Strategic vendor selection is becoming increasingly important as supply chains expand and organizations become more comfortable relying on third-party vendors to deliver critical business products and services.
Given the potential of inheriting new cyber risks and vulnerabilities, organizations must procure the right vendors to ensure healthy cyber hygiene and ongoing continuity and success.
Knowing this, your organization should refine its vendor selection process before forming partnerships with new vendors. By refining its procurement strategies, your organization can source high-quality talent, improve vendor management workflows, and achieve vital business goals.
Keep reading to learn how to craft an effective vendor selection process and evaluate potential partnerships using critical vendor selection criteria.
Discover how UpGuard Vendor Risk helps organizations with vendor selection>
What is a Vendor?
Vendors are third-party suppliers, contractors, and service providers who distribute goods or services to a business. Once an organization partners with a vendor, the third party becomes part of the business’s supply chain.
Organizations often categorize vendors into one of two groups: critical and non-critical. Critical vendors are third parties who supply goods or services that are essential to an organization’s day-to-day operations and business continuity.
Vendor risk management (VRM) is the process organizations use to identify, assess, and remediate vendor risks across their supply chain. The best way for an organization to strengthen the foundation of its VRM program is by devoting energy to strategic procurement methods and the entire vendor selection process.
What is the Vendor Selection Process?
The Vendor Selection Process (also referred to as the vendor procurement process) is a series of steps organizations use to assess business needs, determine product or service requirements, and source third-party partnerships that fulfill these needs and requirements.
An effective vendor selection process includes identifying new vendors, evaluating vendors using selection criteria, conducting preliminary vendor due diligence, and contract negotiations. During the vendor selection process, most organizations will utilize formal evaluation activities such as requests for information (RFIs), requests for proposals (RFPs), and requests for quotes (RFQs).
7 Tips For Successful Vendor Selection and Ongoing Vendor Management
Developing a successful vendor selection process will allow an organization to not only select vendors and meet business requirements but also allow personnel to streamline the vendor evaluation process, speed up decision-making, and prevent disruptions that might have otherwise affected business continuity.
The best vendor selection processes also consider ongoing vendor management and the longevity of vendor relationships. While VRM typically refers to the vendor maintenance an organization completes after onboarding a vendor, organizations should conduct preliminary VRM procedures during the selection process.
Organizations currently selecting vendors can utilize the following tips to improve their vendor selection process and give their VRM program a competitive headstart.
- Spend time defining business goals
- Develop a list of prospective vendors
- Determine vendor selection criteria
- Evaluate vendors using criteria and business needs
- Develop a shortlist and meet with potential vendors
- Draft vendor contracts
- Conduct vendor due diligence and onboarding
1. Spend Time Defining Your Business Goals
The first step in any organization’s vendor selection process should involve defining business needs and requirements. This step may seem simple, but it is vital to the overall success of the entire process.
During this stage, organizations should ensure all personnel involved in the vendor selection process know what products or services the business needs, why the business needs these products or services, and how the company will ensure quality control throughout the procurement process.
If your organization has a large vendor procurement team or is planning to evaluate many third-party vendors, developing a business requirement document may be helpful. This document should outline three essential categories of information:
- Business needs (Why is your organization looking for a third-party vendor?)
- Vendor characteristics (How will your organization know it has found the right vendor?)
- Deliverables (What will the vendor provide to your organization?)
2. Develop a List of Prospective Vendors
Next, an organization should seek potential vendors to help them achieve its business goals. Making a list of potential candidates is an excellent way for a business to consolidate and organize the variety of opportunities available to source a particular service or product.
At this stage in the vendor process, organizations will inevitably start to compare and contrast vendors and form opinions using vendor attributes.
Once your organization has developed a list of potential candidates, you should send out a request for information to each vendor. Sending out an RFI will allow your organization to learn more about a vendor’s product or services and assess its ability to achieve your business needs.
A complete RFI document will include five essential sections:
- Organization information (the requesting organization’s company name, address, point of contact, and contact information)
- Request overview (detailed explanation of what products or services the organization is after and why the organization believes the vendor can help them)
- Information requested (detailed description of the specific information the organization is requesting from the vendor, including any certifications, compliance requirements, or metrics needed)
- Organization expectations (the scope of information the organization is expecting to receive and the timeline the organization expects to receive it by)
- Clarification of needs (extra information that may be useful to the vendor as they complete the request)
3. Determine Vendor Selection Criteria
While an organization will likely start developing its vendor selection criteria simultaneously while sending RFIs, it should refine these criteria after receiving requests from several vendors. Vendors that do not meet the criteria set by the organization will ultimately be removed from consideration.
At this stage in the vendor selection process, organizations will likely notice disparities between vendors, the services or products they offer, and even their level of professionalism. While receiving RFIs back, organizations may also become aware of new industry-specific criteria they can use to evaluate vendors.
