Retailers rely on third-party vendors and suppliers for critical services, such as payment processing, product manufacturing, inventory and logistics management, and IT support. Leveraging third parties has several benefits, such as cost savings, faster time to market, scalability, flexibility, customer support, and access to expertise. Nevertheless, working with third parties brings significant potential risks.
These vendors and suppliers create security risks through their access to sensitive data, systems, and networks in addition to reputational risks. As there is an increasing focus on environmental, social, and governance (ESG) practices, retailers must have strong visibility into their supply chain to address the many risks posed by third parties and suppliers.
It’s time for retailers to adopt comprehensive third-party risk management programs.
The Evolution of Supply Chains Complexities for Retailers
Supply chains have become increasingly complex due to several drivers, including globalization, COVID-19 disruption, just-in-time inventory, technological advancements, labor market challenges, and evolving regulatory compliance requirements.
The confluence of these factors is leading to significant challenges in terms of retailers being able to effectively manage their supply chain and is putting pressure on retail organizations to adopt new technologies and develop new processes to help manage this complexity.
Vendor risk management programs are becoming a critical tool to help retailers manage this complexity and get visibility into their supply chain. Failure to protect against supply chain-related risk can have significant consequences.
Risks Posed by Third-Party Vendors in the Retail Industry
The risks posed by third-party vendors should be a significant concern for retailers. Industry experts estimate that about 60% of all data breaches happen via third-party vendors.
The Target data breach of 2013 is a well-known example of a breach originating from a vendor and demonstrates the potential consequences of failing to properly vet vendors and suppliers. Cyber criminals broke into Target’s network using stolen credentials from Fazio Mechanical Services, an HVAC and refrigeration service provider. The attackers stole 40 million customer credit card numbers and exposed information on 70 million customers, costing the retailer a staggering $202 million.
In addition to data breaches, there are significant reputational risks if suppliers are engaged in unethical or illegal practices.
In 2020, fast fashion retailer Boohoo came under fire after an investigation by The Sunday Times found evidence of workers being paid less than the minimum wage and working in unsafe conditions in supplier factories. The market value of Boohoo plunged and several retailers stopped selling Boohoo products.
To protect against these significant risks, you should take the below steps to build out a strong vendor risk management program:
- Conduct due diligence during the vendor vetting process to evaluate the vendors’ qualifications, security and data privacy practices, financial stability, reputation, and past performance.
- Develop a comprehensive inventory of vendors and supplies and bucket them based on their criticality and potential risk to the business.
- Conduct regular risk assessments to identify potential risks and vulnerabilities associated with the vendors’ products or services.
- Continuously monitor the attack surfaces of vendors.
- Develop contractual agreements defining the roles and responsibilities of both parties, including the vendor’s security obligations and performance expectations.
- Develop an incident response plan outlining the steps to be taken in case of a security breach or other incident involving the vendor.
- Develop escalation and remediation procedures for addressing security incidents or other issues involving the vendor.
The Importance of Regular Assessments and Audits
If your retail business heavily relies on third-party vendors and suppliers, regular assessments and audits are non-negotiable. Potential vulnerabilities lurk in a dark corner somewhere and it is critical to have strong visibility into the practices of your vendors.
Failure to understand the potential risks of vendors might result in significant or irreparable damage to your business operations.
Regular assessments and audits are critical for several reasons:
- Identify and Reduce Risks
Assessments and audits can help identify potential risks and vulnerabilities of your vendors and suppliers to help facilitate the remediation process to reduce the risk posed by these parties.
- Ensure Compliance
To be compliant with various regulatory frameworks such as GDPR, NIST HIPAA, and PCI DSS, organizations need to have vendor risk management programs in place and assessments are a core part of vendor risk management programs.
- Protect Sensitive Data
Regularly assessing your vendors can help to ensure that any sensitive data your business handles is secure.
- Manage Reputational Risk
Regularly assessing your suppliers helps to ensure that you have strong visibility into the ESG practices of your vendors, ensuring that suppliers do use unethical practices that could hurt your reputation
- Maintain Customer Trust
Your customers expect you to protect their data and are increasingly focused on your ESG practices. Conducting regular assessments demonstrates your commitment to protecting customer data, complying with ESG practices, and maintaining customer trust.
The Role of Continuous Monitoring
Mitigating third-party risk is not a one-time affair. You must track the security posture of your vendors in real-time to augment the assessment process.
Through continuous monitoring, you can track the security posture of your vendors in real-time by analyzing all of their internet-facing attack surfaces and vulnerabilities. Our continuous monitoring software enables you to detect adverse changes to a vendor’s security posture in real-time and provides you with the insights required to ensure timely remediation of these issues. Additionally, our continuous monitoring findings are correlated to assessment responses, helping to verify the accuracy of the assessment results.
How ProcessBolt Can Help Retailers
ProcessBolt is a leading provider of third-party risk management software that can help retailers build robust and effective third-party risk management programs. ProcessBolt’s next-generation assessment platform, ProcessBolt AI, automates the vendor risks assessment process by extracting intelligence directly from policy documents. The platform greatly accelerates the assessment process and certifies and correlates the results without the need to rely on attestations. Our innovative solution continuously monitors all internet attack surfaces in true real-time, alerting your organization of any threatening changes in security posture.
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