What are the best practices for conducting due diligence on new vendors?

2 Financial stability and performance

Another important factor to consider is whether a vendor has the financial strength and stability to deliver on their promises and obligations. You need to examine their financial statements, reports, ratios, and indicators, such as revenue, profit, cash flow, debt, assets, liabilities, and equity. You also need to evaluate their financial performance and trends, such as growth, profitability, efficiency, and solvency. You can use tools such as credit reports, ratings, scores, and analysis to conduct this evaluation.

3 Operational capacity and quality

You also need to assess whether a vendor has the operational capacity and quality to meet your expectations and requirements. You need to inspect their facilities, equipment, systems, processes, and standards, as well as their products, services, and deliverables. You also need to measure their operational performance and outcomes, such as timeliness, accuracy, reliability, and customer satisfaction. You can use methods such as site visits, audits, tests, surveys, and feedback to conduct this assessment.

4 Strategic alignment and fit

You also need to determine whether a vendor aligns and fits with your strategic vision, mission, and values. You need to understand their goals, objectives, strategies, and plans, as well as their culture, values, and ethics. You also need to compare their strengths, weaknesses, opportunities, and threats with yours, and identify any synergies, gaps, or conflicts. You can use frameworks such as SWOT analysis, Porter's five forces, and value chain analysis to conduct this determination.

5 Risk exposure and mitigation

You also need to identify and evaluate the potential risks and issues that a vendor may pose to your business operations, reputation, and security. You need to consider the likelihood and impact of various scenarios, such as disruptions, delays, errors, fraud, theft, cyberattacks, or disasters. You also need to review their risk management policies, procedures, and practices, as well as their contingency plans, backup systems, and insurance coverage. You can use techniques such as risk matrices, registers, and analysis to conduct this identification and evaluation.

6 Relationship management and communication

Finally, you need to establish and maintain a positive and productive relationship with a vendor, based on trust, transparency, and collaboration. You need to define and communicate your expectations, requirements, and feedback clearly and regularly. You also need to monitor and review their performance and compliance periodically and objectively. You also need to resolve any issues or disputes promptly and professionally. You can use tools such as contracts, agreements, SLAs, KPIs, and reports to conduct this establishment and maintenance.