What is vendor compliance, and why does it matter?

Modern organizations depend on a vast network of third-party vendors to deliver their products and services, often outsourcing logistics like manufacturing and customer support. While this promotes scalability and innovation, relying on external parties can create blind spots in data security, regulatory compliance, and risk management.

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These gaps exist because vendors often don’t operate under the same policies and ethical standards as the organization with which they collaborate. Vendor compliance helps bridge these gaps by ensuring external parties meet the organization’s contractual, legal, security, and operational requirements. 

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We’ve put together this in-depth guide to clarify:

• The scope of vendor compliance
• Differences in compliance requirements across industries
• Vendor compliance best practices
• Common challenges in vendor compliance

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What is vendor compliance?

Vendor compliance is a process through which an organization ensures that its suppliers, contractors, and service providers meet the regulatory, contractual, and ethical standards set by your organization. The standards can encompass areas like data safety, quality, cybersecurity, and accountability.

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The requirements for vendor compliance should be defined and enforced via business contracts, so both parties have a shared understanding of their responsibilities and expectations. Such supporting documents also help the organization offset legal and operational risks if a vendor fails to meet the agreed-upon conditions.

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Vendor compliance is often regarded as an ongoing process. Even after initial approval during onboarding, organizations must continuously or periodically assess vendors for performance and compliance drift. Some regulations and standards also recommend—or require—formal audits to verify that all critical third-party vendors continue to meet the required security and privacy controls.

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What does vendor compliance typically cover?

To define the vendor compliance scope that applies to them, companies must take into account the industry requirements, the sensitivity of their services, the vendor's role in the operations, and the highest-priority risk areas. Common compliance components include:

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Vendor compliance expectations across industries

Vendor compliance expectations depend on the organization’s industry, as many sectors impose specific standards and regulations. Below are examples that show how key requirements look across industries:

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*The requirements can be optional or mandatory depending on the applicable regulation or standard and the vendor’s role as a controller or processor.

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Vendors that operate across industries are expected to align with multiple frameworks to reduce risk exposure. For example, a cloud service provider like AWS may hold HIPAA compliance for their healthcare clients and FedRAMP authorization for their contracts with the US government.

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Why vendor compliance matters: 5 core scenarios

Whether you’re a SaaS startup or a large enterprise, vendor compliance is essential for risk management and long-term business sustainability. Here are some key benefits of compliance:

1. Risk mitigation
2. Operational efficiency
3. Cost savings
4. Strategic alignment
5. Improved vendor selection process

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1. Risk mitigation

Third-party vendors introduce new risks to operations, such as:

• Cybersecurity breaches
• Disruptions in the supply chain
• Compromised data privacy

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A recent statistic even shows that 98% of organizations had at least one third-party vendor that suffered a data breach. A vendor compliance program can minimize these threats by helping with risk assessment and timely mitigation.

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Scenario: A marketing automation vendor mishandles API keys, exposing customer records. The company's quarterly vendor security review caught the issue and followed up with remediation steps. 

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2. Operational efficiency

When vendors follow clear policies and practices, they consistently deliver services that meet the quality standards, reducing errors, delays, and disruptions. Standardized processes can also save time during vendor onboarding and offboarding. 

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Scenario: A SaaS company integrating multiple APIs into a new CRM system avoided downtime as all vendors complied with a clearly defined process.

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3. Cost savings

In some sectors, failing to meet vendor compliance requirements can lead to fines, remediation costs, or even lost revenue. Prioritizing compliant vendors upfront reduces the chances of underperforming or high-risk partners, avoiding these downstream costs. Established compliance processes also save time and resources for vendor management teams. 

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Scenario: A SaaS company uses Vanta to assess and continuously monitor vendor security and compliance. By verifying the relevant SOC 2 and ISO 27001 security controls through automated security questionnaires, the company reduces manual checks while handling vendors at scale.

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4. Strategic alignment

Vendor compliance can be a valuable tool for aligning vendors with the broader corporate strategy and encouraging them to actively contribute to the company’s long-term objectives. That way, the vendors' actions are consistent with the company’s risk appetite and sustainability goals.

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Scenario: An environmentally conscious company requires its suppliers to follow sustainable sourcing and waste-reduction practices. Regular compliance checks ensure vendors meet these standards, directly supporting the company’s ESG commitments.

