Due diligence is a key component of vendor management
Why Perform Due Diligence On Your Vendors?
The due diligence process ensures that your company has a consistent & reasonable approach to vetting its vendor relationships — especially if the vendor is providing a core business function or has access to non-public confidential information.
And Not Just At the Onset Of The Vendor Relationship
It’s not enough to perform diligence during the initial vetting stage. We’ve seen it happen too often — a company goes bankrupt out of nowhere, key management leaves, the company shifts its product or service focus. Conducting diligence throughout the relationship — especially with your critical vendors — is key to avoid being blindsided.
Types Of Information To Collect During The Due Diligence Review
Financial solvency — latest financial statements
List of references
Verification of insurance & license documentation
Previous complaint history
Company history — bios of management & key personnel
Legal & regulatory compliance
Ability to deliver expected level of service — security controls, technology architecture, past experience
Contract review — terms, renewal/notification requirements, required service levels, etc.
Sounds Like A Lot Of Time, Effort & Paperwork…
No one said it was fun! As mentioned above, the two keys to getting through it are:
Don’t reinvent the wheel each time. Have a standard set of diligence review templates that your company uses. The more you can automate the process, the more quicker and smoother it will go.
Do enough diligence necessary to make you feel comfortable with the vendor’s ability to perform their expected role. If you are a bank and seeking a vendor to handle your online banking infrastructure, then the diligence review will be extensive, exhaustive & thorough — whereas a company that handles brochure printing would not be subject to the same amount of diligence.
One way of being “reasonable” with your diligence approach is to conduct diligence proportionate to the vendor’s perceived risk. The greater the risk, the more diligence should be conducted.
Even Better — Have the Vendor Complete It
BTM Group’s VendorRisk solution gives you the ability to email the vendor and give them a “guest page” to complete their diligence review. The vendor contact can then enter or upload the information for each diligence item and submit their response. The diligence owner is emailed a notification that the vendor replied, and can then go in and approve each response.
With this approach, you’re removing the hassle of being the middleman and having to transfer information and documents from email messages with the vendor to VendorRisk — using the guest page, the vendor enters the information directly into VendorRisk.
Agostino is Founder and CEO of BTM Group and a #1 Amazon Best Seller Author in Vendor Management.
Agostino has over 20+ years’ experience in the area of strategic vendor management working with local and international organisations across IT&T, financial, energy, advisory, mining and aviation industries. His focus has been to develop vendor management capability for businesses, manage the implementation of initiatives across the vendor management life-cycle, improve operational and contract management, and 3rd party collaboration.