Third-Party and Supply Chain Risks as a GRC Focus: How Companies Can Regain Control Over Dependencies

Global business today is more interconnected than ever before. Companies rely on a vast network of suppliers, service providers, and technology partners to keep operations running. This interconnectedness creates efficiency and flexibility – but it also introduces significant risks.

Cyberattacks on suppliers, human rights violations in the supply chain, or the sudden insolvency of a critical vendor can have immediate consequences for an organization. These events threaten operational stability, compliance, reputation, and even financial performance.

In the context of Governance, Risk, and Compliance (GRC), third-party and supply chain risks have therefore become a central management concern. Companies must learn to identify, assess, and control risks beyond their own organizational boundaries.

Key Takeaways

Supply chains and third-party dependencies are among the biggest vulnerabilities in modern organizations.
The greatest risks arise from a lack of transparency, weak oversight, and insufficient risk management.
Regulatory frameworks such as the EU Supply Chain Act, ESG reporting obligations, and NIS-2 increase the pressure on companies to monitor their partners more closely.
An integrated GRC system enables organizations to capture, evaluate, and mitigate risks systematically while ensuring compliance.

Why Supply Chain Risks Are So Dangerous

Today’s supply chains are complex, global, and highly dynamic. A single product might involve components from five countries, span ten supplier levels, and depend on multiple logistics providers. While this structure offers cost and efficiency advantages, it also creates vulnerabilities.

A single failure or disruption can halt production lines. Even more severe are cases involving ethical, environmental, or security breaches within the supply chain. Human rights violations, data leaks, or environmental offenses committed by partners inevitably affect the company at the top of the chain – leading to reputational damage, regulatory penalties, and loss of customer trust.

The core issue is often invisibility. Many organizations do not have full transparency over their second- or third-tier suppliers. They might know their direct vendors but not who stands behind them. This lack of visibility makes proactive risk management nearly impossible and forces companies into a reactive mode when crises hit.

Increasing Regulatory Pressure

Governments and regulators have started to respond to these challenges. In the EU, Germany, and Switzerland, new laws require companies to assume greater responsibility for what happens within their supply chains.

Germany’s Supply Chain Due Diligence Act (LkSG) and the EU’s upcoming Corporate Sustainability Due Diligence Directive (CSDDD) oblige companies to identify, monitor, and mitigate risks across the entire value chain.

At the same time, sustainability and ESG regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) introduce stricter reporting duties. Companies must now provide evidence that they are managing social, environmental, and ethical risks throughout their supply chain.

From a cybersecurity and operational resilience perspective, new frameworks like NIS-2 and DORA in the financial sector require organizations to ensure that their third parties maintain appropriate levels of information security and resilience. Compliance is no longer optional – it is a prerequisite for market participation.

The GRC Approach: Structure Instead of Reaction

Meeting these requirements demands a structured, system-based approach. Governance, Risk, and Compliance must extend beyond the company’s own walls and encompass the entire supplier ecosystem.

A modern Third-Party Risk Management (TPRM) program pursues three main objectives: transparency, assessment, and control.

Transparency:
The foundation of TPRM is knowing who your partners are – including indirect suppliers. Building a complete supplier inventory is the first step. Classifying suppliers based on their criticality and risk exposure follows next.
Risk Assessment:
Each partner should undergo a structured risk assessment that covers financial stability, cybersecurity posture, sustainability performance, legal compliance, and reputation.
Control and Monitoring:
Based on these assessments, specific control measures and monitoring mechanisms should be implemented – from audit programs and certification reviews to continuous monitoring and escalation processes in case of red flags.

Digitalization and Automation as Success Factors

Given the scale and complexity of global supply chains, manual approaches are no longer sufficient. Digital GRC platforms can centralize data, automate monitoring, and provide real-time insights into third-party risk exposure.

Modern solutions integrate data feeds from financial risk databases, cybersecurity scoring systems, and compliance registries, allowing for automated alerts when anomalies occur. Reporting and regulatory documentation can also be automated – a major advantage in the context of ESG and audit requirements.

When TPRM is embedded into a broader GRC framework that also includes incident, policy, and audit management, companies gain a holistic risk perspective. This strengthens not only compliance but also strategic resilience.

Key Success Factors for Effective Third-Party Risk Management

Organizations that want to manage third-party and supply chain risks effectively should follow a few guiding principles:

Define responsibilities clearly: Third-party risk management should be an organizational function with clear ownership, ideally aligned between procurement, compliance, and risk management.
Prioritize by criticality: Not every supplier carries the same level of risk. Focus on partners that are business-critical or hold sensitive data.
Review regularly: Risk assessments must be updated periodically as markets, regulations, and supplier relationships evolve.
Ensure traceability: Every assessment, decision, and action must be documented for audits and regulatory reviews.
Integrate into GRC systems: Real transparency only emerges when third-party management is embedded in the company’s overall governance and compliance structures.

Conclusion

Third-party and supply chain risks are no longer niche issues but core elements of enterprise governance. In an environment where organizations are increasingly held accountable for their partners’ actions, transparency is essential.

A well-designed Third-Party Risk Management program, integrated into a comprehensive GRC framework, enables companies to identify risks early, maintain compliance, and strengthen resilience across the entire value chain.

FAQ

What are third-party risks?
These are risks that arise from the activities or failures of external partners such as suppliers, IT service providers, or consultants. They can lead to financial losses, operational disruptions, or reputational damage.

Why are supply chain risks relevant for GRC?
Because GRC extends beyond company boundaries. Regulators expect organizations to ensure that their partners follow the same governance, risk, and compliance standards they apply internally.

How can companies assess supply chain risks?
Through structured risk assessments that evaluate sustainability, human rights compliance, data security, financial health, and regulatory conformity of suppliers.

What role does technology play in TPRM?
Digital GRC platforms automate monitoring, reporting, and documentation. They provide real-time transparency and streamline compliance efforts.

Which standards support third-party risk management?
Key standards include ISO 31000 (risk management), ISO 27001 (information security), ISO 37301 (compliance), ISO 9001 (quality), and the ESG reporting frameworks under CSRD and ESRS.