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5. Improved vendor selection process

A structured compliance program streamlines vendor selection and onboarding new vendors. Combined with automated trust management platforms like Vanta, you can identify high-quality vendors with repeatable processes, such as risk assessment questionnaires and evaluation of past audit reports.

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Scenario: A hospital is assessing prospective cloud vendors handling patient data requests. The security team requests vendors to submit questionnaires and compliance artifacts related to HIPAA. With an agentic AI-powered trust platform like Vanta, the compliance team standardizes vendor evaluations by tracking the required evidence in one system and enforcing approval checks before onboarding via clear task owners. The process is repeatable and trackable, and can be used for larger procurement cycles.

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Vendor compliance best practices

Here are four best practices to build a strong and sustainable vendor compliance program:

1. Set clear compliance requirements: To avoid misunderstandings and inconsistencies in vendor relationships, outline expectations in written policies covering terms of audits, controls, performance, and the scope of services or contractual commitments. Include vendors’ terms of service and contractual obligations as inputs in compliance reviews to ensure all material risks are captured, not just those visible through audit reports.
2. Assess vendors regularly: Use tools to flag non-compliance and structured processes to manage risks, balancing thorough monitoring with operational efficiency. 
3. Maintain open communication: Keep an open dialogue with vendors about compliance expectations, changes in regulations, and regular performance feedback for transparency.
4. Monitor vendors’ AI use and set guardrails: If your vendors have deployed AI systems, check what safeguards are in place. Since regulations often trail behind AI developments, it’s better to proactively set expectations of AI use to mitigate compliance or operational risks.

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What are the common vendor compliance management pitfalls?

Let’s understand three common challenges in maintaining vendor compliance:

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1. Due diligence gaps

Startups and smaller teams may be tempted to rely on the vendor’s word, but that’s where hidden risks lie. Always verify vendor credentials through audits, certifications, and documentation. Additionally, many organizations overlook the risks posed by the vendor’s subcontractors during due diligence—they’re fourth-party risks but can still impact your compliance posture.

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2. Weaker maturity of compliance processes

Some organizations still have ambiguous processes for tracking vendor compliance. Without formal contracts, continuous monitoring, and up-to-date records, compliance tracking can become disjoined and ineffective. The result is vendor compliance gaps that surface only during formal audits, reported incidents, or regulatory reviews.

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3. Poor tooling and fragmented workflows

Many teams still rely on scattered spreadsheets and emails to keep track of vendor compliance, which can be exhausting. There’s a greater risk of oversights, and scaling to accommodate more vendors also gets tricky.

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For instance, manually tracking vendor inventories in spreadsheets can lead to incomplete data fields and loose risk categorizations. This is a foundational mistake that can metastasize if not fixed.

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“

If you aren’t confident in the completeness of your vendor inventory, it doesn’t really matter how well the rest of your vendor risk management processes work.”

Tim Blair

Sr. Manager, GTM GRC SMEs, Vanta

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LinkedIn

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To support robust records of vendor inventory, organizations maturing their compliance program typically switch to vendor and risk management platforms to mitigate these challenges. Vanta is one of the best platforms in this category. For instance, the platform offers integrations that help you identify vendors and add them to your inventory. Overall, Vanta can reduce the collective time spent on a vendor's security and overall compliance workflows.

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Vanta: Your one-stop solution for vendor compliance

Vanta is a leading agentic trust platform that simplifies compliance and helps manage both governance and vendor risks. You get a centralized tool that brings together agentic workflows, continuous monitoring, and unified visibility to streamline your entire compliance program.

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Vanta’s vendor risk management (VRM) product is a tailored AI-powered solution for automating risk management workflows. It allows you to collect evidence up to 62% faster and spend up to 50% less on vendor security reviews. Its best features include:

• Automated vendor discovery and risk scoring
• 1,200+ automated tests for continuous monitoring
• Alerts for security issues
• Out-of-the-box templates for risk evaluation
• Automated evidence requests and follow-ups
• AI-powered security reviews

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Vanta integrates with over 400 solutions to organize and maintain compliance evidence, which can make any internal or external audit run more smoothly. Watch this free webinar to see how Vanta’s VRM supports security teams. 

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Request a custom Vanta demo for a more tailored walkthrough.

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