5 Key Considerations When Evaluating Vendors and Third-Party Providers

The scalability of vendors is critical for business continuity. You could lose customers if a vendor didn’t scale with your company.

Your brand’s values must match those of the vendors you select. Look for vendors who share your commitment to sustainability and gender equity as an example. This will build trust with your audience.


Whether your company is looking for a new janitorial service or a third party to design a shipping package, experience matters, you can learn a lot about how a vendor does business by asking for references and examining their past projects. For example, it’s essential to understand how reliable a third party is regarding delivery times and the ability to handle unplanned events.

It’s also essential to evaluate how well a vendor is equipped to handle events such as a pandemic or natural disaster. For example, a vendor may not have backup servers or other systems in place to continue operating in the event of an emergency.

To avoid these types of issues, companies should include a risk assessment during the vetting process and conduct periodic evaluations of current vendors. This includes reviewing their information/cybersecurity safeguards, SOC reports, and evidence of compliance with information security, ethical frameworks, and disaster recovery plans. It’s also critical to assess a vendor’s financial standing, as a decline in financial health could signal higher levels of risk.


The ability of vendors and other third parties to furnish services or products as promised is critical to the success of an enterprise. For example, a payment processor that stops functioning can shut down entire operations, and problems with cloud applications can disrupt a business for hours or even days.

A robust vendor evaluation process must determine the level of risk associated with each prospective supplier. The process must include an assessment questionnaire asking each supplier about their policies and procedures, including quality standards, environmental, social, and governance (ESG) protocols, financial stability, etc.

The result of a vendor assessment helps inform contract term negotiation strategies and can help guide ongoing monitoring and audits as part of your GRC program. It can also help determine the required due diligence for high-risk or critical vendors. For instance, there is little point in subjecting the company that fills your soda machines to a penetration test. Still, you might have to conduct more frequent and in-depth reviews for a critical software developer or data center hosting service.


Vendors and third-party providers include a variety of entities outside of your own business. They can be cloud hosting providers, IT solution companies, marketing agencies, or even raw material suppliers. These companies provide goods and services for your company and often have access to sensitive information. To keep your company safe, it’s essential to have a formal vendor management process that includes ongoing risk assessments and a means to verify information.

One key consideration when evaluating vendors is their flexibility in their approach and operations. Vendors that can adapt to unforeseen circumstances can help you manage risk and maintain business continuity. For example, a pandemic or natural disaster can quickly turn an entire region off the internet or cause significant interruptions in your operations. If your vendors are not flexible, you could be saddled with higher-than-expected costs to cover unexpected events.


Reputation is a phenomenon that affects people, organizations, products, and even governments. It is widely studied in social, management, and scientific fields because of its impact on behaviors. For instance, consumers who believe a company has a bad reputation won’t purchase its products. People who believe that politicians are corrupt will not vote for them. Companies with a strong reputation will increase sales and customer loyalty.

When evaluating vendors, look beyond the proposals to evaluate their financial standing, information/cybersecurity safeguards, SOC reports, evidence of compliance with privacy and ethical frameworks, and disaster recovery plans. Also, review past clients to ensure projects are completed on time and within budget.

Vendors introduce risks to an organization, resulting in lawsuits from regulators and consumers, costly fines from auditors, tarnished corporate reputation, and a loss of business opportunities. Developing a good vendor evaluation program helps mitigate these risks and improves relationships and service delivery. In addition, it enables organizations to defend against liability for data breaches caused by a third-party breach when they can demonstrate that they did their due diligence.


A company must consider the cost of working with a vendor or third-party provider. A company will want to hire a supplier that can work within the company’s budget and provide a high-quality product or service. A company must also consider if it can trust a vendor or third-party provider to do an excellent job while keeping prices low.

A risk assessment can help a business determine the overall level of risk that a vendor poses to their organization. For example, a potential new supplier might be evaluated for operational risk (disruptions or security breaches), credit risk, reputational risk, and strategic risk.

A vendor risk assessment should include a questionnaire, financial statement reviews, SOC reports, information/cybersecurity compliance, and disaster recovery plans. Performing these assessments regularly can help prevent data breaches, costly disruptions, and legal exposure. In addition, it will ensure that the vendor has a solid financial position, which can protect against a loss in business with customers or partners. As a result, a company must perform thorough due diligence on all vendors, whether large or small.