No one wants to get into a business relationship without first vetting the other party. As such, some kind of vendor screening process has to be established and applied to all potential suppliers and contractors to ensure that unnecessary risk is kept out of the supply chain. Doing so will give supply chain managers the peace of mind that all business partners meet minimum guidelines for risk management. Unfortunately, not every company knows what to look for during the vetting process.
The modern supply chain stretches across the globe and can have several tiers. For this reason, the risk of supplier failure, disruption, damaged customer relationships, and negative brand reputation is as high as ever. As a result, supply chain managers need to focus on the following areas when it comes to vetting suppliers regarding supplier and vendor vetting.
What Is a Supplier and Vendor Vetting Process?
As it pertains to suppliers and vendors, vetting is the process of evaluation done to ensure their compatibility and compliance before any contracts are signed.
Typically, the vetting process follows these four steps:
- Identify criteria, outline your goals, and determine ideal attributes in essential categories, such as communication or production time.
- Search for vendors who meet your criteria, goals, and ideals. They may get on your radar from trade publications or, even better, through professional recommendations.
- Research, collect documentation on, and review safety statistics, certificates of insurance, and audit reports. These will all illustrate a vendor’s level of competency, capacity, commitment, consistency, etc.
- Issue a compliance status (compliant, conditional, non-compliant, or pending) to indicate the vendor’s standing.
Completing the supplier and vendor vetting process helps your company:
- Mitigate its risks
- Maintain a good brand reputation
- Stay financially stable
- Increase its levels of efficiency and quality
- Build long-standing, profitable professional relationships
- Meet compliance requirements
To reiterate: having an established vendor vetting process that is consistently applied ensures you keep unnecessary risks out of the supply chain. When that’s done, your supply chain managers can be assured there are no lapses in compliance.
Key Areas to Target While Vetting Suppliers and Vendors During Vendor Vetting and Supplier Vetting
The modern supply chain stretches across the globe and can have several tiers. For this reason, the risk of supplier failure, disruption, damaged customer relationships, and negative brand reputation is as high as ever. As a result, supply chain managers need to focus on the following areas when it comes to vetting suppliers.
1. Financial Health
Knowing if a supplier is financially stable is critical. Variability in revenue is an inevitability, and suppliers need to be in a financial position to withstand those changes. Financial health can also indicate the supplier’s ability to invest in growing its business. Supply chain managers can audit company credit reports to get this vital information as part of the prequalification process.
2. Company Structure
It’s essential important to know if a supplier is part of a group of companies. If so, then what is the relationship of the group to the supplier and how could that relationship impact the supply chain? For example, the relationship with a parent company may prevent a supplier from controlling the direction of its own business plan, objectives, and investment, as well as the policies and processes to deliver it.
This may seem elementary, but it’s worth pointing out that supply chains must know where goods and/or services are being supplied from. One concern comes in the form of natural disasters or social and/or political upheaval that could strike the supplier in specific regions. Another concern is the ethical procurement of raw materials. Some areas have a negative reputation for using child labor, and no company wants that reputation to reflect on their own organization.
Knowing a supplier’s ability to provide goods and/or services is key information for ranking the supplier as a primary, secondary, or even tertiary supplier. Without adequate capacity to fulfill work, a supply chain manager will have to diversify sources. The vetting process can be done in person. A site audit should provide the information needed to assess a supplier’s resources in terms of staff, technology, equipment, and storage to ensure it can meet requirements and manage market and supply fluctuations.
If you want to have full confidence in your vendors, you must engage in vendor vetting to determine if a vendor has enough experience to be capable of handling complicated scenarios. Establish whether their client retention rate is high and if they’ve been able to maintain long-term contracts. If the vendor is a publicly traded company, you can easily find this information because it is a matter of public record.
This area of evaluation covers anything pertaining to the vendor’s employees. How many employees do they have, and does that affect what services are available or their ability to provide work on a timely basis? How are their employees vetted before being hired? How is their retention rate? The answers to these questions will help determine any significant issues within the company that you may or may not be privy to otherwise.
7. Physical Security
You must also consider the physical security of a vendor’s property. Not only should everyday types of security be in place to prevent accidents or thefts, but there should also be plans for significant security events such as a power loss, natural disaster, or an active shooter scenario. All security plans should be outlined, practiced, and part of the culture to prevent losses and make a quick recovery possible.
8. Digital Security
Your vendors’ digital security features must be evaluated, as the law requires the protection of sensitive consumer information. All vendors must adequately defend against digital threats and unauthorized access. Their data security policies must be current and their security systems updated regularly to ensure protection. Additionally, there need to be proper backups and redundancies in place in case of a data loss event.
Regulations are constantly changing and are inconsistent from region to region. Prequalifying compliance is about assessing any prerequisites for contracting with an organization, such as sustainability, environmental commitments, ethical values, and more.
Assessing vendors’ compliance is necessary, but so is vetting vendor accreditation and certification records regularly. This may include verifying Statements on Standards such as SSAE 16 or SOC 1 and 2. It may also include other industry quality assurance certifications from audits covering service, safety, and performance.
Avetta Does the Heavy Lifting in Supplier Prequalification
Every organization understands the value of prequalifying suppliers and vendors, but not every company has the staff or capacity to vet supply chain partners adequately. Fortunately, fulfillment of interviews, document verification, and other aspects of the procurement process can be outsourced. Avetta handles the complexity of auditing documentation and verifying data, streamlining the prequalification process to save organizations time and money.