Drive efficiency with this 10-step vendor approval process

Sourcing and onboarding new vendors is always a source of risk. Failure to vet software suppliers properly can put your organization at risk of disasters like data leaks. An imprecise analysis of potential supplier options may lead you to pay more than you need to.

But the opposite isn’t a whole lot better.

Overly complex approval workflows drag out the procurement process and make department leaders more likely to engage in maverick spending for want of avoiding all that red tape and bureaucracy.

Finding the middle ground between these two states is the key to a great approval process.

Discover the ideal 10-step vendor approval process that helps reduce risk, cut costs, and speed up sourcing without creating unnecessary bottlenecks.

What’s the point of a vendor approval process?

The main reason for creating a vendor approval process is to ensure that your company creates favorable relationships with external suppliers without significant risk.

Because it’s easy to decentralize procurement in today’s environment—for instance, a marketing manager can quickly sign up for a new marketing tool using their corporate card—leaders need processes to ensure relevant authorities sign off on purchases.

An effective vendor approval process verifies that purchases have gone through the necessary steps to be approved and accounted for.

But a great supplier approval process also reduces bottlenecks and hold-ups using process automation, intelligent approval routing rules, and multiple approval stages that prevent double work.

The following 10-step process walks you through achieving these goals.

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10 Steps in the vendor approval process

1. Needs analysis

Step one is determining your company’s needs regarding this purchase so you can make a convincing business case for that expense.

Say you’re looking to procure a new CRM. Your procurement team should meet with the heads of your sales and marketing departments to answer:

• How are we currently managing this data?
• What do we hope to gain by implementing a new software platform?
• Can those gains be measured in dollar terms?
• What are the non-negotiable features the new purchase must have?
• What happens if we don’t make this purchase now?
• Who will use the CRM, and how will they use it?
• How does this investment relate to our broader business goals?

Document your answers to these questions in a way that makes it easy for decision-making authorities to skim and interpret quickly.

2. Approval to source

Use your business needs analysis to secure approval to begin looking for vendors.

This is the first approval checkpoint, which your procurement platform should automate.

For instance, you could set up a rule that routes the sourcing approval request to your Head of Procurement. However, you might create a contextual rule that sends the request to your CIO when purchasing a software platform.

We’ll dive into the details of using procurement tools to automate and improve approval workflows later.

3. Vendor identification and research

Now that you have sourcing approval, begin the market research process. Pull together a list of vendors in the space (for instance, all of the existing CRM providers). List the key benefits, features, and value props related to your sourcing needs for each.

4. Supplier shortlisting

Use your needs analysis requirements to cull unsuitable options. For example, if one of your non-negotiable features is email marketing automation, you can cross any tools that don’t offer that off your list.

5. Requests for proposals (RFPs)

Now that you have a reasonable shortlist, start looking at what these options cost.

The request for proposal is a great tool for understanding each supplier’s capacity to meet your needs, given their current availability and pricing.

Send an RFP to each vendor on your shortlist, then cut those who are outside your budget or can’t meet your order requirements.

6. Vendor vetting and risk analysis

Vendor vetting is all about understanding and mitigating risk.

These can be security risks (like the possibility of a data breach) and other vendor risks (like the chance of a supply chain shortage impacting your production schedule or the potential of a software crash).

Carter’s 10 C’s of supplier evaluation provide a good framework here:

1. Competency: Do they have the technical ability to help?
2. Capacity: Can they fulfill your order requirements?
3. Commitment: Are they able to meet your needs long-term?
4. Control: How much control do they have over their own capacity, supply chain, and quality?
5. Cash: Is the company in a good financial situation?
6. Cost: What will the product or service cost?
7. Consistency: Have they consistently fulfilled other customers’ orders?
8. Culture: Do the company’s values align with yours?
9. Clean: What is the vendor’s view on and commitment to sustainability?
10. Communication: How will they keep in touch with you?

7. Supplier comparison and decision-making

Use the information you gather from all the previous steps to decide on the vendor you’d like to proceed with.

It may be helpful to rank in order and choose your top three, so you can present two alternatives when seeking approval.

8. Approval to engage

Provide your analysis of vendor suitability, decision-making process, and the supplier you’d like to proceed with to your approval-making authority.

This information and approval should be submitted via your procurement platform, making it easy for them to access documents and for you to track the current stage of the approval.

9. Contract negotiation

With approval to proceed with your chosen vendor, you can now engage in contract negotiation.

Start with a contract template to get off the ground quickly, edit any required fields, and have your legal team review it before you commit to anything.

Learn more about the contract negotiation process in our guide: How to negotiate a SaaS contract.

10. Contract approval and sign-off

The last part of your vendor approval is getting a sign-off on the written agreement.

This should involve your legal team, and whoever else is a decision-making authority for this purchase category (such as the CEO, COO, or CIO in the case of software purchasing).

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The role of software in efficient vendor approval processes

Developing a vendor approval process that balances the need for risk mitigation with the desire to move quickly is a tricky affair.

Specialized software platforms for managing procurement help achieve this important middle ground, mostly through automation.

Procurement software tools like Vendr allow you to create custom automated approval workflows, so teams work quickly while maintaining compliance with internal purchasing policies.

Here’s an example of what one such automated workflow might look like:

• Needs analysis goes to the head of procurement for approval
• If purchasing category is software, it’s sent to CIO for secondary approval
• Once approval is granted, the task routes back to the procurement professional in charge
• Vendor risk analysis matrix gets completed
• Supplier options are ranked and prioritized
• It’s submitted to the COO for final decision approval
• Once the COO grants approval, the purchase order is raised

At each point, automated notifications reduce bottlenecks and mitigate unnecessary delays.

Vendor relationship management software also assists with the sourcing and approvals process by

• Providing important vendor information in-platform to reduce time spent on data collection
• Offering price benchmarking information to eliminate the need for an RFP before vendor evaluation
• Allowing teams to create vendor lists that outline vetted and approved suppliers

Create effective approvals processes with Vendr

Vendr is the SaaS buying platform that helps manage new supplier relationships from sourcing and approval to contract renewals.

With Vendr, procurement departments benefit from:

• Custom automation to speed up the approval process
• Real-time visibility into where each new sourcing activity stands
• Price benchmarking from the most extensive data set of SaaS buying transactions around
• Dedicated sourcing assistance from a team of software buying experts to help choose the best vendor the first time around

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