The Vendor Onboarding Process: Keys to Success

[author: Sarah Hemmersbach]

Onboarding is an essential, early step in the vendor risk management lifecycle. In this post, we review several best practices for building a risk-aware vendor onboarding process.

What Is Vendor Onboarding?

Vendor onboarding is the process of establishing a company as an approved provider of technology, goods, or services to your organization. It’s also an essential early step in the vendor risk management lifecycle.

Addressing vendor risk during onboarding helps you proactively prevent business disruptions instead of constantly reacting to supply chain issues, data breaches, and other incidents.

This post explores best practices for building a risk-aware vendor onboarding process. While we use the term “vendor,” these practices apply equally to technology providers and suppliers of non-IT goods and services.

Why Is a Structured Vendor Onboarding Process Important?

A structured vendor onboarding process helps you track and manage your third-party ecosystem consistently and repeatably. It enables the enforcement of standard contract provisions and supports due diligence to identify vendors that pose cyber risks, compliance challenges, ESG-related concerns, or other business threats.

You should conduct due diligence before granting vendors access to sensitive data, IT systems, or facilities. This process may include:

• Evaluating vendor security controls against frameworks like NIST or ISO
• Monitoring for cyber exposures, breaches, financial red flags, legal issues, and negative media
• Identifying potential fourth- or Nth-party risks missed during sourcing
• Detecting ESG-related reputational and compliance risks
• Certifying vendors meet “flow-down” requirements from regulations such as GDPR, CMMC, or HIPAA

Many organizations streamline these tasks using vendor risk management software to automate due diligence and onboarding workflows early in the risk lifecycle.

Start with Strong Sourcing and Selection Processes

The third-party risk lifecycle begins with vendor sourcing and selection, including RFPs, RFIs, and other RFx tools used to evaluate partners. Finalists then move into contracting. Both RFx management and contract lifecycle management offer opportunities to identify and reduce risk before onboarding.

RFx Management

Apply risk-aware RFx management practices to enhance onboarding effectiveness. Use RFPs and RFIs to evaluate whether vendor candidates meet your baseline security requirements and regulatory standards. At this stage, it is helpful to perform an initial risk profile and identify any known data breaches, lawsuits, ESG concerns, or financial red flags.

With a preliminary risk snapshot in hand, assign a risk score to each prospective vendor based on your business priorities. If you select a vendor, carry this risk profile into their centralized record during contracting.

Contract Lifecycle Management

After selecting a vendor, initiate the contract lifecycle management process. A structured, automated contract process accelerates onboarding and reduces third-party risk by:

• Reconciling stakeholder and vendor edits
• Managing version control
• Coordinating procurement, legal, and finance reviews
• Standardizing terms and SLAs across similar vendors

Post-onboarding contract management tools can support SLA reviews and monitor terms for renewal or termination.

Build a Central Vendor Database for Stakeholder Collaboration

A key goal of onboarding solutions is to centralize vendor data for relevant stakeholders to access. Begin by uploading vendor data manually or in bulk into your risk management solution. Import data from existing systems via spreadsheets, APIs, or integrations.

Involve stakeholders from procurement, accounts payable, finance, supplier management, and other teams. Ensure your solution offers role-based access so each team can update relevant vendor profiles.

Conduct Onboarding Due Diligence to Measure Inherent Risk

After signing a contract with a selected vendor, you should already have an initial risk profile based on data gathered during the RFx and contract lifecycle management phases. Conduct thorough due diligence to determine their inherent risk before granting the vendor access to your systems, physical locations, or data.

Inherent risk refers to the level of risk present before applying any controls. It can be assessed using a combination of publicly available risk intelligence and internally completed risk assessment questionnaires.

Check Public-Facing Risk Data

Conduct a quick health check during vendor onboarding to flag any externally observable risks that may have been missed during the sourcing and selection process. At this stage, it’s important to consider several risk vectors, including cyber, business, financial and reputational risk. For instance:

• Does the vendor have a history of data breaches or compliance violations? If so, has the vendor disclosed remediation steps they have taken to prevent future problems?

• What is the vendor’s reputation in their market? Do they pose a reputational risk to your organization due to poor environmental practices, and other ESG supply chain risks such as modern slavery and bribery?

• What is the vendor’s financial posture? Do they have unacceptable levels of debt or cash flow problems that could result in a sudden inability to deliver against contract terms?

• Who are the key executives? Is there a great deal of turnover in business leadership or other reasons to be concerned about internal business operations?

