The moment is right to consider what the vendor risk management trends are in 2023 and what they will hold for third-party vendor and supplier risk management as a turbulent and unpredictable 2022 come to a close, and preparations for that year are well underway.
We have put together a few vendor risk management trends predictions for what we believe will occur in the upcoming year using the knowledge we gained from the third-party breaches of 2022, ongoing supplier disruptions from Covid and the crisis in Ukraine, and new legislation adopted to regulate third-party interactions. To help you plan your 2023 TPRM strategy, use these.
Businesses will evaluate and keep an eye on their third-party suppliers and vendors in both IT and non-IT risk domains.
Numerous dangers, both logical and physical, have the potential to interrupt a third-party vendor or provider. Therefore, it would be prudent for businesses to broaden the scope of their evaluations in order to include more risk categories in their study.
Only 40% of businesses combine non-IT (such as physical), and IT (such as logical) risks when evaluating vendors and suppliers, according to an annual third-party risk management report. However, this number will increase in 2023 as more teams participate in third-party supplier and vendor risk management trends and as more disruptions caused by non-IT-related supplier failures occur.
After all, a third party’s risk extends beyond their (lack of) IT controls; teams must take into account if a supplier poses a reputational risk, whether they can make their payments on time, whether their corporate values are in line with theirs, and whether they are meeting expectations.
Because the needs of the procurement, IT security, and compliance teams differ when assessing potential or current third parties, providers must do a better job of centralizing diverse data sources to give these teams a coherent and comprehensive picture of a wide range of threats.
Top Vendor Risk Management Trends in 2023:
1. Vendor Breaches will Continue to Rise
According to Forrester, outside parties would be at fault for 60% of security problems in 2022. Gartner has also predicted that 60% of all enterprises will use TPRM assessments as a crucial consideration in everything from vendor contracts to partnership agreements. In addition, the number of supply chain attacks rose by 300% last year, and there is no sign that this vendor risk management trend will reverse in 2023 as the number of vendor breaches rises.
Not merely the number of attacks targeted at certain vendors has increased. Additionally, we have noticed a worrying rise in their complexity. As an illustration, Microsoft estimated last year that the SolarWinds attack was so sophisticated that it probably required over a thousand engineers to execute.
It was later discovered that the hackers most likely didn’t need to use such sophisticated strategies. The reality is, though, that assaults with this level of intricacy are more frequent than ever. In other words, SolarWinds was just the start.
There will be more large-scale vendor attacks and instances in which highly skilled threat actors target supply chains rather than actual companies. In the future, businesses will need to investigate all potential partners extensively. We shall witness the creation of an environment where cybersecurity becomes non-negotiable in all commercial deals as we see more and more instances in real life where breaches have an impact on values and business relationships. This is one of the major vendor risk management trends that you can expect in 2023!
2. Vendor Risk and Internal Risk will Become One
The bottom line is that vendor risk, and internal risk can no longer be handled as separate procedures. In 2019, it was already becoming difficult to distinguish between an organization’s internal ecosystem and its external ecology. They have completely disappeared since then.
Your internal systems, your vendors, and your supply chain are all functionally equivalent in today’s world. Therefore, the internal risk and compliance program you have in place needs to include vendor risk management trends as a key component. You should also strongly consider adopting a comprehensive strategy for managing third-party risk, integrating your TPRM tools with the platform you use to control internal risk.
You will have a far better understanding of where your company and its vendors stand at any one time if all risk data and threat information are kept in a singular location. In contrast to a third-party risk management questionnaire, it will, more importantly, give you more visibility according to the vendor risk management trends, albeit they will still be significant.
3. Assessing Vendors Against ESG will Become the Standard
2023: The year that corporate governance, social responsibility, and environmental assessments (ESG) become commonplace. As the importance of the subject of evaluating the suppliers, you engage with, and their compliance with ESG grows, so does the worldwide commitment to environmental and human rights. With the mainstreaming of compliance related to ESG, scrutiny will become essential.
4. Privacy Laws Will Take Center Stage
The unstable, dangerous environment that modern enterprises must contend with is something that governments and regulatory bodies are well aware of. But legislative progress usually proceeds slowly. In 2023, that will alter. The law will finally start to catch up with technology and vendor risk management trends this year.
A genuine tsunami of legislative and regulatory reforms is to be anticipated. Criminals are increasingly focusing on the nation’s infrastructure, and privacy and security are now hot political issues. As a result, many regions will likely go through a phase of overcorrection and overregulation.
