Vendor Assessment and Evaluation Simplified

Which vendors should become your long-term business partners? Using a framework and the right tools to make the selection process easier, Dr. Ray Carter offers expertise and best practices to help you become a vendor assessment pro.

What Is Vendor Assessment?

Vendor assessment is an evaluation and approval process that businesses can use to determine if prospective vendors and suppliers can meet their organizational standards and obligations once under contract. The end goal is to secure a low-risk, best-in-class vendor and supplier portfolio.

Vendors and suppliers both furnish services or goods, but there is a distinction: The term vendor applies to business-to-business (B2B) and business-to-consumer (B2C) sales relationships, while supplier applies only to B2B relationships.

Benefits of Vendor Assessment

Although the vendor assessment process can be challenging, the benefits include finding low-risk sources for high-quality goods and services, as well as the development of mutually beneficial, long-term business relationships.

Dr. Ray Carter is Director of DPSS Consultants (Developing People Serving the Supply Chain), creator of the 10C Model of Supplier Evaluation, and author of five vendor management and supply chain books, including Practical Procurement. Carter points to the COVID-19 pandemic as a prime example of the need for systematic vendor and supplier assessment that enables organizations to weather any storm in the business environment.

“What the COVID-19 emergency illustrates,” Carter says, “is the importance of engaging suppliers with sufficient resources and access to working capital to continue to operate, gear up if necessary to meet demand, and survive crises.” Assessing vendor and supplier crisis management plans is one of the aspects of risk mitigation you should consider during your vetting process. “Future crises driven by foreseeable factors — global warming, wild animal and nature conservation, human interactions, and political unrest — are almost inevitable. Therefore, exploring the quality and robustness of vendor and supplier contingency plans is crucial.”

Dr. Carter advises caution when selecting business partners for goods and services. “Deficient evaluation constructs begin with poorly defined specifications, which then feeds into the procurement process and award criteria and the selection of suppliers that lack the necessary expertise or resources,” Carter explains. “Post-award, this leads to a perfect storm: a fractious relationship characterized by ‘blame game’ disputes and, often, operational failure. A reliable process and careful vetting helps avoid that risk — and many others.”

Additional benefits of vendor assessment include the following:

• Risk Mitigation: By carefully vetting vendors and suppliers, you can lower the regulatory, contract, and security risks of working with entities outside your company.
  • Lower Regulatory Compliance Risk: Confirm compliance with the laws, regulations, and standards that apply to your business. If your vendor is in another country or you sell to another country, check those countries’ legal requirements, too. For example, if you do business in the European Union, the General Data Protection Regulation (GDPR) applies.
  • Scope of Service and Contract Compliance: Conduct a legal review of contract terms, nondisclosure agreements (NDAs), or partnership agreements to ensure that you’ve set favorable conditions and mitigated any risks.
  • Decrease Security and Cyber Risk: The threat of cyber risk grows as we increasingly move our work to the cloud. Therefore, it’s crucial to protect all your customer and company data. Your selection process should focus on assessing a third-party vendor or supplier to store your data. First, identify and evaluate the type of data that vendors and suppliers may need to access, and decide whether they need to access all, some, or none of it to do their work. It’s crucial to ensure the vendor takes the proper measures to encrypt and protect your data. Once you identify potential partners, have them complete a questionnaire that thoroughly covers security management system details.

  Get more risk mitigation information, tools, and templates in the “Definitive Guide to Vendor Risk Management.”