While your organization should populate its checklist with criteria specific to your business needs and requirements, the following list includes examples of essential criteria every organization should consider:
- Overall security posture
- Quality of product or service
- Price and value
- Subscription terms (if applicable)
- Transportation costs (if applicable
- On-time delivery (if applicable)
- Financial stability
- Customer references
- Customer service
- Regulatory compliance
- ESG sustainability
Learn how UpGuard helps organizations source vendor criteria>
4. Screen Vendors Using Criteria Checklist
After an organization develops its criteria checklist, it should begin to assess all vendors using the document. To thoroughly vet vendors, organizations must utilize a combination of the vendor’s RFI response, public customer reviews, and third-party risk management software.
A complete RFI response will allow an organization to determine the vendor’s product quality, pricing, value, subscription terms, and professionalism. At the same time, customer reviews will give the organization insight into the vendor’s customer service team and overall quality of service.
By using third-party risk management software, like UpGuard Vendor Risk, organizations can conduct vendor due diligence (VDD), assess a vendor’s overall security posture, ensure vendor compliance, and discover what factors affect a vendor’s security score or risk scorecard.
Learn how UpGuard helps organizations evaluate vendor compliance and security posture>
5. Develop a Shortlist and Meet With Potential Vendors
Once an organization evaluates most potential vendors, it can develop a shortlist of the most promising partnerships. At this stage, an organization should schedule product demos or another meeting with each vendor on its shortlist. The organization can further assess the vendor’s ability during these meetings and demos.
At this point in the vendor selection process, organizations should also submit a request for proposal to the top vendors on their list. Sending RFPs will allow an organization to request bids on the project or service needed. RFPs also promote competition and subsequently enable organizations to achieve cost savings.
Your organization’s RFP document should include the following sections:
- Project information (product or service requested, contract type, funding company, etc.)
- Statement of work (description of what the organization is requesting from the vendor)
- Introduction (overview of organization and projects related to request)
- Scope of work (deliverables requested from vendor and the format they will be delivered)
- Performance duration (the length of time the organization will need the requested product or service)
- Work requirements (description of each task the vendor should complete)
- Performance schedule (milestones and deadlines for each task and deliverable needed)
- Acceptance criteria (criteria that the organization will use to assess the performance of the vendor)
6. Draft Vendor Contracts
Once vendors have submitted proposals and the organization has narrowed its shortlist to one or two finalists, personnel should begin drafting a vendor contract.
At this stage, your procurement team should consult account executives and other relevant stakeholders to verify contract details and performance goals. Given that this contract will be a legally binding document, your organization must take its time to iron out the details surrounding all aspects of the partnership, including:
- Cybersecurity posture, cyber hygiene, security performance, etc
- Vendor compensation,
- Payment terms,
- Vendor performance,
- Deliverables requested,
- Schedule of work, and
- Stipulations for vendor termination
By drafting a complete and transparent vendor contract, your organization can facilitate strong communication and set the stage for effective vendor management.
7. Conduct Vendor Due Diligence and Onboard Vendors
While organizations should conduct preliminary vendor due diligence and submit security questionnaires as part of the vendor screening process, completing other formal due diligence procedures before onboarding is essential.
Many regulation frameworks, including HIPAA, NIST, and others, now require organizations to prove that their third-party vendors will protect consumer data (personally identifiable information (PII) and sensitive data) throughout the partnership. In addition, data breaches can pose devastating consequences to an organization’s reputation and financial stability.
A comprehensive VDD program will help your organization comply with industry regulations, prevent data breaches, reduce its overall cyber risk, and smoothly onboard vendors without inheriting significant third-party risks or vulnerabilities.
In addition to submitting preliminary due diligence questionnaires, your organization can also fortify its due diligence program by:
- Conducting vendor risk assessments
- Evaluating vendor business continuity plans
- Evaluating vendor disaster recovery plans
- Utilizing industry security assessment frameworks (CIS controls, CAIQ, etc.)
- Developing continuous monitoring strategies
After your organization has completed VDD, it can onboard its vendors and shift its focus to ongoing vendor relationship management.
Learn how UpGuard enables organizations to streamline their vendor due diligence programs>
How Can UpGuard Help With Vendor Selection and Procurement?
UpGuard Vendor Risk empowers organizations by increasing their supply chain visibility, helping with ongoing vendor risk management, automating continuous monitoring, and providing up-to-date vendor information to assist with supplier selection.
By adding UpGuard Vendor Risk to its vendor toolbelt, your organization can:
- Decrease the time and energy it spends creating, sending, and reviewing vendor questionnaires
- Monitor all vendors and their risks in one intuitive dashboard
- Conduct robust risk assessments
- Calculate the impact of remediated risks
- Understand what risk factors are impacting a vendor’s security posture
- Assess vendor risks and request remediation in a single workflow
Run tailor-made reports for various stakeholders using the reports library, and so much more