In the end, Gartner predicts that by the next year, at least one set of privacy laws will apply to 75% of the world’s population. So you must immediately start establishing the foundation for adapting to that new environment, starting with a framework for vendor risk management trends.
5. The Rise of the Zero-Day
Zero-day assaults are predicted to rise sharply as criminals continue to develop new strategies. Shades of this were already evident in 2021 when supply chain attacks and zero-day vulnerabilities were the two most common ransomware attack vectors.
Businesses must reassess how they conduct business in order to respond to this vendor risk management trends, building security and resilience in every aspect of their operations. Most decision-makers seem to be aware of this, though. For example, 52% of companies intend to investigate or pilot zero trust technology in 2022.
Along with the introduction of zero trust, we anticipate a stronger emphasis on safe software development and lifecycle management. At the beginning of every new project, developers will naturally start to think about risk. In addition, as businesses look to curtail sprawl and lessen complexity throughout their ecosystem, this will also aid in the adoption of an API-first strategy with a security-by-design focus.
Some additional vendor risk management trends that will have a significant impact this year are as follows:
Threat Surfaces to Grow Exponentially Larger
The amount of Internet of Things (IoT) devices will keep increasing quickly; according to one prediction, there will be 125 billion linked devices worldwide by 2030. However, due to the reality that the majority of connected endpoints are essential “Swiss cheese” from a security perspective, businesses are now facing a greater threat scenario than ever before. Distributed work, where workers work from home on networks with plenty of insecure smart gadgets, may put even those firms at risk that don’t use IoT internally.
This pattern is by no means new. IoT has been expanding at a rapid rate for some time now. And as more companies and clients embrace the convenience that hyperconnectivity has to offer, it will continue to pick up speed.
The enhanced threat surface brought on by IoT is by no means the sole issue. Massive IoT botnets like Mirai, which can launch massive DDoS assaults and take down entire areas, have already been observed. Unfortunately, the issue will only get worse until the IoT sector has widely adopted standards in place, and this year we are sure to witness at least one botnet of almost unimaginable proportions.
Technology Ecosystems That Span the Supply Chain
Businesses will require an efficient way of managing ecosystem distribution, security, and risk as endpoints continue to increase, and supply chains continue to grow. Ecosystems with a high degree of integration will eventually emerge as a result. In the same way that internal risk management progressively evolved into a business-wide strategy last year, integrated risk management will do the same thing in 2023.
Financial Risks that are affecting Vendor Risk Management Trends
When one risk threatens the continued existence of any business that forms a link in a manufacturing supply chain, there is a financial risk to the entire chain. There are various types of financial risks, and the exposure to these risks must always be measured, assessed, and controlled.
Some of these risks that can affect vendor risk management trends include:
- Bad debts or failure by the customer, distributor, or dealer to pay fees
- The vendor either does not deliver the goods on time or provides inferior goods.
- The working capital cycle is impacted by delays in the availability of raw materials, components, and other products, which also raises the price of manufacturing and delivering the finished product.
- Volatility in commodity prices; if properly hedged, commodity prices can result in serious financial threats to businesses.
- Exposure to foreign exchange risk that has not been hedged.
- Labor shortages in the supply chain bring on costs and delays. For instance, the US’s present tight labor markets are raising wages and depleting the pool of available workers, which has an effect on the entire supply chain.
- Freight charges spiked during the COVID-19 pandemic due to shipping delays imposed by a shortage of suitable shipping containers or boats, which harmed many businesses’ revenue.
- Problems brought on by faulty legal contracts between buyers and sellers, particularly in international transactions; these transactions lead to delays in the clearance of goods from ports and very expensive demurrage costs.
- In response to geopolitical crises like war and conflict, which have long-term financial effects on supply networks, trade sanctions may be enacted.
Why Financial Risk Management in the Supply Chain is a must in 2023?
A new indicator called the Global Supply Chain Pressure Index was created by the Federal Reserve Bank of New York to evaluate the condition of the supply chain (GSCPI). Since its inception in 1997, this measurement has only shown extremely slight variations up until 2020. However, since the outbreak, as supply chain tensions have risen to previously unheard-of levels, the index has risen.
Unsurprisingly, the lessons learned from the epidemic have reinforced the need for better supply chain management. Due to supply-chain disruptions, businesses are considering developing alternative sources of supply that are closer to home, especially for crucial goods like silicon chips and medicines. Having said that, geographically diversified and complex supply networks will continue to exist for the bulk of products due to cost and productivity arbitrage among nations.
