Preferred Vendor Evaluation and Approval Workflow

## Overview A structured process for evaluating, approving, and maintaining a list of preferred vendors. This workflow ensures consistent vendor selection criteria, proper due diligence, and ongoing performance monitoring to optimize procurement decisions and reduce supply chain risk. ## Process Metadata | | | |---|---| | **Estimated Time** | 3-4 weeks (initial setup) + ongoing quarterly reviews | | **Difficulty** | Intermediate | | **Team Size** | 3-5 people (Procurement Lead, Finance, Department Stakeholders) | | **Best For** | Organizations with 20+ vendors seeking to standardize supplier relationships | ## Key Benefits - **Reduced procurement costs** through negotiated volume discounts with preferred vendors - **Lower supply chain risk** via thorough vendor qualification and ongoing monitoring - **Faster purchasing decisions** with pre-approved vendor options for each category - **Improved compliance** through documented vendor due diligence and audit trails - **Better vendor relationships** through clear expectations and regular performance feedback

6 steps

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Process steps

Audit current vendor inventory and active contracts

3 day from previous step

task

Begin by compiling a complete inventory of all current vendors providing goods and services to your organization. Review existing contracts, accounts payable listings, and departmental vendor records. For each vendor, document: - Contract terms and renewal dates - Annual spend volume - Primary contact and relationship owner - Access to proprietary data, customer information, or protected systems - Current performance satisfaction level This baseline assessment is essential before evaluating preferred vendor status and identifies immediate consolidation opportunities.

Categorize vendors by spend volume and business risk

5 day from previous step

task

Categorize vendors by the types of goods and services they provide - such as IT services, office supplies, professional services, marketing, facilities management, and logistics. For each category: - Calculate total annual spend volume - Assess business criticality (what happens if this vendor fails?) - Identify compliance requirements (SOC 2, HIPAA, GDPR, industry-specific) - Evaluate switching costs and alternative availability Rank categories using a risk matrix to prioritize where to focus evaluation efforts first. Critical categories with high spend deserve the most rigorous vendor qualification process.

Define vendor qualification and approval criteria

7 day from previous step

task

Establish clear, measurable criteria for preferred vendor status. Your qualification framework should include: **Mandatory Requirements:** - Financial stability (credit ratings, years in business) - Insurance coverage (liability, cyber, professional) - Compliance certifications (SOC 2, ISO 27001, industry-specific) - Data security and privacy practices **Performance Criteria:** - On-time delivery rates (target: 95%+) - Quality metrics and defect rates - Responsiveness and communication standards - Customer service satisfaction scores **Commercial Terms:** - Pricing competitiveness vs. market benchmarks - Payment terms and early payment discounts - Contract flexibility and termination clauses Different vendor categories may require different criteria weightings - a software vendor needs stronger security standards, while a supplies vendor prioritizes delivery reliability.

Evaluate and score vendor candidates

14 day from previous step

task

Evaluate candidate vendors against your established criteria through a structured assessment process: **Information Gathering:** - Request proposals (RFP/RFQ) for competitive categories - Collect and verify certifications and compliance documentation - Review pricing structures and total cost of ownership - Check references from similar-sized organizations in your industry **Evaluation Process:** - Involve end-user teams in evaluating service quality and responsiveness - Conduct site visits or demos for strategic vendor relationships - Score each vendor objectively using your weighted criteria - Document evaluation findings and rationale **Selection Decision:** - Select 1-3 preferred vendors per category to maintain competitive options - Negotiate preferred pricing and terms with selected vendors - Establish service level agreements (SLAs) where appropriate Keep evaluation documentation for audit purposes and future reference.

Publish approved vendor list and train employees

17 day from previous step

task

Create a centralized, easily accessible document containing all approved preferred vendors. The vendor directory should include: **Vendor Information:** - Company name and contact information - Services/products provided - Contract terms and pricing agreements - Designated internal relationship owner - Ordering instructions or procurement codes **Distribution and Training:** - Publish on your intranet or procurement system - Notify all departments of the preferred vendor policy - Train employees on when to use preferred vendors - Explain the exception request process for non-preferred purchases - Clarify escalation procedures for urgent procurement needs **Policy Enforcement:** - Define consequences for bypassing preferred vendors without approval - Set up approval workflows for exception requests - Track compliance rates by department

Conduct quarterly vendor performance reviews

90 day from previous step

task

Establish a recurring review cadence to maintain vendor list quality: **Review Frequency:** - Quarterly reviews for critical/high-spend vendors - Annual reviews for lower-risk categories - Immediate reviews triggered by performance incidents **Performance Metrics to Track:** - Delivery reliability and on-time performance - Quality issues and defect rates - Pricing changes vs. contract terms - Responsiveness and issue resolution time - Invoice accuracy and billing disputes **Review Activities:** - Collect feedback from internal stakeholders - Compare performance against SLAs and benchmarks - Identify underperformers for improvement plans or replacement - Monitor market for emerging alternatives with better value - Update pricing and terms during contract renewals **List Maintenance:** - Add new vendors who meet qualification criteria - Remove vendors who fail performance standards - Archive historical performance data for trend analysis Keep the preferred vendor list current to maintain its credibility and usefulness across the organization.