Vendor due Diligence is a vital business function whose implementation is critical to the achievement of an organization


Vendor due Diligence is organized into two basic models. Model I identifies and documents prospective vendors based on the vendor's current marketplac

Vendor due Diligence is organized into two basic models. Model I identifies and documents prospective vendors based on the vendor's current marketplace positions, market share, competition, etc., whereas the models II describes a more comprehensive methodology that takes into consideration other factors such as the market mix, channel mix, competitive landscape, etc. Most VDI firms use both models in their ongoing monitoring and benchmarking activities.

A vendor due diligence questionnaire usually consists of several questions, which are designed to gather important information on key risks associated with the new vendor. These questions identify the risks that the new vendor is exposed to as it enters into its market territory and those that it can control or mitigate. The resulting VDI profile usually involves two or three risk factors. The first one is the typical profile that is presented when a VDI firm enters into a new vendor agreement (NDA). The second one is the broader version that is often used by organizations that have entered into agreements without NDA. This broader profile captures additional risks that typically come along with new market entrants.

Some VDI firms follow best practices when conducting vendor due diligence. Examples of such best practices include developing a list of qualified leads; establishing a tracking system to measure progress and cost savings through time intervals; maintaining a database of business contacts and potential vendors; and developing metrics to track progress over time. In addition to these strategies, some VDI firms also rely on third party vendors for services that help in the identification of risks. For example, firms may rely on vendors for data analysis, market research, and the generation of reports. When using outside vendors, these firms must ensure that these vendors provide quality work and develop standard operating procedures. Moreover, firms should ensure that these outside vendors meet quality benchmarks and perform according to contractual obligations.

Another common area in the VDI due diligence process concerns the management team's engagement of vendors.risk managementof the due diligence process involves management's assessment of vendors according to their ability to solve customer challenges. This section requires management to conduct interviews with key vendors, obtain project proposals, evaluate project plans, and compare the vendors to their competitors. Furthermore, management teams must analyze the vendors' strategies, business development plans, financial statements, business plans, and marketing and promotional activities.

Lastly, the VDI due diligence process also addresses the selection of vendors based on the vendors' business models. Most companies that engage in VDI have standard business models and therefore, selecting vendors according to their business model is not a viable option. To address this problem, VDI firms hire an outside vendor to conduct an interview and select the selected vendors according to their specific business needs. Furthermore, as part of the VDI due diligence process, companies also require VDI firms to develop compliance guidelines and secure vendor certification.