Due diligence processes for vendor procurement vary by company, industry, and region. Some regulatory bodies dictate due diligence practices, and some industry groups have adopted standardized processes. In addition, requirements may change based on the type of vendor being assessed.
While there is no universal standard, there are certain pieces of information which all procurement and risk professionals should consider gathering while conducting vendor due diligence.
We’ve compiled this vendor due diligence checklist as an overview of the types of information that should play a role in procurement decision making. Not every item in this list is a necessity, but the more you complete, the more thoroughly you’ll be able to mitigate risk in the vendor selection process.
Collecting this information helps ensure that the company is (1) legitimate and (2) licensed to do business in your area. You’ll also want to collect information on key personnel for use in further risk assessments.
[Learn how to perform a quantifiable vendor security analysis.]
Assessing financials isn’t as important for vendors as it would be for other due diligence targets, like potential acquisitions. However, you do want to check whether the vendor is financially solvent and paying their taxes. There’s no sense working with a vendor that won’t be in business next month. Conversely, a strong growth pattern could forecast an increase in prices down the line.
Vendors that will have access to important information or systems must be subject to an added level of scrutiny. Corruption or political weaknesses could potentially be dangerous, and their scandals could quickly become your scandals.
Data breaches that originate with third parties are becoming increasingly common, and they rank among the most expensive types of cyber attacks. Though assessing third-party cyber risk is traditionally left until after procurement, there is a strong argument for its inclusion in the due diligence process.
As part of the third-party due diligence process, you’ll want to assess whether the vendor is exposed to operational risks that could negatively affect your company. One example of this type of risk would be downtime for a SaaS provider which could impact operations at the organizations in their network.
After data is collected, it must then be verified and compared with best practices and your organization’s risk appetite to determine whether a vendor relationship should be pursued.
Many of the items listed above are not limited to the due diligence process. Some, such as BitSight Security Ratings, also play a key role in ongoing vendor monitoring and third-party risk management.
