What is Third Party Risk Management (TPRM)?

Third-party risk management (TPRM) is the structured process of identifying, assessing, and mitigating risks that come with engaging external suppliers and partners. In procurement, risk is woven directly into supplier management workflows and is a strategic necessity. Every supplier relationship carries potential exposure, whether it be the threat of insolvency disrupting operations, cyber vulnerabilities leading to data breaches, ESG and regulatory compliance gaps, or data privacy challenges. Third-party risk management in procurement is a vital tool for managing suppliers and supporting supplier relationships across legal, finance, compliance, IT, and other stakeholders.

Key Components of Third-Party Risk Management

There are many components to third-party risk management. In putting together the data, workflow, and integration components of third-party risk, procurement professionals should consider and measure the following capabilities. From a Levelpath perspective, it is important to note that third-party risk management is not just an issue when a procurement event is initiated, but an ongoing challenge that requires workflows, monitoring, and effective escalation:

  • Risk Record - Central repository for each supplier risk, holding identifiers, timestamps, ownership, and links to suppliers, contracts, and sourcing events for full traceability.
  • Risk Category - Standard domains of risk such as financial, operational, security, compliance, regulatory, reputational, and geopolitical.
  • Risk Score - Measures the severity and likelihood using quantitative and qualitative inputs as well as external data feeds to present current risk levels and thresholds.
  • Lineage to Sourcing Event - Links risks back to the sourcing evaluation, showing how risks influenced awards and how profiles evolve across sourcing events.
  • Lineage to Contract - Connects risks to specific contractual protections, highlighting coverage gaps and exposure.
  • Lineage to Supplier - Ties risks directly to supplier profiles, providing a consolidated view across strategic and tactical suppliers.
  • Risk Mitigation Actions - Action plans with ownership and timelines to reduce exposure, and with documented workflows for accountability and tracking.
  • Monitoring & Alerts - Detection and alerts when thresholds are breached, often fed by data for near real-time updates.
  • Escalation & Workflow - Standardized governance processes with predefined escalation paths, approvals, and checkpoints for risk acceptance or modification.
  • Risk Register & Dashboard - Portfolio-wide visibility across categories, suppliers, and geographies.
  • Supplier Onboarding and Questionnaires - Validates supplier against baseline standards prior to becoming engaged suppliers.
  • Audit Trail & Evidence Repository - Record of assessments & decisions to support compliance and audit.
  • Reporting & Analytics - Insights and analysis with quality based on the completeness of captured risk data.

Effective third-party risk management depends on unifying data, workflows, and integrations into a single, proactive framework. A comprehensive third-party risk management program ensures consistent risk visibility across suppliers, contracts, and sourcing events. By establishing visibility across sourcing, contracts, and supplier relationships, procurement teams can move from reactive to predictive oversight. This approach to third-party risk management enables organizations to identify potential issues early, drive accountability, and maintain compliance while protecting enterprise resilience and reputation.

Benefits of TPRM

For professionals in the industry, third-party risk management translates into measurable improvements across sourcing, supplier management, contracting, and reporting. A mature third-party risk management program also strengthens compliance posture and long-term supplier resilience.

  • Efficient Sourcing & Compliance: Embedding risk assessments into early supplier evaluations accelerates sourcing cycles by avoiding vendors who fail to meet standards. Automated compliance checks reduce manual overhead and simplify audits.
  • Stronger Supplier Relationships: Transparency around risk expectations builds trust and accountability, turning reliable suppliers into strategic partners.
  • Strategic Risk Mitigation: Third-party risk management allows for the diversification of the supply base to advance ESG goals and reduce concentration risk. TPRM also hardens contractual protections by ensuring risk clauses are consistently applied and monitored.
  • Data-Driven Decisions: Continuous, data-driven intelligence on specific threats such as financial health scores, cyber alerts, and tariff list screenings replaces intermittent checks and provides stakeholders with clear, up-to-date reporting.

The Levelpath Difference

Levelpath serves as a central hub that embeds third-party risk management capabilities directly into procurement workflows, providing continuous, workflow-triggered monitoring rather than periodic reviews. The platform integrates risk records with supplier profiles, sourcing events, and contracts, ensuring every decision is informed by the most current risk intelligence. Levelpath’s approach to third-party risk management ensures organizations maintain visibility and agility across the full supplier lifecycle.Designed for the entire procurement function, from analysts to CPOs, Levelpath supports role-based permissions, maintains a complete risk activity log, and offers customizable questionnaires and dashboards with filtered views for simplified portfolio-wide monitoring, including via mobile. Together, these capabilities create an end-to-end third party risk management framework that reduces manual overhead, increases cross-functional trust, and strengthens the ability of the procurement department to build resilient, compliant, and diverse supply chains.Are you ready to take control of third-party risk? To learn more about how Levelpath can help your organization move faster, uncover risks earlier, and keep people focused on the more strategic work, request a demo today.

How do we balance cost savings from suppliers with the risks they might introduce?

A good way to balance cost savings from suppliers with the potential risk they might introduce is to evaluate suppliers on both cost and risk impact. A low-cost supplier is not a good choice if the risk of disruption outweighs the savings. Use a balanced scorecard that combines cost, performance, and all relevant risk factors to identify holistic supplier performance and risk.