Vendor management is an extensive business function for most procurement and IT teams as it involves numerous complex security, communication, and due diligence tasks. One way to keep the workflows comprehensive and consistent throughout the vendor lifecycle is to outline a clear vendor management policy (VMP).

‍

In this guide, we’ll discuss how a VMP helps ensure organization-wide clarity around vendor relationships and processes. We’ll also offer some expert advice on creating a prescriptive policy that addresses different perspectives within your team. You’ll learn about:

‍

• Key elements of a VMP.
• Actionable steps for developing a robust policy.

‍

What is a vendor management policy?

A vendor management policy is a set of guidelines, procedures, and controls designed to manage third-party vendor relationships and mitigate associated risks. The scope of this policy can vary based on factors such as the types of vendors, industry compliance requirements, and organization-specific performance expectations for vendors.

‍

For many organizations today, the primary purpose of a VMP is to ensure relevant teams can manage and remediate risks within third-party services in a standardized manner. This includes several notable risk types, including operational, financial, legal, and cybersecurity risks.

‍

A VMP is also essential in maturing your vendor risk management (VRM) program. The policy defines key risk management workflows and task owners across cross-functional teams to ensure all VRM processes are documented for better tracking and accountability.

‍

Why create a vendor management policy?

Here are some of the most notable benefits of having a comprehensive vendor management policy:

‍

• Comprehensive data protection: A well-developed VMP can ensure your organization uses adequate safeguards and contractual measures to protect the sensitive data vendors access as part of their services.
• Process efficiency and clarity: Effective vendor management requires collaboration across various departments, including legal, IT, and procurement teams. A written policy serves as a shared source of truth that relevant stakeholders can follow to avoid task inefficiencies.
• Streamlined regulatory compliance: Effective vendor management is an important aspect of several security standards and regulations—e.g., GDPR and SOC 2. It’s common for compliance managers to add relevant compliance guidelines in their VMP to streamline the process.
• Improved consistency: If developed correctly, your VMP can standardize all areas of vendor management, such as selection, onboarding, performance monitoring, issue resolution, and termination.
• Effective incident response processes: A good VMP outlines how potential security and compliance incidents should be reported and remediated. The goal is to have actionable communication and mitigation strategies defined beforehand.

‍

{{cta_withimage20="/cta-modules"}}

‍

8 key elements of a vendor management policy

The components of a VMP can vary across industries, but there are eight elements it should include:

‍

1. Purpose
2. Scope and audience
3. Information security in third-party relationships
4. Third-party service delivery management
5. Third-party risk management
6. Third-party security standards
7. Compliance and legal requirements
8. Violations and enforcement

‍

Get a concise overview of each element below:

‍

1. Purpose

In this section, you’ll outline why your VMP exists and what end goals your organization is aiming to meet. For example, you can define that the policy’s main purpose is to outline procedures for safeguarding all customer data that vendors can access, as well as mitigate relevant security risks, and facilitate compliances such as HIPAA or SOC 2.

‍

2. Scope and audience

Your policy’s scope defines which business functions and aspects of vendor relationships it will impact. You should also define whether the VMP applies to a specific subset of high-risk vendors or all of them depending on the criticality of business functions and the data you wish to protect.

‍

As far as VMP’s audience is concerned, add the intended stakeholders, such as employees, vendors, and contractors, who must adhere to it.

‍

3. Information security in third-party relationships

This section specifically focuses on the security of data shared with third-party vendors. In most cases, it will include details about the controls that should be outlined in vendor agreements, as well as vendor due diligence and risk assessment processes.

‍

4. Third-party service delivery management

Your VMP shouldn’t only focus on security but also service performance aspects, such as:

‍

• Cadence of vendor performance reviews.
• KPIs you’ll use to assess service delivery.
• Steps you’ll take to manage any service changes.

‍

5. Third-party risk management

Third-party risk management (TPRM) is an unavoidable part of an effective VMP. Take steps to develop and document all the processes related to the identification and mitigation of third-party risks. You can also outline any specific requirements for third-party data sharing, such as written consent.

‍

{{cta_simple17="/cta-modules"}} | Webinar: Vendor risk management

‍

6. Third-party security standards

This section is typically the most comprehensive part of your vendor management policy. It defines the security measures that third parties must implement to safeguard your organization’s systems and data. Key areas to address may include:

‍

• Establishing an information security policy.
• Implementing a robust risk assessment program.
• Ensuring operational security practices are in place.
• Enforcing strict access controls.
• Maintaining a secure system infrastructure.
• Strengthening physical security at all relevant sites and facilities.

‍

Each of these sub-categories should be tailored to meet both regulatory requirements and the specific needs of your organization.

‍

7. Compliance and legal requirements

This section outlines a third party’s obligations when it comes to meeting specific regulatory requirements. It’s particularly important if you’re adhering to any federal or industry-specific standards because your third parties should help you achieve the desired level of compliance.

‍

8. Violations and enforcement

The final key component of a VMP addresses how violations will be reported, remediated, and penalized. You should consider any specific steps you’ll take internally or externally to ensure your policy is understood and adhered to by all relevant parties.

‍

6 steps to creating a vendor management policy

The process of developing a VMP for an organization will depend on the policy’s scope. Typically, there are six standard steps that work for most organizations:

‍

1. Involve all relevant team members in policy-making.
2. Map out your current vendors.
3. Define your risk criteria and due diligence processes.
4. Outline your contract formalization, onboarding, and offboarding processes.
5. Pinpoint continuous monitoring practices.
6. Define a risk management and incident response system.

