SCLCI Early Editions: “The Importance of an Approved Vendor List”
November 22, 2023 Authored by Hilary J. Schmitt, SCMP S&Co., Supply Chain Logistics Consulting SUBSCRIBE HERE.
Breakdown the important elements that increase organizational alignment and give your company the ‘supply chain advantage’.
A Valuable Practice.
For busy business leaders who are constantly working on projects, managing departments, and executing on organizational priorities, countless decisions are made every day. Why not make this a simpler, more efficient and cost effective process that serves to save on cost and will increase quality over time?
One aspect that often gets overlooked as creating strategic advantages and providing significant benefits to businesses, is the process of selecting and onboarding vendors. It is important to understand how an Approved Vendor List (AVL) can make a difference when streamlining business operations, producing quality results, and creating the conditions needed for reliable stability.
How AVL’s Support Resilient Business Operations
Key Points:
- It is a fundamental practice for organizations that prioritize quality, reliability, compliance, and operational efficiency, especially when doing so at scale.
- This is a process that facilitates greater integration and stronger relationships with pre-approved vendors. It can also lead to collaboration, increased responsiveness, and improved service through better understanding your company’s requirements.
- An AVL can increase financial stability and help to reduce related losses when there are shortages by quickly producing alternatives for critical materials or services, such as those experienced with supply chain disruptions.
- The adherence to predetermined specifications, standards of regulatory compliance, and active certifications, can ensure a minimum level of quality can be expected from approved suppliers on the list.
Data-Driven Value for Procurement Performance:
This process is also important for business leaders that extract greater value from procurement when used to support business objectives and to increase alignment with the organization’s mission and vision.
An AVL facilitates businesses in adopting a data driven and procedural approach to supplier diversification, monitoring targets for ESG performance, setting standards and minimum service level requirements, making adjustments and monitoring progress on trials of innovative products or services, and supporting a more open and transparent sourcing process for suppliers and the company’s end customers.
The Benefits of an Approved Vendor List
1. Simplifying the Vendor Selection Process:
Finding a suitable vendor can be a time consuming task. An AVL acts as a trusted resource, listing pre-approved suppliers that meet specific criteria set by the company. This saves time and effort by eliminating the need to evaluate each vendor each time a requirement to source a product or service arrives.
An AVL allows supply chain management teams, departmental business leaders, and project managers, to focus on productive activities rather than expending time in the search for qualified suppliers.
2. Ensuring Quality and Reliability:
Businesses that strive to deliver products and services of the highest quality wish to delight their customers. An AVL plays a pivotal role to ensure that reliable vendors, who have been thoroughly vetted, are chosen.
By maintaining a list of vendors that meet minimum standards and hold relevant qualifications, business leaders know they can receive consistent, high-quality products or services, thereby reducing the risk of disruption to production and service delivery targets.
3. Mitigating Risks:
In certain situations surprises are fine, like receiving better than expected service at a restaurant or an unexpected rebate on prior purchases. Unpredictability can be a negative for business because of how interruptions and unplanned events impact scheduling for production. An AVL helps mitigate these potential risks and others which can be common when engaging with unverified vendors for the first time. By carefully evaluating vendors’ qualifications and ensuring adherence to certain standards, businesses can avoid being surprised by noncompliance at a later date.
Setting minimum legal and safety requirements, such as insurance coverage and criteria for occupational health and safety practices, help to insulate the company from unsafe practices or inadequate protections when working with suppliers, minimizing the likelihood of product recalls, legal claims, and negative publicity.
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4. Leveraging Negotiation Power:
Maintaining an AVL enhances a company’s negotiation power when dealing with vendors. By committing to using the corporation’s purchasing power within a select group of approved suppliers, businesses can negotiate better terms, obtain preferential pricing, and secure favourable contract terms. This results in cost savings, better service quality, and improved profitability, producing a competitive advantage within the markets they serve.
By utilizing the negotiation process to increase the value potential found within supplier relationships, businesses can lay the groundwork for greater integration and enhance information sharing in the years ahead. This forward-planning can improve communication, leave room for future collaborative solutioning, and can reveal new insights into product or service development. Negotiating the terms of the vendor relationship in advance can lead to increased innovation, improved customer satisfaction, and preferential treatment during times of high demand or supply chain disruptions.
5. Building Strong Supplier Relationships:
Building strong relationships with priority vendors is critical to the long-term success of any business. An AVL assists business leaders with evaluating the importance to the company and level of reliance for specific vendors using analysis of key metrics such as scarcity, complexity, lead times, and replacement cost.
Companies benefit in their use of an AVL because it provides a structured framework for engagement with vendors and can offer them a level of transparency into the supplier selection process. An AVL also provides companies with an opportunity to remain open for alternative qualified vendors to join the list, and can diversify the source for critical goods and services, or discover innovative solutions by doing so.
The Importance of an Approved Vendor List
Company’s that develop a robust supplier pre-qualification and onboarding process know the benefits of having an approved vendor list (AVL) when it’s needed.
The Benefits of an Approved Vendor List:
- Maintains product consistency and minimizes defects or variations.
- Ensures work is with qualified suppliers and reduces the time of procurement.
- Helps to mitigate risk, control costs, and enhance customer satisfaction
- Results in improved product customization and support.
- Contributes to stronger buyer-supplier relationships.
Read a related article by 2023, K. Molitor, SDC.
SCLCI Back-to-Basics: “The Benefits of Supplier Relationship Management”
In Conclusion:
If developing an Approved Vendor List (AVL) is not on your executives list of strategic activities, you should include one. The process of developing an AVL will have a surprising result when it’s successfully executed to meet your requirements and then managed accordingly.
From simplifying the selection process for busy department managers, to ensuring the quality of inputs for production, business leaders can minimize their exposure to risk and leverage the company’s buying power for better results. Building a base of suitable suppliers offers a resilient foundation for business operations to run smoothly and at a lower cost when deployed within a suitable organization.
Learn for yourself how an AVL can provide this benefit.
Referenced in this article.;
- https://www.sdcexec.com/sourcing-procurement/manufacturing/article/22876129/qp-technologies-preventing-supply-chain-interruptions-in-the-face-of-heightened-onshoring
- AI: Contributed copywriting material prior to the authors contributions, editors corrections, referenced additions, and formatting adaptations.
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