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.
Key Areas to Target During Vendor 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.
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.
Company Structure: It’s 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.
Location: 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.
Capacity: 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.
Compliance: Regulations are constantly changing and are inconsistent from region to region. Prequalifying compliance is about assessing any pre-requisites for contracting with an organization such as sustainability, environmental commitments, ethical values, and more.
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.