Vendor Management Audit Checklist: Key Factors to Look For
Every year, companies conduct audits on some of the most important aspects of their operations. The goal of these audits is to check that the business is healthy and ensure everything is running smoothly. They help you look for inefficiencies in your systems and processes and correct any red flags.
Finances are perhaps the most common area where companies perform audits—but you don't need to stop there. It's also key to review your vendors. Performing a vendor audit can help highlight potential risks, inefficiencies and compliance issues—before they become a problem.
To get started, create a vendor management audit checklist. This will help track important factors and decide if your business should stick with the vendors you have or move on to other options. Here's how to get started.
What to include
To prepare your vendor quality audit checklist, start by creating a list that has your most essential metrics in mind. These can and should vary by company based on your needs, but some basics include:
- Pricing: Review how the pricing fits into your budget. Also, perform the calculations to determine if you're getting the return on investment you'd initially planned.
- On-time delivery: Does the vendor hit the deadlines and due dates you request? Have late deliveries on promises cost your company time and money?
- Support: Have you encountered issues with the vendor where you need help? If so, has the vendor provided adequate support?
- Security: Cybersecurity is an ongoing threat all businesses need to worry about. Does your vendor provide secure services, including frequent updates?
- Safety: Is your vendor meeting all the safety regulations required by law? Do the products or services your vendor offers have your employees' health and safety in mind?
- Compliance: Your business might have to meet specific state and federal regulations. Is your vendor also meeting these, and are they also assisting your compliance?
Beyond the basics, your organization might require that vendors align with your core values and needs. You'll want to include these in your vendor management audit checklist, as well. Some of these might include:
- Inclusion or diversity standards: Your company might prefer to work with vendors that prioritize diversity and inclusion. Does the vendor provide statistics to back up its stated claims?
- Environmental standards: If your business prefers to work with more environmentally friendly vendors, check to see if they meet the criteria you've set.
- Technology: If you're a technology-forward brand, you might want to ensure the vendors you're working with use the most up-to-date systems—for both efficiency and security.
As you become more familiar with the ins and outs of developing your vendor quality audit checklist, you'll soon get a feel for the specific factors to include.
Schedule vendor reviews
Regardless of your business's size, it's a good rule of thumb to perform vendor audits on an annual basis. However, if a particular vendor is critical to your business or supply chain, it might be beneficial to schedule audits more frequently.
When starting with a new accounting software vendor, for instance, it might not hurt to check at the 6-month mark to ensure everything is going smoothly. That way, you can identify any potential red flags before tax season. From there, you can determine if you want to proceed with annual audits as usual.
Remember a few best practices
Having a good relationship with your vendor is far more important than you might think. A great vendor that's a good fit for your company and its values can make running your business much easier over the long term. So, finding these vendors is critical.
Here are a few best practices that can help:
- Do your research: Today, there's no shortage of information online about virtually any company out there. Before you pick a vendor, look at its reviews and see what other customers have to say.
- Set your priorities: Before you perform an audit, know what you're looking for first. Every brand has key metrics that are important to management and the organization. Know those going into your audit.
- Build a team: Create an audit team with a manager and members from departments that work with each vendor. With their shared knowledge and experience, they can develop the checklist.
Vendor risk is a real concern for many businesses. Don't let yourself get caught off guard. Performing regular vendor audits can help you manage business risks and ensure your company is always running at its best.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.