How to Create an Effective Vendor Onboarding Policy

Forming partnerships with new vendors can be a complicated and risk-intensive process for any organization. The best way to manage the risks associated with new partnerships and establish successful vendor management practices is to create an effective vendor onboarding policy.

Organizations create vendor onboarding policies to standardize and secure the onboarding process. These policies also streamline vendor evaluation, and manage vendor risk and vendor compliance. The most effective vendor onboarding policies will include guidelines to manage procurement, due diligence, and supplier onboarding and also utilize workflows to track vendor performance and oversee ongoing vendor relationships.

Keep reading to learn how your organization can create an effective onboarding policy to streamline processes, set expectations, and improve the overall vendor onboarding experience for your internal team and third-party partners.

Benefits of a Vendor Onboarding Policy

Organizations that develop a structured code of conduct for vendor onboarding will experience improved supplier relationships and a smoother supplier onboarding process.

Creating a vendor onboarding policy will also offer these additional benefits:

• Structure & Consistency: Standardize vendor onboarding procedures across departments and across vendors.
• Operational Efficiency: Streamline the onboarding process, remove redundancies, prevent human error, and decrease the time spent on administrative tasks.
• Vendor Risk Management: Mitigate third-party risk by establishing standards for selecting potential vendors, verifying vendor compliance, and vendor risk assessments
• Quality Assurance: Set expectations for vendor performance, ensure personnel meet organizational goals, and maintain customer satisfaction.
• Growth & Success: By standardizing the onboarding process, an organization can grow at scale, onboard more and more vendors, and experience overall success.
• Continuous Improvement: Allows an organization to refine its onboarding process over time, improve how it gathers vendor information, and develop polished business relationships with all new and existing vendors.

Key Components of a Vendor Onboarding Policy

A comprehensive supplier onboarding policy will include the following essential components:

• Vendor Selection Criteria: Service quality, pricing, reputation, compliance, ability to meet specific needs, and other criteria to improve vendor sourcing
• Onboarding Steps: Detailed steps that standardize the onboarding process and streamline internal processes and procedures
• Compliance Controls & Requirements: Due diligence checks, certifications, insurance requirements, contract terms, and other requirements that will determine if vendors comply with legal, regulatory, and industry guidelines
• Risk Assessment Strategies: Standards for assessing, mitigating, resolving, and managing ongoing third-party risk, such as requesting vendor security questionnaires
• Communication Guidelines: Protocols for internal stakeholder communication, guidelines for submitting a request for proposal (RFP), highlighting respective points of contact, and standards for communicating with new and existing vendors
• Vendor Evaluation Metrics: KPIs and defined metrics to evaluate vendor performance and ensure all vendors meet agreed-upon standards.
• Vendor Training: Support for vendors to ensure all partners understand the onboarding process and the ongoing expectations
• Documentation & Record-Keeping Standards: Contractual agreements, invoicing, data collection, vendor contact information, status updates, certification records, relevant processes, and vendor correspondence
• Continual Review Procedures: Guidelines for ongoing vendor management, contract management, performance evaluation, and compliance maintenance
• Escalation Protocols: Onboarding Workflows for managing internal and external incidents that may arise during the vendor onboarding process

Cybersecurity Challenges in Vendor Onboarding

The cybersecurity challenges presented by new vendor relationships can be consolidated into four cybersecurity categories.

1. Data security and privacy risks

Service providers failing to implement standard data security measures, such as encryption, access controls, and data protection policies, have no security barrier between adversaries and any sensitive data you entrust them to process. Poor data security standards also directly violate customer data safety regulations such as the GDPR and PCI DSS, which result in a significant financial penalty if violated.

2. Data breach risks

A third-party vendor with security vulnerabilities introduces data breach attack vectors into your IT ecosystem. Third-party cyber risks don’t necessarily need to be complex exposures; they could be as simple as a misconfiguration, such as the type UpGuard researchers discovered in the Microsoft Power Apps portal, a leak that could have resulted in a data breach compromising up to 38 million records.

3. Third-party risks

Third-party vendor risks extend beyond the scope of vendor security. Third-party business relationships could also expose your organization to the following third-party risk categories:

• Operational risks: Triggered by poor vendor performance leading to business continuity disruptions, which may result in service level agreement violations.
• Supply chain risks: Potential risks surrounding procurement workflows ultimately impacting the quality of your services to customers.‍
• Financial risks: Financial risks stemming from sourcing issues to data breach damages triggered by poor vendor performance.

