Vendor inventory is a list of all the third-party vendors that an organization engages with, along with relevant information about their products, services, contracts, and risks. Vendor inventory is a crucial tool for vendor risk management, as it helps an organization identify, assess, monitor, and mitigate the potential risks associated with its vendors. Vendor inventory also helps an organization prioritize its vendor oversight activities, allocate its resources efficiently, and comply with its regulatory obligations12.

One of the key steps in creating and maintaining a vendor inventory is to assign a risk rating and a vendor classification to each vendor, based on various attributes that reflect the level of risk and criticality they pose to the organization. The risk rating and vendor classification help an organization determine the frequency and depth of its vendor due diligence, review, and audit processes, as well as the appropriate controls and remediation actions to implement3 .

Some of the common attributes used to assign risk rating and vendor classification are :

Type of data accessed, processed, or retained: This attribute indicates the sensitivity and confidentiality of the data that the vendor handles on behalf of the organization, such as personally identifiable information (PII), protected health information (PHI), financial information, intellectual property, etc. The more sensitive and confidential the data, the higher the risk rating and vendor classification, as the vendor must comply with strict security and privacy standards and regulations, and the organization must protect itself from data breaches, leaks, or losses.

Type of systems accessed: This attribute indicates the access level and privileges that the vendor has to the organization’s systems, such as networks, servers, databases, applications, etc. The more access and privileges the vendor has, the higher the risk rating and vendor classification, as the vendor must adhere to the organization’s policies and procedures, and the organization must safeguard itself from unauthorized or malicious activities, such as cyberattacks, sabotage, or espionage.

Type of network connectivity: This attribute indicates the mode and frequency of the data transmission and communication between the vendor and the organization, such as online, offline, real-time, batch, etc. The more network connectivity the vendor has, the higher the risk rating and vendor classification, as the vendor must ensure the availability, integrity, and reliability of the data, and the organization must prevent data interception, modification, or disruption.

The type of contract addendum is NOT an attribute used to assign risk rating and vendor classification, as it is not directly related to the risk or criticality of the vendor. The type of contract addendum is a legal document that modifies or supplements the original contract between the vendor and the organization, such as adding or deleting terms, clauses, or provisions. The type of contract addendum may reflect the changes or updates in the vendor relationship, such as scope, duration, price, service level, etc., but it does not indicate the level of risk or impact that the vendor has on the organization. Therefore, the type of contract addendum is not a relevant factor for vendor risk assessment and management . References:

1: Vendor Inventory - Shared Assessments

2: Vendor Inventory Management: A Guide to Third-Party Risk Management

3: Vendor Risk Rating - Shared Assessments

: [Vendor Risk Rating: How to Rate Your Vendors | Smartsheet]

: [Vendor Classification - Shared Assessments]

: [Vendor Tiering: How to Classify Your Vendors | Smartsheet]

: Contract Addendum - Shared Assessments

: What is a Contract Addendum? | Definition and Examples | Imperva