Third-Party Risk Management and Supply Chain Security for MSPs and SMEs

June 26, 2025

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Roee Margalit

Third-Party Risk Management and Supply Chain Security for MSPs and SMEs

Introduction:


Third-party and supply chain risks have become front-and-center cybersecurity concerns for businesses of all sizes. For Managed Service Providers (MSPs) and small-to-mid-sized enterprises (SMEs), a single vulnerable vendor or software supplier can open the door to a major cyber incident. In fact, over a third of data breaches in 2024 were linked to third-party compromises. High-profile attacks like SolarWinds and Kaseya show how one compromised supplier can trigger global crises. This makes third party risk management and supply chain security not just IT issues, but fundamental business priorities.

MSPs face a dual challenge: protecting their own operations and ensuring the vendors and software they manage for clients are secure. Meanwhile, SMEs often rely on multiple partners and SaaS providers to operate efficiently, which increases their exposure. In this article, we’ll explain why identifying and mitigating third-party and supply chain risks is so important, outline practical steps (from vendor security reviews to continuous monitoring), and show how Rotate’s cybersecurity platform, including its Hubs (EASM, Email, Training) and Managed Detection & Response (MDR) service, helps MSPs and SMEs reduce these risks effectively.

Why Third-Party and Supply Chain Risk Management Is Critical

No organization is an isolated island. Whether it’s an IT service provider, a cloud platform, or a hardware supplier, external parties often have trusted access into your network or handle sensitive data. This interdependence can become an Achilles’ heel if not managed properly. A company’s security is only as strong as its weakest vendor. Key reasons third-party and supply chain risk management is critical include:

  • Rising Breach Rates via Vendors: Cybercriminals increasingly target smaller vendors or software updates as a way to infiltrate larger targets. Software supply chain attacks (like injecting malware into updates) can infect thousands of businesses at once. If an MSP’s toolset or an SME’s vendor is compromised, the attacker gains a foothold into all connected clients.

  • Regulatory and Compliance Pressure: Many industries now require robust vendor risk management as part of standards like ISO 27001, SOC 2, or GDPR. Regulators and cyber insurers expect businesses to vet third parties and continuously monitor their security posture. Failing to do so can result in compliance violations or insurance claim denials.

  • Business Continuity and Reputation: Trust is hard-won and easily lost. A breach originating from a partner can cause downtime, revenue loss, and reputational damage for you and your clients. Managing third-party risk proactively helps prevent being blindsided by an incident outside your direct control. It demonstrates due diligence to customers who expect their service providers to safeguard data across the entire supply chain.

In short, third-party risk management and supply chain security measures are essential for protecting your operations and customers. Next, we’ll cover how to put these measures into practice.

Steps to Manage Third-Party and Supply Chain Risks
Steps to Manage Third-Party and Supply Chain Risks

Practical Steps to Manage Third-Party and Supply Chain Risks

Managing third-party risk involves a combination of upfront diligence, enforceable agreements, and ongoing oversight. Below are key steps and best practices MSPs and SMEs should implement:

  1. Thorough Vendor Security Reviews: Before onboarding a new vendor or partner, perform a detailed security assessment. This includes reviewing their security policies, breach history, compliance certifications, and conducting questionnaires or audits of their controls. For software suppliers, assess their development security (e.g., how they vet code and manage vulnerabilities). Vendor assessment is the first line of defense – it ensures you only work with third parties that meet your security standards. Consider assigning a risk rating to each vendor based on the criticality of the service and the sensitivity of data shared. High-risk vendors should face stricter scrutiny and more frequent reviews.

  2. Contractual Security Safeguards: Legal agreements should mandate security requirements for vendors. Include clauses that require vendors to maintain certain cybersecurity practices (e.g. encryption, access controls, regular patching) and to notify you promptly of any breach. Contractual security requirements set clear expectations. Also consider adding the right to audit or request security attestations periodically. Ensure contracts cover data ownership and incident response obligations, for example, the vendor must assist in investigation and remediation if an incident occurs. These safeguards create accountability and can be referenced if you need to enforce improvements.

  3. Continuous Monitoring and Auditing: Don’t assume a vendor remains secure after the initial vetting. Establish a process for continuous monitoring of third-party risks. This can include regular security questionnaires, reviewing SOC reports annually, or using automated tools to watch for signs of compromise. For instance, monitor vendor access to your systems (who, when, and what they are doing) and set up alerts for anomalies. Regular audits of vendors’ security controls (either annual or ongoing via a risk management platform) help catch lapses before they lead to incidents. Some organizations also subscribe to breach notification services or threat intelligence feeds that inform them if a supplier’s credentials or data appear on the dark web.

  4. Vendor Network Segmentation & Least Privilege: Limit the access third parties have into your environment. Follow Zero Trust principles,  even if a partner is “trusted,” verify and monitor their activity continuously. Segment vendor connections to only the systems they require, and use least-privilege access (give the minimum permissions necessary). For example, if an MSP uses a remote monitoring tool, isolate that tool’s access and regularly review its accounts. This way, even if a vendor is breached, the blast radius is contained.