4. Compliance risks

Because third-party vendors directly impact the health of your cybersecurity posture, third-party risks could be detrimental to your regulatory compliance efforts. Because of the direct correlation between third-party security risks and regulatory compliance, many standards and even cyber frameworks are increasing their emphasis on third-party risk management in their compliance requirements. Some notable examples include:

• SOC 2
• GDPR
• CCPA
• 23 NY CRR
• NIST 800-53
• ISO 27001
• Essential Eight
• PCI DSS
• HIPAA (for healthcare)
• NIST CSF

Step-By-Step Guide to Creating a Vendor Onboarding Policy

Organizations looking to create their vendor onboarding policy can use this step-by-step guide to smooth out the process and ensure they include all essential criteria.

Step 1: Assess Onboarding Needs & Gaps

The first step an organization should follow when creating a vendor onboarding policy is to review its existing protocols and procedures for supplier onboarding. While reviewing current practices, personnel should make note of any pain points, obvious gaps, or program inefficiencies.

By identifying these inefficiencies and gaps in its current onboarding process, organizations can develop specific needs and requirements to guide the creation of their new vendor onboarding policy.

Step 2: Define Onboarding Objectives

Next, personnel should outline key onboarding objectives the policy aims to achieve. These objectives can include measurable goals, such as decreased onboarding time, or overall objectives, such as vendor tiering, reducing specific risk types, or ensuring compliance with specific regulatory frameworks (ISO 27001, NIST CSF, etc.).

Step 3: Collect Stakeholder Input

After defining objectives, personnel should communicate with relevant stakeholders across departments to gather input and ensure the policy meets legal, compliance, and procurement needs.

Step 4: Identify Vendor Onboarding Best Practices

Next, an organization should reference industry best practices for vendor onboarding. The exact onboarding needs of an organization will depend significantly upon its specific sector. For example, financial institutions will likely need to ensure vendors comply with different compliance frameworks than an organization within the manufacturing or technology industry.

Organizations that consistently onboard vendors that supply a single product or service should also note how to evaluate this particular product or service and ensure the vendor policy addresses this specific evaluation criteria.

Step 5: Draft Policy & Vendor Onboarding Checklist

Now, it’s time to draft the vendor onboarding policy while referencing key objectives, stakeholder input, industry best practices, and organization-specific criteria. The policy should contain the following sections (mentioned earlier in this article):

• Vendor Selection Criteria
• Onboarding Steps
• Compliance Controls & Requirements
• Risk Assessment Strategies
• Communication Guidelines
• Vendor Evaluation Metrics
• Vendor Training
• Documentation & Record-Keeping Standards
• Continual Review Procedures
• Escalation Protocols

Step 6: Refine & Obtain Approvals

After drafting the vendor onboarding policy, personnel should start the approval process and refine the policy based on the feedback it receives from relevant stakeholders. Personnel should ensure all departments have reviewed the document before moving toward a finalized version.

Step 7: Develop an Implementation Plan

Next, personnel should develop an implementation plan to ensure the vendor onboarding policy is rolled out smoothly across all organization departments. During this step, personnel should ensure relevant stakeholders understand the policy’s critical objectives, overall expectations, and how to use the policy to achieve all vendor onboarding objectives.

Step 8: Monitor Implementation

After implementing the policy, personnel should monitor its success. At this time, stakeholders should be asking themselves several questions:

• Are there any pain points associated with the new policy?
• Are the needs of all departments addressed by the vendor onboarding policy?
• Has the policy improved our organization’s supplier management process?
• Has the policy improved our working relationship with vendors?

During this step, personnel who drafted the policy should gather stakeholder feedback again to see if the policy is meeting their needs.

Step 9: Address Feedback & Adjust Policy

Next, personnel should use stakeholder feedback to adjust the policy. While an organization ideally completes this step before launching the final form of the policy document, personnel can also revisit this step every so often to ensure the policy is updated to address new feedback, industry changes, and the organization's ongoing needs.