The Chief Financial Officers (CFOs), Chief Risk Officers (CROs), and Supply Chain Directors of businesses must collaborate to create a risk management plan that shields the company from the financial repercussions of the risks described earlier in this article. The following are a few objectives of supply chain risk management:
- Minimize the loss of time and money.
- The avoidance of supply-chain snags and delays.
- Having a persistent competitive advantage.
- Single points of failure should be avoided because the supply chain can only be as strong as its weakest link.
- Maintaining the reputation of the business.
- To improve working capital management across the whole supply chain and to make it simpler to forecast and budget your spending accurately.
- As part of supply chain risk management, supplier risk must be managed.
A supply chain cannot function without suppliers. Thus any problems they face or create may have an effect on the entire value chain. In addition, numerous internal and external factors (lack of financing, labor issues, domestic and international fraud, economic downturns, compliance issues, changes in management and ownership, etc.) can put suppliers in financial trouble and make it difficult for them to fulfill contracts.
As was previously said, the entire supply chain may suffer as a result of a single contract that is late or breached. Because of this, businesses need to assess the financial stability of their suppliers periodically.
Managing Supply Chain Risks: A Process
Developing a rigorous supply-chain risk management technique can be done in one of four ways:
- The development of a supply-chain risk management plan: This stage should be used to establish acceptable levels of supply-chain risk, after which a comprehensive mitigation plan should be developed for each risk that has been discovered.
- Data gathering: It is crucial for all supply chain participants to routinely gather the right kind of structured and unstructured data pertaining to various risk factors.
- Analyzing data to identify vendor risk management trends and using analytics-based risk assessment tools are two ways to analyze and manage risks. For example, suppliers provide a financial risk that may be monitored and evaluated.
- In order to ensure that the risk is successfully reduced to manageable levels, it is crucial to assess the effectiveness of the risk management plan routinely.
Utilizing Technology and Analytics for Supplier Risk Assessment
Platforms powered by data science and technology like SignalX.ai have yielded promising results in the management of supplier risk. Today, tools and platforms like SignalX collect data from internal and external sources, use scoring engines to generate automated risk scores, and monitor these risk ratings based on new data at each stage of the supplier risk-assessment lifecycle.
Supplier selection through an AI-based platform decreases the chance of prejudice and human error while also speeding up the risk management process. These risk management platforms’ algorithms are easily adjustable to satisfy the needs of diverse industries. The platforms may also provide the risk management team with the required frequency of updated risk ratings and intelligence. For example, suppose the platform detects elevated levels of risk at a supplier as a result of any unfavorable information. In that case, the risk management and supply chain teams can instantly deploy risk mitigation steps based on reports.
Some of the vendor risk management trends in 2023 are concerning. Most, on the other hand, believe that we are inevitably going toward stronger, more robust vendor risk management trends, as well as more automation, integration, and cutting-edge tools and platforms to help us get there.
We will see better legislation, enhanced development methods, and business leadership approaching vendor risk management trends with the care and respect it deserves before the end of the year.
Frequently Asked Questions
Ques: What is the main goal of risk management?
Ans: The process of identifying, evaluating, and managing exposures to a loss for assets, liabilities, income, and personnel is known as risk management. The protection of the organization’s material and human resources is the ultimate goal of risk management in order to ensure the effective continuation of its business activities.
Ques: Who is responsible for risk management?
Ans: The President (Chair) and those in charge of the various business areas make up the Management Group, which is in charge of implementing risk management, monitoring operational hazards, and taking risk-related action.
Ques: Who is the owner of a risk?
Ans: The person who is ultimately responsible for making sure the risk is managed properly is called the risk owner. There may be several employees who work together with the accountable risk owner to manage risks and who have direct responsibility for or oversight of activities to manage each identified risk.
Ques: What is the risk threshold?
Ans: To put it simply, a person’s risk threshold is the amount of risk they are willing to take. In other terms, it refers to a person’s capacity for taking risks or risk appetite.
Ques: When should a risk be avoided?
Ans: When an organization refuses to accept risk, it is avoided. It is not permitted for the exposure to existing. Simply refraining from the action that introduces danger does this. Choose a venture with less risk if you don’t want to run the chance of losing your savings.
Ques: What is the risk index?
Ans: The overall outcome of a risk assessment is the risk index. It is possible to calculate the risk index using any indicators or indices. It is the result of combining the likelihood and impact indices. The probability of a risk event occurring is indicated by the likelihood index. In percentages, this is expressed.