A Guide to Third Party Risk Management in Manufacturing Industry 

Hours

Introduction  

From raw material providers to logistics and tech partners, the manufacturing industry relies heavily on third party vendors and suppliers to maintain production flow and efficiency. However, as this dependency increases, so do the risks associated with them.  

In the last few years, third party risks have increasingly impacted the manufacturing sector. One infamous incident is the 2022 Nissan Data Breach, where a poorly configured database in the car manufacturer’s software vendor had exposed over 18,000 customer records including personal and financial details. Managing these risks through proper third party risk management (TPRM) has thus become an essential in modern manufacturing. 

I. Understanding Third-Party Risks in Manufacturing Industry 

Third-party relationships in the manufacturing supply chain introduce a wide range of risks. Below are some of the most common risks that manufacturers encounter when working with external vendors and suppliers. 

Types of Third-Party Risks: 

  • Operational Disruptions: Cyberattacks on key suppliers can halt production, impacting productivity and revenue.
  • Cybersecurity Risks: Vendors with access to sensitive data can be a source of cyber threats, leading to data breaches or other cybersecurity incidents. 
  • Compliance Risks: Vendors who fail to meet cybersecurity standards can place the manufacturer at risk of non-compliance with industry regulations, resulting in fines or legal issues. 
  • Reputational Damage: A cybersecurity breach at a vendor’s site can harm the manufacturer’s reputation, affecting customer confidence and business relationships. 

Common Scenarios in Manufacturing 

Some typical examples when third-party issues may arise are: 

  • Data Breach: A cybersecurity vulnerability within a third party system could expose sensitive manufacturing or customer data. 
  • Supply Chain Cyber Threats: Compromised vendors may unknowingly introduce malware or other security risks into the manufacturer’s network. 
  • Non-Compliance with Cyber Standards: A vendor’s failure to meet cybersecurity standards could impact the manufacturer’s compliance status, leading to penalties or operational restrictions. 

II. Why is Third Party Risk Management Important for Manufacturing  

Third Party Risk Management (TPRM) is critical for protecting the manufacturing supply chain, offering a structured approach to identifying, assessing, and managing risks posed by vendors and suppliers. Here’s how TPRM enhances safety, productivity, and compliance: 

  • Supply Chain Risk Monitoring: Manufacturers often rely on a complex web of global suppliers, exposing them to increased risk of disruption. A TPRM software like Alliance allows for proactive risk assessment and monitoring, helping to reduce vulnerabilities across multiple suppliers. 
  • Compliance with Industry Standards: The manufacturing sector operates under specific standards, such as ISO 9001 for quality management and CTPAT (Customs-Trade Partnership Against Terrorism) for import/export security. A strong TPRM program ensures that vendors meet these standards, reducing the likelihood of compliance-related disruptions. 
  • Cybersecurity as a Priority: TPRM in manufacturing emphasizes securing data shared with third party vendors and ensures compliance with cybersecurity standards, safeguarding against cyber threats. 
💡 Learn more about Third Party Risk Management

III.  Key Components of an Effective TPRM Program for Manufacturing 

Implementing a strong TPRM program involves several components tailored to the unique needs of the manufacturing industry: 

  • Risk Assessment & Classification: Identifying and classifying vendors based on the level of risk they pose is essential. Manufacturers should categorize third party vendors into high, medium, or low-risk groups, focusing more on those deemed critical. 
  • Due Diligence Vendors: A comprehensive onboarding process and due diligence are crucial for ensuring that each vendor aligns with the company’s compliance, quality, and cybersecurity requirements. This process may involve audits, certifications, and background checks. 
  • Continuous Monitoring: Risk management is an ongoing process, and TPRM programs should include continuous risk monitoring of vendors. Metrics such as incident response time, service-level agreement (SLA) compliance, and audit outcomes provide insights into vendor performance over time. 
  • Cybersecurity Protocols for Third Parties: As manufacturers share data and access with third parties, they must ensure these vendors adhere to strict cybersecurity protocols. These may include encryption standards, regular security assessments, and requirements for multi-factor authentication. 
  • Incident Response Plans: It’s essential to prepare for potential disruptions by having a risk mitigation and incident response plan. This includes outlining strategies for addressing vendor-related issues, such as alternative suppliers for critical materials and predefined steps for managing data breaches. 

Conclusion  

In the face of rising third-party risks, manufacturers need a proactive approach to compliance and risk management. With a third party risk management software like Alliance TPRM, manufacturers gain deeper visibility and control over managing third party vendors, helping them mitigate this risk.  By prioritizing Third Party Risk Management, manufacturers can better strengthen their supply chains against potential vulnerabilities, monitoring suppliers, managing risks and meeting compliance needs– all in one place. 

Similar Posts