Step 10: Produce Final Document & Launch

The final step in the creation process is launching the vendor onboarding policy. Personnel launching the document should ensure all department heads are aware of the updated vendor onboarding policy and know where to find the document within the organization’s internal systems. In addition, personnel should inform relevant stakeholders on how they can communicate feedback and propose changes to the policy moving forward.

4-Step Guide: Securing the Vendor Onboarding Process in 2025

Step 1: Clearly define your third-party vendor requirements

This step established a crucial precedent for a secure vendor onboarding process. Despite ongoing efforts by third-party solutions to streamline their onboarding integrations, your business should be very frugal when it comes to entering into new vendor partnerships, ideally, to the point of standardizing an attitude of hesitancy.

Allowing employees to sign up for any third-party solution without explicit IT approval—even at a corporate level—will result in a gaping exposure to unknown third-party security risks. Simply narrowing the entry point for new third-party relationships could instantly block a host of potential third-party security risks from the onboarding workflow.

To achieve such an ultra-fine onboarding filter, your vendor onboarding policy should address the following details:

• Business objectives requiring third-party support: Clearly define your business objectives that necessitate engaging in a new third-party vendor. These metrics must be absolutely crucial to the success of your business objectives, to the point of risking losing new business opportunities if third-party services are not established.
• Scope of required third-party services: Outline the minimum scope of third-party service required to meet your business objectives.
• Level of sensitive data access: Your onboarding policy must stipulate the level of sensitive data access you’re willing to offer third-party services. Your decisions must be aligned with the Principle of Least Privilege and supported by security control strategies to mitigate the chances of these pathways being compromised. For ideas about how to bolster vulnerable pathways against compromise attempts, download our free guide on preventing data breaches.

Step 2: Conduct thorough due diligence

Collect cybersecurity data from reputable public-facing sources to form a preliminary picture of a vendor’s risk profile. If done well, this effort will not only ensure onboarded vendors align with your third-party risk appetite but also streamline the vendor risk assessment processes for each onboarded vendor. The data gathered during due diligence doesn’t just support the onboarding phase of the vendor lifecycle; it sets the context of all future TPRM tasks, including remediation, continuous monitoring, and even offboarding.

After completing due diligence, you should have an idea of which prospective vendors are safe to onboard.

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Some common data sources that could contribute to a prospective vendor’s preliminary risk profile include:

• Trust and security pages: Public-facing web pages conveniently summarizing a prospective vendor’s primary cybersecurity initiatives, such as achieved certifications and regulatory compliance efforts - here’s an example of a Trust and Security page.
• Automated scanning results: Superficial attack surface scanning results identifying a vendor’s most obvious vulnerabilities across its public-facing assets.
• Trust Pages: Public-facing pages hosting documentation for the purposes of streamlinling due diligence processes with new business partnerships. These pages could host completed security questionnaires, vendor assessments, real-time security ratings, and audit reports.

UpGuard’s Trust Exchange product is a free tool designed to automate the consolidation of third-party security information to streamline due diligence processes and ongoing vendor assessments. Watch this video to learn more.

Step 3: Segment critical vendors

The due diligence process offers a good indication of which vendors should be classified as critical in your Vendor Risk Management program. At a high level, this tiering strategy should be based on whether a third-party vendor will require access to sensitive data, where those that do are flagged as "high-risk" and assigned the highest criticality tier.

Criticality levels could also be based on:

• Each vendor’s degree of importance for achieving key business objectives (as determined in step 1).
• Stakeholder preferences.
• The severity of potential impact on regulatory compliance efforts.

Step 4: Automate onboarding processes

To set the foundation for a scalable Vendor Risk Management program, automation technology should be integrated at crucial bottleneck points in the onboarding process. Some common areas that could significantly benefit from automation include:

• Generation of risk assessment reports: These reports generated from initial risk assessments lay out a high-level risk management framework for each onboarded vendor. With stakeholders becoming more involved in risk management strategies, an automated report generation feature will elevate the administrative bottlenecks of having to continuously manually create these reports.
• Notifications: Notification triggers for sudden security rating drops will indicate any significant security posture deviations that could impact risk management plans before implementation.
• Security questionnaire templates: Security questionnaire templates that automatically map to cyber risks and regulatory compliance gaps will expedite initial vendor risk assessment completions, helping you establish risk profiles for onboarded vendors faster.

For an overview of some of the automation features streamlining VRM processes on the UpGuard platform, watch this video: