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Your vendors can be your strongest asset or your greatest liability. 

From financial instability to reputational scandals, third-party risks often strike with little warning.

However, the key isn’t eliminating risk: it’s managing it. 

This article explores key types of vendor risks, along with ways to anticipate, monitor, and contain them before they undermine your resilience.

Operational Risk 

Operational risk arises when a vendor’s internal processes, staffing, or infrastructure fall short of what’s needed to meet obligations. 

Failures in systems, poor quality control, or the absence of contingency planning can quickly derail business continuity. 

And the impact is costly. 

Research shows that supply chain disruptions can eat up 6% to 10% of annual revenue, with risks increasing if vendors deliver core products or services.

What’s worrying is that, according to BCI, one-third of all disruptions originate from immediate suppliers, the very partners organizations rely on the most.

Illustration: Veridion / Data: BCI

If you’re wondering what the fallout in these cases is, look no further than craft retailer Joann, which filed for bankruptcy for the second time in a year.

Source: Reuters

While it’s hardly the only reason behind this outcome, court documents revealed that unpredictable deliveries of key products like yarn, combined with the discontinuation of others, contributed to its loss of appeal among customers.

So, how do you prevent being blindsided? 

The first step is rigorous onboarding. 

Beyond checking certifications, assess whether suppliers have the production capacity, facilities, and workforce to ensure ongoing reliability.

Equally important is probing into their strategies of maintaining deliveries even in unfavorable conditions.

In the aforementioned BCI survey, 73.2% of organizations reported having continuity arrangements in place, with a strong preference for comprehensive BCP programs.

Illustration: Veridion / Data: BCI

This way, not only are you spotting red flags before they escalate, but also choosing vendors that offer an additional layer of protection even in the face of adversity.

Managing operational risks combines thorough onboarding with continuous monitoring, ultimately creating a supply base that can withstand any disruptions.

Strategic Risk

Strategic risk arises when a vendor’s business model, goals, or priorities don’t align with your long-term plans.

Deeper incompatibilities will quickly impact key initiatives. After all, if a vendor isn’t moving in the same direction as your organization, friction is inevitable. 

One of the areas where this can become especially troublesome is ESG.

KPMG’s 2024 report found that two-thirds of senior procurement professionals believe regulatory and ESG demands would heavily influence sourcing decisions in the years ahead.

Illustration: Veridion / Data: KPMG

And global leaders are already moving in this direction. 

IKEA, for instance, launched its renewable energy program in 2021 and has continued to extend it since. 

As Sriram Rajagopal, Head of Climate and Air Quality at Inter IKEA Group, explains, the company’s strategic objective of using only renewable energy is directly tied to supplier collaboration.

Illustration: Veridion / Quote: ESG Today

It goes without saying that the initial choice of the supplier sets the stage for effective collaboration and, ultimately, the success or failure of such strategic initiatives.

Imagine onboarding a critical supplier unwilling to adapt to your ESG goals. 

While the immediate impact is minimal, you’re looking at costly pivots and unplanned replacements further down the line.

Of course, another way suppliers can become strategic risks is if they undergo major organizational changes, such as mergers or acquisitions, which often lead to the following issues:

Price increases	Budget strain and ripple effect on supply, triggering other risks
Discontinued product or service	Critical gaps in your business operations
Reduced staff	Lower service levels or exposed security gaps
Decline in quality	Eroded trust and performance

The key is to evaluate alignment early and keep monitoring. 

And don’t just rely on KPIs, but take the time to assess your cultural fit. 

As noted by KPI Depot, an 80% alignment score is a good benchmark, while lower scores increase the risk of future misalignments.

Source: KPI Depot

By prioritizing strategic alignment during onboarding and testing it throughout, you’re building partnerships that evolve with your organization’s priorities, instead of holding them back.

Financial Risk

Financial risk arises when a vendor lacks the financial stability to deliver consistently. 

Bankruptcy, cash flow struggles, unsustainable debt: all these scenarios create serious disruption.

According to Sphera’s 2024 Supply Chain Risk Report, insolvencies and financial distress among vendors are on the rise, significantly heightening risk exposure across industries.

Illustration: Veridion / Data: Sphera

While their data covered the 2022-2023 period, the destabilizing factors are only increasing, and the consequences are evident in the case of Marelli.

One of the key suppliers to automakers like Nissan and Stellantis, Marelli filed for Chapter 11 bankruptcy after tariffs, debt pressure, and supply chain shocks drained its liquidity.

Source: Automotive Logistics

While the company pledged “no disruption,” creditor approval now determines payments to its own suppliers and staff, and any potential delays are sure to impact Nissan’s assembly lines.

So, how do you protect your organization from scenarios like this?

The first step is conducting a systematic financial due diligence: review balance sheets, liquidity ratios, and credit ratings, rather than relying solely on established KPIs.

Assessing a vendor’s industry reputation, from client base to market longevity, also reveals stability signals, as pointed out by Abbas Khan, Supply Chain Manager at Poly Pack Ltd.

