What Is Vendor Assessment?
Vendor evaluation is an assessment and approval process with which companies can find out whether potential vendors and suppliers can meet their organizational standards and obligations after the conclusion of the contract. The main objective is to secure a portfolio of first-class, low-risk vendors and suppliers.
Vendors and suppliers provide both services and goods, but there is a difference: the term vendors refer to business-to-business (B2B) and business-to-consumer (B2C) sales relationships, while supplier only refers to B2B relationships.
Benefits of Vendor Assessment
Although the seller review process is often challenging, the benefit lies in finding low-risk sources of high-quality goods and services, also due to the development of long-term interdependent business relationships.
Dr. Ray Carter is director of Development Consultants for People Serving the Availability Chain (DPSS), creator of the 10C model of supplier evaluation, and author of 5 books on supplier management and the supply chain, including procurement practice. Carter cites the COVID19 pandemic as a prime example of the need for a systematic supplier and supplier assessment to enable companies to manage all storms in the business environment.
“The COVID19 emergency shows,” says Carter, “the importance of engaging providers with sufficient resources and access to working capital to continue operating and survive crises.” Risk mitigation aspects to consider during the review process. Future crises due to foreseeable factors – warming, wildlife and conservation, human interactions, and political unrest – are almost inevitable. Therefore, it is of crucial importance to examine the standard and the robustness of the contingency plans of providers and suppliers”.
Dr. Carter advises caution when choosing business partners for goods and services. “Inappropriate evaluation constructs start with ill-defined specifications, which then end up in the procurement process and thus in the selection of suppliers who do not have the necessary knowledge or resources.
Advantages of vendor assessment include the following:
Risk Mitigation: By carefully reviewing vendors and vendors, you reduce the regulatory, contractual, and security risks of working with companies outside of your company.
Lowest Regulatory Compliance Risk: Recognize compliance with the laws, regulations and standards that apply to your business. If your supplier is in another country or is selling to another country, check the legal requirements of those countries as well. For example, if you do business within the European Union, the General Data Protection Regulation (GDPR) applies.
Scope of Service and Contract Compliance: Conduct a legal review of contractual terms, nondisclosure agreements (NDAs), or partnership agreements to ensure favorable terms are in place and all risks are minimized.
Reduce Security and Cyber Risk: The threat posed by cyber risks is growing as we increasingly move our work to the cloud. Therefore, it is important to protect all your business and customer data. Your selection process should specialize in evaluating an external vendor or vendor who will retain your data. First, identify and assess the type of knowledge that vendors and vendors may need to access and decide if they can access all, some, or none to do their job.
It is important to ensure that the seller is taking the correct steps to encrypt and protect your information. After identifying potential partners, ask them to complete a questionnaire that includes the details of the safety management system.
Vendor Assessment Criteria
Vendor evaluation criteria should support your company’s mission, ethics, and business objectives in the areas of technical competence and quality, cost and financial integrity, public speaking, social responsibility, and cultural engagement. Vendor and Vendor Assessment also includes reviewing the standards that are most important to your business goals and your overall industry.
For example, if a business is looking for a packaging issue, the primary concerns may be graphics and structural design and relying on a review of custom versus standard options and shipment consistency. Use the checklist below, supported by the 10C Vendor Evaluation Model, to gather your criteria on vendors and vendors, and then use it as a “pass or fail” tool to evaluate potential or current business partners.
Tips to enhance the seller Assessment Process
The focus of the vendor evaluation process is clarity and a time-based four-phase approach: preparation (laying the groundwork); discover (perform due diligence); evaluate (make a comparison of suppliers) and select (make decisions and conclude contracts). Here are two key best practices to consider when evaluating vendors:
Assign responsibility: Identify who is responsible for evaluation in your organization. It is often an employee within the business department, except in complex or high-value situations, to hire an external business analyst. The advisor handles some time-consuming aspects of the process, including research, writing the Request for Proposals (RFP), and conducting in-depth financial analysis that will not be available internally.
Set a deadline – Without a deadline or procedure, the final selection and hiring process can take up to a year. An honest rule of thumb is to allow a maximum of three months to complete the method.