  5. Incident Response Planning with Vendors: Include third-party scenarios in your incident response plans. Know who to contact at the vendor and how quickly they can act if there’s a security issue stemming from their side. Conduct drills or tabletop exercises that simulate a supply chain attack (e.g., a compromised software update or a vendor’s stolen credentials being used to access your network). Preparedness can drastically reduce response time and damage if an incident occurs.

By combining these practices – thorough upfront vetting, contractual controls, and ongoing vigilance - MSPs and SMEs can significantly reduce third-party risk. Next, we’ll explore how technology can make these processes easier and more effective.

How Rotate Helps You Manage Third-Party & Supply Chain Risk

Rotate’s cybersecurity platform gives MSPs and SMEs full visibility into internal and external risks, especially those introduced by vendors and suppliers. The hubs and MDR service work together to detect, assess, and mitigate third-party vulnerabilities before they escalate.

  • EASM Hub: Monitors your digital perimeter and that of key vendors for exposed assets, shadow IT, and leaked credentials. If a supplier is compromised, you’re alerted in real time, thus enabling fast containment.

  • Email Hub: Blocks phishing, malware, and impersonation attacks, which are common vectors for supply chain compromise. It also flags when known partners show suspicious behavior, helping prevent BEC and invoice fraud.

  • Training Hub: Delivers ongoing cybersecurity training and phishing simulations. This keeps staff alert to red flags, even when threats come disguised as trusted third parties.

  • MDR (Managed Detection & Response): Provides 24/7 monitoring and expert response. If a breach originates from a supplier, Rotate’s team acts fast, minimizing impact and accelerating recovery.

Together, these tools form a scalable, modular defense system. MSPs can manage client risks with confidence, and SMEs get enterprise-grade supply chain security, without the overhead.

Manage Third-Party & Supply Chain Risk
Manage Third-Party & Supply Chain Risk

Conclusion and Call to Action

In today’s hyper-connected business environment, third-party and supply chain risk management is no longer optional - it’s a necessity for survival. By taking a proactive approach to vendor security reviews, enforcing strong contractual safeguards, and continuously monitoring partners, MSPs and SMEs can significantly reduce the likelihood of a devastating supply chain attack. The cost of inaction is simply too high: a single weakness in your vendor ecosystem can lead to downtime, legal liabilities, and loss of customer trust.

Fortunately, you don’t have to tackle this challenge alone. Platforms like Rotate are designed to make comprehensive security accessible and manageable, even for smaller teams. Rotate’s EASM, Email, and Training hubs, along with its 24/7 MDR service, give you a consultative, all-in-one solution to identify and mitigate risks across your entire supply chain. From real-time visibility into vendor vulnerabilities to rapid incident response, Rotate helps you stay one step ahead of threats.

Don’t wait for a third-party breach to make headlines. Take action now to fortify every link in your supply chain. Contact Rotate for a demo or to learn more about how our platform can help your organization tighten third-party risk controls and achieve stronger security resilience. With the right strategy and tools in place, MSPs and SMEs can confidently leverage third-party services to grow their business - without compromising on security.

FAQs

Q: What is third-party risk management in cybersecurity?

A: Third-party risk management is the process of evaluating and controlling the security risks presented by external vendors, suppliers, or service providers. It involves vetting vendors’ security practices, setting requirements (like data handling standards and breach notification timelines), and continuously monitoring those third parties for any weaknesses or incidents. The goal is to ensure that a vendor’s security lapse cannot compromise your own organization’s data or systems.
Q: How can I assess if a vendor is secure enough to work with?

A: Start with a thorough vendor security assessment. This may include a questionnaire about their policies (encryption use, access controls, etc.), reviewing any compliance certifications or audit reports (such as SOC 2 or ISO 27001), and checking for past breach history. You should also evaluate technical aspects: for software vendors, examine their update and patching process; for service providers, understand how they segregate your data. It’s often useful to assign a risk level to each vendor (high, medium, low) based on the sensitivity of what they handle. High-risk vendors might warrant on-site audits or penetration tests as well. Rotate’s platform can automate many of these checks, like scanning a vendor’s exposed systems for vulnerabilities and ensuring they meet your security baselines.
Q: What should I include in contracts with third-party providers to improve security?

A:
Contracts are a vital tool for enforcing security expectations. Key elements to include are: clauses requiring the vendor to implement specific security controls (e.g. up-to-date antivirus, firewall policies, employee training), a requirement for timely notification (within 24 or 48 hours) if they experience a breach affecting your data, and provisions allowing you to audit or request evidence of their security measures. You may also include data protection agreements that clarify how they must handle and protect your data (preventing sharing with sub-contractors without consent, for instance). Finally, ensure there are consequences outlined (like the ability to terminate the agreement) if the vendor fails to meet these obligations or suffers negligent security lapses. These contractual safeguards complement your technical and procedural risk management efforts.