Approved Supplier
Discover the definition of an approved supplier and why maintaining an approved supplier list could be beneficial to your organization.
Jonathan Haney
Senior Director, Marketplaces
What is an Approved Supplier?
An approved supplier is any vendor that has proven that they meet a company’s specific requirements. Approved supplier status usually means that the supplier is eligible for inclusion on the official list of potential sources for goods or services, referred to as an approved supplier list (ASL).
Being on this list means that the company is confident that the supplier can uphold their regulations throughout the relationship. As a result, many organizations will first consult their ASL before seeking new contracts with new suppliers.
A supplier generally must go through a specific approval process before attaining this status. The approval process may include strict guidelines or be relatively lenient depending on the nature of the materials, supplies, or services provided.
Typical Criteria for The Supplier Approval Process
Quality Certifications
Quality certifications demonstrate the supplier’s commitment to maintaining high-quality standards. These certifications may vary depending on the industry. For example, medical device companies will likely seek suppliers who can demonstrate that they are certified to uphold ISO standards.
Financial Stability
Suppliers may have to provide evidence of their financial health to demonstrate their long-term viability. Organizations may request this information because a financially stable supplier is less likely to face disruptions that could impact service delivery.
Production Capabilities
A company may ask a supplier to show their ability to meet production demands within required timelines. Meeting this criteria shows that the supplier is a functional fit for the organization. Failing to meet production demands could have a direct impact on the purchasing company’s customers.
Compliance
Highly-regulated industries must ensure that their suppliers are capable of meeting their industry’s compliance regulations. Compliance violations from a supplier could trickle down to the company and evolve into their own violations.
Past Performance
A supplier’s track record may be a key indicator of future performance. Therefore, an organization may ask potential suppliers to provide examples of how they have demonstrated good performance during past engagements.
Why is it Important to Have an Approved Supplier List (ASL)?
A company’s approved supplier list (ASL) is a document or database that tracks all the suppliers approved by the organization. The ASL helps streamline procurement processes by providing a qualified list of reliable suppliers who have already proven that they meet the company’s standards. Procurement teams may refer to the ASL before they seek new suppliers for any given project.
Best Practices for Managing Approved Supplier Relationships
Continuous Monitoring
Regularly reviewing supplier performance is crucial to ensure ongoing compliance with established standards. A supplier who did well during the evaluation process may or may not deliver the same level of service quality in practice.
Clear Communication
Maintaining open lines of communication allows suppliers to work with your team to address any challenges if they arise. Communication channels also leave room for feedback and help ensure that expectations stay aligned.
Periodic Re-evaluations
Performing a periodic re-evaluation allows organizations to confirm that their approved suppliers are still capable of meeting criteria. In-house procedures are subject to change, which means that a previously approved supplier may no longer qualify at a later date.
The Benefits of Approved Supplier Status
For Purchasing Organizations
Having access to a pool of reliable suppliers simplifies the sourcing process and enhances decision-making. It also allows companies to build strategic partnerships that can lead to better prices, favorable terms, and opportunities for innovation.
For Suppliers
Becoming an approved supplier opens the door to new opportunities and builds trust with clients. The pressure to preserve approved supplier status may also encourage employees to perform higher-quality work. Pushing employees in this direction will provide additional benefits in the long run.
FAQs on Approved Suppliers
How does a supplier become approved?
A supplier typically becomes an approved supplier after undergoing a comprehensive assessment by the purchasing organization’s procurement team. Once these criteria are met, the supplier is added to the approved list for future sourcing.
What is the difference between an approved supplier and a preferred supplier?
An approved supplier meets the company’s minimum criteria to provide goods or services. A preferred supplier has demonstrated exceptional performance and is often given priority or exclusive business. An approved supplier may evolve into a preferred supplier if they provide stand-out services.
Can an approved supplier lose their status?
A supplier’s approval status is never guaranteed. If an approved supplier fails to maintain the standards required by the purchasing organization, they may be removed from their approved supplier list.