For a fast and simple health check, consider subscribing to a vendor risk intelligence network, which provides access to an on-demand library of thousands of vendor risk reports that are updated and backed by supporting evidence. Or, for an even deeper, more customizable look at a vendor’s public risk profile, consider using a continuous vendor risk monitoring solution as part of your broader third-party risk management program.

Tier and Categorize Vendors with an Inherent Risk Assessment

Tiering and categorizing vendors helps you define how often and how thoroughly to assess and monitor each third party throughout the business relationship. You should monitor high-risk vendors more closely and assess them more frequently than those in lower tiers.

Questionnaire-based inherent risk assessments play a key role in this process. These assessments allow you to collect detailed information from vendors about their IT security controls, incident response procedures, business continuity plans, and other safeguards that protect your organization’s data and supply chain.

You can classify vendors based on several factors, including:

• Their importance to your business (e.g., annual spend)
• Their risk profile (e.g., access to sensitive data, concentration risk)
• Their inherent risk (the level of risk before any mitigation)
• Or a combination of these factors

It’s also important to consider your regulatory environment. For instance, if GDPR compliance is a priority, you may need to categorize vendors based on their customer data access.

A typical vendor categorization process follows this logic:

1. Identify the type of content required to inform controls reporting (e.g., GDPR, CCPA, etc.)
2. Determine importance to business performance: Is the vendor highly critical to operations?
3. Ascertain supplier location: Does the vendor’s location raise any legal or regulatory obligations? Is there too much concentration risk?
4. Determine if the vendor relies on fourth parties to deliver their services.

Understanding how a vendor’s failure could impact your business is equally important. Use a scoring system that reflects supplier tiering and includes criteria such as:

• Involvement in operational or client-facing processes
• Interaction with personal or sensitive data
• Financial health and stability
• Legal and regulatory exposure
• Industry reputation

Mitigate Unacceptable Risks Prior to Final Onboarding

By this point, you should understand the vendor’s inherent and profiled risks. Collaborate with them to remediate any risks outside your tolerance threshold. Some organizations are also bound by regulatory requirements to assess and monitor third-party security controls.

A third-party risk management solution with workflow and task automation can accelerate remediation, delivering faster ROI while minimizing threats like data breaches or supply chain disruptions.

Remember: you can’t eliminate 100% of risk. Any remaining exposure after mitigation is residual risk. If residual risk remains too high—or if a vendor refuses to meet your standards—you may need to walk away from the contract.

Tips for Vendor Onboarding

By applying the best practices outlined above, your organization can significantly reduce third-party risk from the earliest stages of the vendor lifecycle. Here are some final, practical tips to consider when creating a risk-aware vendor onboarding process:

• Start small, scale up: Start by assessing a small number of high-priority vendors and scale as your team becomes acclimated to the process.

• Set realistic timeframes: Vendors are humans, too, so be sure to set achievable deadlines for completing questionnaires and responding to assessment surveys.

• Establish an approval process: There should be a documented approval process for onboarding new vendors. Consider including standard templates for payment terms, invoicing, and information security standards as part of the supplier onboarding process.

• Provide support resources: Create an FAQ to proactively address questions and share best practices with responders.

• Plan communication: Create a communications plan to encourage participation and progress. This may include identifying objectives, conveying the value of assessments, and providing a list of escalation contacts.

Continue to Reduce Third-Party Risk After Onboarding

It’s no secret that new threats are constantly emerging and evolving, so risk management needs to continue through every stage of the vendor risk lifecycle. Here are some steps you can take to reduce risk throughout the life of the contract:

• Mandate that vendors undergo an audit to certify compliance with SOC 2, NIST CSF, or another cybersecurity framework. By meeting framework requirements, vendors may also meet mandated compliance requirements by default.

• Issue vendor risk assessments on a regular basis (e.g., annually) to identify changes in third-party security controls and/or address new compliance requirements.

• Follow third-party monitoring protocols and correlate intelligence on real-world risk events and incidents against what is reported in vendor assessments.

• Require additional routine disclosures of financial statements and other business information to get ahead of potential disruptions throughout the.

• Include information security provisions in the SLA and other contract languages to add an additional level of liability protection for your organization.

• Follow an approval process for scope changes to contracts for high-risk vendors.

Next Steps: Automate Your Vendor Onboarding Process

Vendor onboarding doesn’t have to be a tedious exercise. With smart planning and an automated onboarding solution, you can achieve a faster ROI from new vendors and suppliers, reduce your organization’s exposure to third-party risk, and build stronger business partnerships.

Editor’s Note: This post was originally published on Prevalent.net. In October 2024, Mitratech acquired the AI-enabled third-party risk management, Prevalent. The content has since been updated to include information aligned with our product offerings, regulatory changes, and compliance.