In general, organizations that receive SOC 1 or SOC 2 reports must demonstrate that they have a vendor management program and associated controls in place to address the risks associated with vendors and business partners. One of the common questions that arises during SOC audits is how to identify the “critical” or “key” vendors that should be subject to the vendor management program. The purpose of this post is to help define and clarify the types of vendors that should be classified as critical and subject to the vendor management program.
A critical vendor may be defined as a third-party supplier that is so important to an organization’s operations that their failure would have a significant negative impact on the business. Critical vendors can include key suppliers, technology providers, or service partners.
Some characteristics of critical vendors include:
- Impact on business: The vendor’s failure would have a material adverse effect on the organization’s ability to conduct business as usual.
- Impact on customers: The vendor’s failure would have a significant impact on customers.
- Impact on finances: The vendor’s failure would have a significant impact on the organization’s financial condition.
To determine if a vendor is critical, an organization can ask itself if the loss of that vendor would significantly disrupt the organization or impact customers. If the answer to either question is yes, then the vendor is critical.
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