increasingly originating with third parties, privacy concerns driving new regulations, and disruptions impacting global supply chains, it is critical to ensure that your vendors and suppliers have the controls and processes in place to protect your organization.
A TPRM program empowers organizations to identify, mitigate, and accept risks, preventing unwanted surprises. Some key steps to mitigate those risks include:
Understanding the nuances of your third-party vendor and supplier relationships and learning to navigate risks is crucial. Explore how to build your TPRM program and consider whether our third-party risk management solutions align with your organization's needs – request a demo today.
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