‍

Step 1: Involve all relevant team members in policy-making

As an organization-level document, a VMP requires a collaborative effort. You need to factor in the requirements of different departments and roles together, most notably:

• IT
• Legal
• Compliance
• C-level executives
• Procurement managers

‍

Front-line employees who may have direct contact with vendors can also provide invaluable input on what should be fleshed out in the policy. You can schedule a meeting to get everyone on board and brainstorm all the relevant aspects of your vendor relationship that should be addressed in the policy.

‍

You can also use this step to document each team's roles and responsibilities regarding vendor relationship management.

‍

{{cta_withimage5="/cta-modules"}} | How to minimize third-party risk with vendor management guide

‍

Step 2: Map out your current vendors

Understanding your existing vendor landscape is critical for shaping key elements of your VMP, such as:

‍

• Security protocols
• Performance metrics
• Data-sharing practices

Creating a detailed inventory of all current vendors is essential. This inventory should include important details such as business functions affected, vendor access levels, and risk profiles.

‍

While manually tracking vendors via spreadsheets is possible, it can be inefficient and prone to potential oversight in the tracking of relevant information or comprehensiveness. That’s why you should consider using a dedicated vendor management platform that can streamline your vendor management capabilities and provide comprehensive visibility into your third-party network.

‍

More importantly, such platforms may help uncover shadow IT—i.e., software vendors your teams use without your knowledge. That way, you’ll have complete vendor network visibility and a clear idea of what controls and safeguards should be included in your VMP.

‍

Step 3: Define your risk criteria and due diligence processes

Your VMP should reflect your organization's risk appetite, which is why you must define and standardize your risk criteria before developing the policy. 

‍

For example, if you have critical or high-risk vendors accessing your sensitive customer data, you may want to add a mandatory requirement for them to undergo a SOC 2 attestation. You can add other due diligence processes in your VMP, such as end-to-end encryption of shared sensitive data and annual compliance audits based on a vendor’s risk profile.

‍

Defining risk criteria also gives you a clear benchmark when selecting potential vendors. Your VMP should elaborate on evaluating various areas of vendor risks and vulnerabilities, such as:

‍

• Financial performance
• Operational continuity
• Cybersecurity
• Laws and regulations

‍

To ensure each vendor is evaluated thoroughly, you can standardize the due diligence process through automation software, as well as risk assessment questionnaires and templates.

‍

Step 4: Outline your contract formalization, onboarding, and offboarding processes

Your VMP should define vendor onboarding processes that ensure alignment with your risk appetite and business goals. Ideally, you’ll communicate your policy through contractual obligations—define tasks and responsibilities for your legal and compliance team to help you draft and review complete vendor agreements covering critical aspects of security and operational stability.

‍

Vendor offboarding is another vital process the policy should address. You’ll have to work with security and IT teams to outline detailed processes to reduce any residual risk terminated vendors expose you to, such as unauthorized data access, unreturned equipment, and intellectual property violations.

‍

Step 5: Pinpoint continuous monitoring practices

Your risk landscape and vendor network evolve constantly, so your VMP must define a system for monitoring both your vendors and the implementation of the policy. You can cover measures like periodic audits and performance mapping to ensure your vendors follow the policy. You can even include penalties such as termination or access removal for violating the policy.

‍

If you work with multiple vendors, it may be worth having a dedicated vendor manager for each. Your policy should explain what internal reports and paperwork the manager is expected to produce.

‍

Finally, you should also have an internal process to review and update your VMP at least annually.

‍

{{cta_testimonial5="/cta-modules"}} | Kapiche customer story

‍

Step 6: Define a risk management and incident response system

A key component of a VMP is establishing an effective VRM program that addresses potential vendor-related threats. To achieve this, your policy should include well-defined risk management procedures, such as:

‍

• Conducting internal risk assessments.
• Performing regular vendor reviews.
• Implementing vulnerability scanning.
• Carrying out routine cybersecurity checks.

‍

That said, despite having proactive risk management efforts, incidents are still possible. Therefore, it’s critical to include a detailed incident response plan in your VMP, outlining the following areas:

‍

• Procedures for identifying and reporting incidents.
• Steps for mitigating damage.
• Roles and responsibilities of internal teams during an incident.
• Communication protocols with affected vendors and stakeholders.

‍

Define your VMP and manage vendors confidently with Vanta

If you need a robust platform to support your vendor management policy creation and risk management efforts, Vanta has a solution—an end-to-end Vendor Risk Management (VRM) product. It comes with numerous features that make it easier to develop and enforce your VMP, such as:

‍

• Centralized vendor inventory with shadow IT to track unapproved SaaS vendors.
• Auto-scoring capabilities for vendor risk based on several risk categories.
• An intuitive and data-rich vendor dashboard.
• Predefined workflows to conduct security reviews.
• Vanta AI to fast-track security documentation review.

‍

These features can save your team countless hours they’d otherwise spend on manual vendor discovery, risk scoring, and other processes involved in VRM. With Vanta, you can also access several prebuilt resources, including VMP templates and checklists, to standardize your policies and documents.

‍

You can watch this webinar or schedule a custom Vanta demo for a hands-on overview of the VRM product.

‍

{{cta_simple5="/cta-modules"}} | Vendor Risk Management product page 

‍