How to Build a Comprehensive Inventory of Your Third-Party Vendors

On average, companies work with and have to manage around 180 third-party vendors, which presents significant challenges for risk management, compliance and procurement teams, and operational efficiency. Without a comprehensive vendor inventory, organisations expose themselves to unnecessary risks such as:

1. Data breaches from overlooked cyber security vulnerabilities in shadow IT systems
2. Compliance violations due to incomplete vendor vetting
3. Supply chain disruptions from unidentified single points of failure
4. Financial losses from duplicate services or missed contract renewals

These risks are unnecessary because they can be easily mitigated with proper vendor oversight. A comprehensive inventory provides the starting point and visibility needed to address these issues before they escalate into costly problems - which is exactly what we will discuss here. 

This article provides a clear, actionable roadmap for building and maintaining a comprehensive and effective third-party vendor inventory. 
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Current Reality: Fragmented Information

Vendor information scatters across different departments and systems for many organisations, especially smaller ones. 

This fragmentation leads to inefficiencies, increased risks, and missed opportunities. Here's how this information typically spreads out:

• Procurement: Maintains lists of approved vendors and purchasing records
• Compliance: Tracks vendors requiring specific regulatory oversight
• IT: Oversees vendors and service providers that require cyber security and third-party risk assessments
• Legal: Holds contract information for various partners and suppliers
• Finance: Records payments and financial relationships
• Individual Business Units: Keep their own lists of specialised suppliers

This fragmented approach causes four specific problems. 

First, it creates an incomplete risk picture by preventing a comprehensive view of vendor-related vulnerabilities. Second, it wastes time as teams repeatedly search for scattered information. Third, it allows critical suppliers to be overlooked, potentially disrupting crucial business operations. Finally, it results in inconsistent vendor management, with each department following its own, often conflicting, practices.

This is why knowing how to properly build a comprehensive inventory of third part vendors is crucial . 
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Why Maintaining a Centralised Register is Crucial

A comprehensive, centralised inventory of third-party vendors is vital for effective Third-Party Risk Management (TPRM). Without such a system in place, organisations face significant challenges:

1. Difficulty in risk assessment: Assessing aggregate risk across the organisation becomes arduous, leading to an incomplete risk picture due to missing vendor data.
2. Inefficient processes: Conducting assessments and managing relationships becomes time-consuming and ineffective, often resulting in duplicated efforts across departments.
3. Oversight gaps: There's a high potential for overlooking critical vendors, which can expose the organisation to unexpected risks.
4. Shadow IT proliferation: Without centralised oversight, unauthorised software or services can proliferate, posing significant security risks.

Implementing a centralised vendor register offers key benefits that address these issues:

1. Consistent risk management: With all vendor information in one place, you can apply uniform risk assessment criteria across the board, enabling a comprehensive risk management approach.
2. Efficient reporting and oversight: Generate thorough reports quickly, providing a clear view of your vendor landscape and facilitating more effective oversight.
3. Reduced duplication: Eliminate wasted resources on redundant tasks or information gathering, streamlining processes across departments.
4. Enhanced collaboration: Different teams can easily share and access vendor information, improving overall management and making collaboration much easier, especially for TPRM teams.
5. Informed decision-making: A complete picture of your vendor relationships enables more strategic choices about vendor engagement and risk mitigation.
6. Better incident response: With a full list of third-party vendors and partners in place, IT security teams have more direct access to information on the security controls and potential vulnerabilities of their partners to discern who and how they might come to be affected by an emerging threat.

By addressing these challenges and leveraging these benefits, a centralised vendor register becomes an indispensable tool for effective TPRM and overall organisational efficiency.
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How to Build a Comprehensive Inventory of Third Party Vendors

Step 1: Review Company Policies

Building a comprehensive inventory of third-party vendors begins with a thorough review of your company's existing policies. Examine who has the authority to engage new vendors, what approval processes exist for new tools or services, and what guidelines govern the use of free software. This initial step prevents shadow IT and sets the foundation for a robust vendor management system.

Step 2: Form a Cross-Functional Working Group

Next, form a cross-functional working group or oversight committee with representatives from procurement, IT, finance, legal, compliance, and key business units. This diverse team will share existing vendor information, identify gaps in current processes, and develop a plan for centralising vendor data. Their collective expertise ensures the solution works for all departments while meeting your Third-Party Risk Management (TPRM) needs.

Step 3: Choose the Right System(s)

With your team in place, focus on choosing the right system(s). Consider a dedicated TPRM platform as the basis, since access to vendors’ risk assessments provides critical information for all teams involved. Integrate other systems used by procurement, compliance, finance etc through APIs, or consider a custom solution. Prioritise ease of use, scalability, integration capabilities, and robust reporting features when making your selection.

Step 4: Gather and Consolidate Vendor Information

Once you've chosen your system, gather and consolidate vendor information. Create a standardised template for collecting data, including vendor details, services provided, contract terms, risk assessment details and scores, and compliance requirements. Use your working group to collect this information from all departments, validate its accuracy, and import it into your chosen system(s).

Step 5: Implement Ongoing Maintenance Processes

Implement ongoing maintenance processes to keep your inventory up-to-date. Establish regular update schedules, create standardised procedures for onboarding new vendors and offboarding inactive ones, and conduct periodic audits to ensure comprehensive accuracy.

Step 6: Train All Teams

Train all teams involved in keeping your centralised vendor management database up to date thoroughly on the process and their respective roles and what is required of them. Provide hands-on training sessions, create user guides and FAQs, and designate point persons for questions or issues. This ensures widespread adoption and effective use of the new inventory system.

Step 7: Conduct Regular Audits

Finally, conduct regular audits to maintain the accuracy and comprehensiveness of your inventory. Schedule quarterly or bi-annual reviews, cross-reference with financial records, check with department heads for any changes in vendor relationships, and update risk assessments and compliance information.
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Using a TPRM Vendor Management System

A dedicated TPRM (Third-Party Risk Management) vendor management system helps facilitate the centralisation of your vendor inventory. Here's why it deserves consideration:

1. Centralised Database: Keeps all vendor information in one easily accessible place.
2. Risk Assessment Tools: Many TPRM systems include features for evaluating and monitoring vendor risks.
3. Automated Workflows: Speed up processes like vendor onboarding, assessments, and contract renewals.
4. Compliance Management: Track regulatory requirements and ensure vendors meet necessary standards.
5. Reporting and Analytics: Generate insights about your vendor relationships and potential risk areas.
6. Integration Capabilities: Connect with other business systems for a more comprehensive view.
7. Scalability: Easily add new vendors or expand tracking as your business grows.

When choosing a TPRM system, look for:

• User-friendly interface
• Customizable risk assessment questionnaires
• Robust reporting features
• Strong security measures
• Good customer support and training resources

To make vendor management easier and more effective, choose a system that fits your organisation's size, complexity, and specific needs.
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Conclusion

Building a comprehensive inventory of third-party vendors is crucial in effective risk management and operational efficiency. By centralising your vendor information, you gain a clearer picture of your business relationships, potential risks, and opportunities for optimization.

Remember these key points:

1. Start by understanding your current vendor landscape
2. Involve all relevant departments in the process
3. Choose the right system for your needs
4. Consistently maintain and update your inventory
5. Regularly audit for completeness and accuracy

Yes, building this inventory requires effort, but the benefits far outweigh the initial investment. 

With a comprehensive view of your vendors, you'll make more informed decisions, mitigate risks, and build stronger, more beneficial business relationships.