Illustration: Veridion / Quote: LinkedIn

For ongoing monitoring, keep an eye out for early warning signs such as:

• Late deliveries linked to cash flow issues
• Frequent renegotiation of terms
• Shrinking product ranges
• Delayed payments to subcontractors
• Sudden management turnover

Keep in mind that many organizations also leverage supplier management platforms, which are equipped with financial analysis tools that enable you to capture and monitor these issues in real time.

How you’ll design the process is ultimately up to you, but remember that ongoing financial monitoring is the only way to shield your organization from vendor-related financial risk.

Information Security Risk

Information security risk arises when a vendor fails to adequately safeguard sensitive data.

This opens the door to breaches, ransomware, or unauthorized access that can harm both sides of the relationship. 

And with headlines regularly spotlighting new cyber incidents, the threat is far from theoretical. 

Workday’s recent breach is only the latest example of a vendor vulnerability impacting clients.

Source: Security Week

Why do such risks often slip through unnoticed? 

One culprit is data silos, which create blind spots, duplication, and delays in decision-making.

In cybersecurity, blind spots mean exposure, so it’s no surprise that AuditBoard’s Connected Risk Report found that 86% of professionals believe silos negatively impact risk management.

Illustration: Veridion / Data: AuditBoard

The push to adopt new tools adds another layer. 

While many organizations are turning to AI for smarter risk detection, hasty implementation can easily deepen vulnerabilities.

And data confirms it, with the aforementioned report citing data privacy and security as top concerns tied to AI adoption.

Illustration: Veridion / Data: AuditBoard

That’s why foundational safeguards remain non-negotiable. 

One of the key cybersecurity requirements for vendors is to enforce multi-factor authentication, as well as have clearly outlined exit strategies to mitigate ICT risks. 

However, many organizations still struggle to cover the basics, and here’s one reason why:

Navex’s 2023 benchmark report showed that over a quarter don’t adjust risk management practices based on vendor criticality, thereby dispersing their efforts.

As Christopher Donaldson, PwC’s former Senior Manager of Cybersecurity, Privacy and Forensics, stresses, focus should be on who has access to sensitive data, critical infrastructure, or core operations.

Illustration: Veridion / Quote: LinkedIn

The bottom line is this: prioritizing vendors based on their criticality and holding them to strong, practical security standards will turn cybersecurity from a weak link into a key advantage.

Compliance Risk

Compliance risk arises when vendors fail to meet industry standards, certifications, or regulatory requirements, which exposes your organization to penalties, reputational harm, or lawsuits. 

As such, it’s no surprise that 9 in 10 organizations claim to regularly conduct assessments of their third-party vendors.

Illustration: Veridion / Data: Cyber GRX

Larger enterprises set the tone with rigorous, ongoing programs. 

When geopolitical pressures grew around Taiwan-based chipmaker MediaTek, CEO Rick Tsai emphasized that the company would strictly adhere to evolving rules and regulations.

Illustration: Veridion / Quote: Reuters

While Tsai framed compliance as central to protecting both shareholders and operations, the main ingredients toward success can be difficult to capture and replicate.

One common thread is the organization’s ability to anticipate vendor risks and adapt. 

According to Thomson Reuters, 91% of businesses now rely on third-party solutions or managed services to handle ESG-related compliance activities.

One such platform is our own solution, Veridion. 

With a weekly updated database of 134 million suppliers worldwide, Veridion delivers AI-powered company profiles enriched with industry codes, geographic footprint, and operational details. 

Instead of relying solely on self-assessments, procurement teams can access fresh TPRM data, filtering vendors by region, sector, or certification status through an easy-to-use interface.

Source: Veridion

The benefits are manifold, but for compliance specifically, Veridion’s depth of TPRM data points supports faster, more accurate due diligence. 

Think of it this way: 

Your team can scan for sustainability commitments, map regulatory obligations across global operations, or trace corporate family linkages to uncover hidden risks in mere minutes.

Source: Veridion

Blending structured assessments with dynamic data from platforms like Veridion enables you to go beyond surface-level checks. 

In this way, compliance risk is not just monitored but actively managed.

Reputational Risk

Reputational risk emerges when a vendor’s unethical practices, controversies, or business misconduct tarnish not only their own image but also that of their partners.

The fallout can spread quickly and erode both customer trust and brand value, as evidenced by numerous cases that made headlines.

One such case involves Loro Piana, an Italian ultra-luxury brand owned by LVMH, which was placed under judicial administration due to evidence of worker exploitation in its supply chain.

Source: Glossy

The brand’s supplier had secretly subcontracted production to companies with no real manufacturing capacity and questionable ethical practices. 

In a statement to The Guardian, Loro Piana said the supplier had not informed the company of the existence of subcontractors, cutting all ties in less than 24 hours.

But the damage was already done.

And while labor exploitation makes headlines, material sourcing issues are often harder to trace, creating reputational risks that are slower to surface but just as destructive.

