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How to Mitigate Third-Party Risks During Vendor Consolidation

Consider these best practices to limit your risk exposure when offboarding vendors or suppliers.
Brad Hibbert
Chief Operating Officer & Chief Strategy Officer
April 25, 2023
Blog vendor consolidation 0423

Economic uncertainty is driving many companies to consider reducing costs and improving efficiencies across their enterprises. One area that organizations are focusing on is vendor consolidation – also known as supplier rationalization. Vendor consolidation is the process of reducing the number of vendors that a business works with by combining its purchases and sourcing from fewer providers. For many companies, the consolidation/rationalization process involves offboarding vendors, suppliers or other third parties.

This post examines the benefits of vendor consolidation and reviews best practices to ensure sound third-party risk management when offboarding vendors or suppliers.

Benefits of Vendor Consolidation

Vendor consolidation and supplier rationalization processes can help businesses navigate economic uncertainty by:

  • Reducing costs: By reducing the number of suppliers, a business can negotiate better prices for goods and services, which can be helpful when budgets are tight.
  • Improving efficiencies: Managing fewer vendors can help streamline a business's procurement process. It can reduce the time and effort required to source, assess and manage multiple suppliers, freeing up resources that can be redirected to other areas of the business.
  • Improving risk management: Consolidating vendors can help mitigate risk by reducing the number of providers in a company's supply chain.
  • Increasing supplier accountability: When a company works with fewer vendors, it can hold those vendors more accountable for meeting performance standards, delivering quality, and addressing identified security and compliance risks. This can help ensure that the company is getting the most value for its money while minimizing associated risks.
  • Improving vendor relationships: Working closely with fewer vendors can help build stronger relationships based on trust and cooperation. This can lead to better communication and improved collaboration, which can lead to more proactive problem-solving and innovation.

Minimize Risk After the Contract Ends

Download the Vendor Offboarding Checklist to gauge your program against 40+ recommended offboarding tasks.

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6 Best Practices to Reduce Risk During Vendor Offboarding

It's important to weigh the benefits of vendor consolidation against the need for supplier diversity to avoid unacceptable levels of concentration risk. And it’s equally important to recognize that offboarding vendors during vendor consolidation can pose security and compliance risks if not handled properly. Consider these best practices to minimize those offboarding risks:

1. Prioritize non-critical vendors

Focus on offboarding vendors that are no longer critical to your business operations. This will reduce the risk of disruption to your business processes. Criticality is typically determined by performing an inherent risk assessment to identify key suppliers early in the relationship.

2. Review contracts

Review all vendor contracts before offboarding. Ensure that all contract terms are fulfilled, and that you are not in breach of any agreements. Review KPIs, pending deliverables, and payments. If the vendor is supplying parts, then make sure warranty and support agreements that survive termination are clear.

3. Communicate with impacted vendors

Notify vendors of the offboarding process and the reason for it. Provide a timeline for the offboarding process, any support they may need during the transition, and final payments. Ensure timelines are reasonable and not too aggressive, which could lead to business disruption, compliance violations or increased security risks. Keep records of all offboarding activities, including the notification process, data transfer, vendor attestations, and contract termination.

4. Ensure data and system security

Ensure the secure transfer all data and intellectual property back to your organization, or that the vendor has deleted or destroyed all data they hold about your organization. Ensure that any retained data is protected according to your organization's security policies and compliance requirements. Revoke any physical or system access provided to vendor employees.

5. Conduct a final risk assessment

Perform a vendor risk assessment to identify potential risks and vulnerabilities associated with offboarding vendors. Offboarding is often overlooked when it comes to third-party risk management, however a lot can happen in the last days of a vendor relationship. Conducting a final risk assessment can validate that your systems and data are securely decommissioned, while also providing records for demonstrating compliance with data privacy mandates.

6. Set up vendor monitoring

If the vendor had system access or managed your data, be sure to monitor for data exposure on the internet and Dark Web. Receiving alerts to potential compromises will enable your organization to be proactive in its incident response efforts.

Use a Vendor Offboarding Checklist

By following these best practices, you can minimize security and compliance exposures during the offboarding process. For more, download the Vendor Offboarding Checklist for a prescriptive list of 40+ recommended offboarding tasks or contact Prevalent to schedule a demo today.

2014 04 10 Headshot Brad Suit
Brad Hibbert
Chief Operating Officer & Chief Strategy Officer

Brad Hibbert brings over 25 years of executive experience in the software industry aligning business and technical teams for success. He comes to Prevalent from BeyondTrust, where he provided leadership as COO and CSO for solutions strategy, product management, development, services and support. He joined BeyondTrust via the company’s acquisition of eEye Digital Security, where he helped launch several market firsts, including vulnerability management solutions for cloud, mobile and virtualization technologies.

Prior to eEye, Brad served as Vice President of Strategy and Products at NetPro before its acquisition in 2008 by Quest Software. Over the years Brad has attained many industry certifications to support his management, consulting, and development activities. Brad has his Bachelor of Commerce, Specialization in Management Information Systems and MBA from the University of Ottawa.

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