What is a Preferred Vendor List

Aug 15th, 2015
What is a Preferred Vendor List

When large companies need to buy the same products or services repeatedly, they select a few staffing suppliers, negotiate a better pricing based on some volume commitments and create whats called a preferred vendor list or an approved supplier list for their company. This saves the company's employees time and effort when they need to make a purchase in the future as the research, vetting and negotiating of the provider/supplier has already been done by their procurment department. Once selected, these preferred vendors remain on the preferred vendor list for a few years or until they stop performing.

Selecting the preferred vendors may include getting RFP (Request for Proposals) responses to things the company cares about, checking their reputation online, conducting reference checks with previous customers, evaluating the vendor's financials, verifying the certifications and negotiating pricing and terms and conditions.

This is no different than what you do as a consumer when you sign up for a frequent flier program with an airline or for an ‘Amazon Prime’ account. You offer your loyalty and commitment to buy from these providers, and in exchange the sellers offer you better prices, better services (Free 2 day delivery) and other discounts and benefits.

 

Some of the benefits companies get from having a preferred vendor list are

Negotiate all terms and conditions like confidentiality, warranty, liability, etc. just once in a Master Services Agreement (MSA), saving their legal departments from contract reviews. Then when they need to make a purchase, their Purchase Order (PO) or Statement of Work (SOW) then just needs to mention the item, price and quantity and references the MSA for the other terms

Obtain price discount for higher volumes

Get better service level commitments from its suppliers for service, delivery times or problem resolution

Receive dedicated account management (concierge like service) so they have someone at the supplier to take care of their issues without having to follow-up. They get s special number to call unlike the 1800 customer service number of the company

Better payment terms- ability to pay 30-60 days after receiving the items which improves their cash flow

 
Examples of Preferred Vendor Lists:

Citibank buys laptop computers for its offices. They will have a preferred vendor (someone like Dell, HP or Lenovo) with whom they negotiated for specific models they are interested in having for their employees. In exchange, the supplier may offer a steep discount, assure these laptop models are available in stock always by keeping a few extra ones in all Citibank locations worldwide, offer onsite next day service to fix broken computers and a 3 year warranty at no extra cost. All Citibank employees or procurement persons would now know which laptop computers to buy and from whom, and Citibank benefits from better price discounts and service.

Coca-Cola buys a lot of TV advertising and so they would have consolidated all their media purchases through 1-2 advertising agencies. Its marketing employees know which preferred agency is on its preferred vendor list if they needed to buy a TV advertising slot and don’t need to research or negotiate one-off deals.

IBM’s consultants travel a lot and need hotel rooms, airline tickets and rental cars. Its employees know which travel agency/website or provider to use for booking because it is listed on IBM’s approved vendor list.

Sometimes preferred vendor lists may also be maintained for the benefit of customers and partners instead of employees.

A Wedding Hall wants to make it easier for its customers to find providers and may maintain a list of preferred vendors for printing wedding cards, flower decorations, bakery for cakes, music bands, etc. The wedding hall benefits from not having to educate new service providers, ensuring satisfied customers and possibly referral fees from the other providers.

SAP wants to ensure its customers find good consultants to implement SAP software else it may hurt SAP’s reputation if the customer doesn’t manage to do this successfully. SAP may therefore maintain a preferred vendor list based on company size, reputation, or geography that have worked well in the past and recommend consulting companies on this preferred vendor list to its clients.

Here's a sample preferred staffing vendor list for any Fortune 1000 company in your city.

 

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