Approved Vendor List: Meaning, Examples and How to Create One?

Today, the public, media, government, and other stakeholders scrutinise every business move closely. Businesses must buy from ethical vendors that meet compliance and quality standards. But how can businesses source such vendors and keep track of them? This is where an approved vendor list is helpful. In this blog, we discuss the basics that every business should know about approved vendor lists.

What is an Approved Vendor List?

An approved vendor list is a list of vendors approved for sourcing goods and services by the business department responsible for such approvals. The procurement department generally sets the essential criteria for approving vendors. The requirements may vary from business to business, but they typically include adherence to quality standards, compliance with regulations, reliability for delivering goods or services on time, fair pricing, positive industry reputation, and ethical business practices.

Depending on the type of business, an approved vendor list may be known by different names. If the business mainly involves purchasing goods, it may also be known as an approved supplier list. If the business mainly involves acquiring services, it may also be known as an approved service provider list.

Benefits of Using an Approved Vendor List

Creating an approved vendor list would be a prudent business decision only if its benefits outweigh the costs. Generally, an approved vendor list helps businesses stay organised and make better sourcing decisions. Here are the five key benefits:

• Quality and Compliance—It helps to work only with vendors who meet quality standards and follow regulations, reducing the risk of poor products or legal issues.
• Reduction in Time - Instead of reviewing new vendors for every purchase, you can quickly choose from a pre-approved list, making the process faster and easier.
• Builds Stakeholder Trust—Dealing with ethical vendors helps build trust with the media, public, investors, and other stakeholders.
• Improves Reliability - Since vendors are checked for timely delivery and good service, businesses face fewer delays and disruptions.
• Helps Control Costs—By selecting vendors with fair pricing and stable financials, businesses can better manage budgets and avoid sudden price hikes.

Examples of Approved Vendor List

There is no rigid format of an approved vendor list. The list should be created per business needs and modified from time to time per the industry’s best practices. The table below is an example of how an approved vendor list could look like.

How to Create an Approved Vendor List?

Follow these steps to create an approved vendor list:

1. Identify Business Requirements - List the goods and services your business regularly buys.
2. Set Criteria for Approval - Decide what makes a vendor reliable, such as quality, compliance, pricing, delivery time, and reputation.
3. Find Potential Vendors—The next step is to research and shortlist vendors who meet your needs. Get recommendations, check reviews, and compare options.
4. Evaluate Vendors—Check vendor certifications, past performance, and financial stability. If you are unsure, ask for samples or test their services.
5. Negotiate Terms - Negotiate pricing, payment terms, contract length, and service agreements before finalising.
6. Get Internal Approvals - Share the vendor details with the procurement team, relevant department, or management for approval.
7. Create and Maintain the List—List the approved vendors in a document or system. Review and update the list regularly to ensure vendor quality and compliance.

Best Practices for Managing an Approved Vendor List

• Review List Regularly - Check vendor performance, quality, and compliance regularly.
• Update Data - Ensure that the contact details, contracts, payment terms and certifications are up-to-date.
• Use of Technology—It is advisable to maintain the list in a digital system or vendor management software for easy tracking and updates and to avoid the loss of crucial data.
• Standardise the Process for Approval - Establish clear and standard guidelines for including, reviewing, and excluding vendors to ensure consistency.