Who is a Critical Vendor?

As part of your vendor risk management activities, it’s important to assess and mitigate any risks vendors pose to your organization. This is especially true when it comes to your critical third parties.

Critical vendors are essential to your organization’s operations. Identifying which vendors are critical protects your organization from heightened risks like operational disruptions and regulatory scrutiny.

Every organization has a different list of critical vendors – what's critical to your organization may not be critical to another organization. So, how do you know if a vendor is critical? 

How Do I Know if a Vendor is Critical? 

Identifying critical vendors is not only a best practice, but also a regulatory requirement for many industries. Despite slight differences in definitions across regulatory bodies, critical vendors do share certain characteristics that are universally applicable: 

• Would cause an organization to face significant risk if the vendor failed to meet expectations  
• Would have a significant impact on customers  
• Would have a significant impact on an organization’s financial condition or operations 
  
  Related: How to Read a Vendor Financial Statement 

Questions to Determine if a Vendor is Critical 

Consider some of these questions to determine a critical vendor: 

• Does the vendor perform critical functions for our organization? 
• Does the vendor create high business continuity and resiliency risk if it fails to perform? 
• Would there be a significant disruption to our organization if we abruptly lost this vendor? 
• Would there be a significant disruption to our organization if we had to find an alternate vendor or bring the outsourced activity in-house? 
• Is this the only vendor available on the market that can provide this service? 
• Does the vendor have access to our sensitive organizational or customer information? 
• Would our organization be subject to regulatory scrutiny, enforcement action, or fines if this vendor didn’t perform? 
• Does the vendor have a material impact on our organization’s revenue or expenses? 
  
  Related: What Vendor Documents Are Needed to Assess Cybersecurity

These questions are a helpful start to identifying who is a critical vendor. Your organization may have other identifying questions, depending on your risk appetite. 

How to Handle Critical Vendors 

Be diligent when managing critical vendors. Avoid cutting corners, as you may leave hidden or unmitigated risks that compromise your organization's security. 

Here are a few best practices to keep in mind to manage critical vendors: 

• Critical vendors require the highest level of due diligence. Critical vendors pose the biggest threat to your organization, so your due diligence must be comprehensive. Review the critical vendor’s controls and documented evidence for all identified risks. Professional risk experts with the proper qualifications should assess the vendor’s controls. They should then provide a qualified opinion on the controls’ sufficiency and effectiveness.  
• Review of critical vendors’ business continuity and disaster recovery plans. Business continuity planning ensures that significant operations, products, and services continue to be delivered in full or at a predetermined and accepted level of availability. 
• Rely on your most experienced vendor managers. Managing critical vendors can be an exhaustive and overwhelming process, especially for those without the right level of experience. Ensure someone is in charge with the knowledge and skillset to effectively manage your critical vendors. 
• Identify your exit strategy and document an exit plan. Formally outline what your organization will do if the critical vendor fails to meet certain criteria and termination. Will you switch to another vendor or bring the activity in-house? Include a detailed inventory of roles and responsibilities for your organization and the vendor. Consider the return of assets, destruction of data, and deprovisioning of vendor access to your data, networks, and facilities. Don't forget to identify contingency plans in case the critical vendor is unwilling or unable to fulfill responsibilities during the exit. 
• Report any critical vendor issues to senior management. Senior management and the board should be aware of and ready to act on any issues that could impact your organization. 

To protect your organization from serious threats, understand who your critical vendors are, their role in your organization's operations, and the risks they pose. Critical vendors are integral to your organization's daily operations. By taking precautions and following best practices in vendor risk management, you'll establish a strong and healthy relationship. 

The vendor contract is an important place to protect against critical vendor risks. Learn key provisions to include.

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