As LeAnn Timble, AON’s Director of Emerging Property Risk Control, explains, when companies lack visibility beyond their direct suppliers, any sourcing decision can end up hurting the company’s brand.

Illustration: Veridion / Quote: AON

So, how do you ensure sufficient visibility?

In response to this scrutiny, fashion players are turning to traceability tools like TextileGenesis.

As shown below, this blockchain-powered SaaS platform digitally maps materials from fiber to consumer, ensuring secure and verifiable tracking of sustainable raw inputs.

Source: Lectra

Whether in fashion, manufacturing, or technology, the principle is the same: even the smallest vendor can endanger a billion-dollar business. 

With tools that enable you to zoom in on and flag risks across all supplier tiers, you can be sure you’re keeping your reputation spotless.

Geopolitical Risk

Geopolitical risk arises from a vendor’s location and exposure to political instability, sanctions, or shifting trade policies. 

These external forces can disrupt operations and contracts with little warning, which is why mapping supplier locations and considering regional stability should be a baseline in risk assessments.

Sphera’s Supply Chain Risk Report shows just how pervasive these shocks have become, highlighting how warnings of geopolitical risk surged by 87% in 2022.

Illustration: Veridion / Data: Sphera

Much of this volatility can be attributed to the war in Ukraine, which forced companies to adapt supply networks overnight.

What’s worse, these ripple effects extend well beyond one region. 

Following Israel’s first strike on Iran on June 13, the Geopolitical Risk Index, which draws on media analysis, jumped to its highest daily level since February 2022.

Source: Matteo Iacoviello

For suppliers, such spikes translate to disrupted logistics routes, limited access to raw materials, and exposure to non-compliance due to shifting sanctions.

In such cases, having a cluster of suppliers in an affected region and no back-up options spells trouble, as noted by Tim Lawrence, Director of the Digital Supply Chain Innovation Hub at Digital Catapult.

Illustration: Veridion / Quote: Management Today

Lawrence further adds that alternative suppliers may themselves be reliant on tier three or tier four suppliers in the same region.

That’s why the only safeguard is continuous monitoring, starting with supplier location intelligence, followed by geographical diversification and detailed supply chain mapping.

Preparedness also depends on agility. 

As one unnamed Head of Business Resilience, Lead Logistics in the Netherlands, recalls, their company started preparing before the conflict in Ukraine erupted:

“We were able to respond fast because we had mobilised the crisis management team (CMT) a month before the conflict started, closely monitoring the situation and (…) focusing on contingency planning. So, when the situations happen for real, we can quickly switch on the contingency solutions, continuing the services.”

In short, geopolitical resilience requires foresight.

Knowing where your suppliers are and anticipating how regional shocks might spread through tiers helps you activate contingency frameworks and minimize their impact on you.

Market Risk

Market risk reflects how economic shifts, industry volatility, or demand fluctuations affect a vendor’s ability to perform. 

A downturn in their sector, unpredictable shifts in customer behavior, or aggressive new competitors can all weaken a supplier’s financial standing, and thereby your own operational stability. 

That’s why monitoring vendor industries is as important as assessing the vendors themselves.

Effective monitoring starts with understanding overall market dynamics, such as size, growth rate, and pricing fluctuations. 

However, it also benefits from targeted intelligence streams, such as:

• Supplier intelligence, giving insights into vendor performance and positioning
• Competitive intelligence, tracking rivals’ market moves
• Price intelligence, monitoring input costs, and market pricing trends
• Product intelligence, assessing innovations and customer adoption patterns

The challenge is that data isn’t always consistent. 

According to research by Amplyfi, 73% of knowledge workers report that different channels often provide contradictory information.

Illustration: Veridion / Data: Amplyfi

This can cloud judgment when assessing whether a supplier is exposed to market turbulence.

The solution?

Adopting tools that can consolidate all inputs into a single, reliable view of both suppliers and their industries. 

Market intelligence platforms and AI-driven analytics are increasingly filling this gap, helping different business functions cut through the noise and capture relevant risk signals.

Although many businesses are hesitant to change how they analyze data and make decisions, Amplyfi’s Vice President of Advanced Solutions, Lee Eccleshare, makes a compelling point:

Illustration: Veridion / Quote: Amplyfi

In short, proactive adoption of advanced intelligence tools can be risky, but it helps you avoid market-driven supplier disruptions while giving your company a competitive edge in the long run.

Conclusion

Vendor risks come in many forms, from financial and operational to compliance-related and beyond.

However, they all share one trait: they can be hard to detect until it’s too late. 

Companies with strong governance and continuous monitoring practices have a different experience, but they, too, can no longer rely on outdated or manual approaches. 

Embracing technology that consolidates data, maps supply chains, and tracks shifting conditions enables companies to stay agile. 

Remember: the goal isn’t to eliminate vendor risk but to learn to manage it. 

Once you do, you’ll be making strategic decisions and creating more value than ever before.