Vendor analysis

From CEOpedia | Management online

Vendor analysis - this is an assessment of the strengths and weaknesses of the current suppliers of the entrepreneur. During this process, the supplier's personnel, their business model, financial capacity to realize a given type of sales, assortment, reputation or terms of delivery and payment are analyzed. Undertaken by each entrepreneur before he or she starts cooperation with a new entity. This is important because the target company is likely to enter into a longer cooperation with him/her and will have to trust him/her in the supply context (which is crucial for entrepreneurs). In addition, vendor analysis is a phenomenon that provides valuable information on current market prices and enables the imposition of an appropriate margin or cost surcharge on the sale of goods in the wholesale or retail trade.

Methods of conducting vendors analysis

Carrying out vendors analysis is often a tedious process. It can take up to more than a month to deliver the right documents to the potential buyer. A reliable buyer should try to obtain, among other things, the following information [1].

  • Monthly stock levels of the supplier;
  • The transport possibilities and the rules on which the transport of the ordered goods will be carried out;
  • The financial capacity to acquire such goods (to ensure that the goods do not originate from, for example, a criminal offence).

In view of the above, a large part of the collaboration may already be completed at this stage. Very often, potential suppliers do not want to disclose information about themselves, hiding at the same time the secret of the company and the business secret. Nevertheless, in a normal economic process, it is natural to control potential contractors. This is due to the fact that the persons concerned will be partly interdependent (supply chain buyer, outlet market supplier). Therefore, it should be in the interest not only of the buyer but also of the supplier to control the contractor.

Vendor analysis in virtue of tax law

Special attention should be paid to vendor analysis in the context of the application of tax law. In accordance with the current regulations aimed at counteracting VAT fraud or artificially reducing the tax base, Member States of the European Union introduced regulations obliging all professional taxpayers (performing economic activity) to verify their contractors in terms of form and business [2]

A fragment of the business analysis is described in the previous section. However, formal verification, which is limited to the obligation to obtain the following documents from a potential contractor, is also important:

  • Register documentation for business purposes or VAT settlements;
  • Documents confirming the lack of tax arrears (e. g. a certificate confirming the given legal status);
  • Checking whether a given entity fulfils other obligations (e. g. submitting financial statements on time) imposed on it by separate provisions of law.

Failure to comply with the above actions may sometimes result in joint and several liability of a taxpayer making a transaction with a criminal entity. This is due to the fact that vendors analysis is now mandatory for tax purposes [3].

Examples of Vendor analysis

  • Assessing the financial status of a supplier: This includes reviewing the supplier's financial statements and credit history, as well as the supplier's ability to fulfill orders and maintain consistent delivery times.
  • Assessing the quality of a supplier's products: This includes testing products for safety, reliability, and durability, as well as evaluating the supplier's quality management system.
  • Assessing a supplier's customer service: This includes evaluating customer service policies, customer feedback, and customer support.
  • Assessing a supplier's environmental and sustainability policies: This includes evaluating a supplier's commitment to reducing waste, conserving energy, and eliminating the use of hazardous materials.
  • Assessing a supplier's logistics capabilities: This includes evaluating a supplier's ability to transport goods quickly and efficiently, as well as their ability to manage inventory and shipping costs.

Advantages of Vendor analysis

  • Vendor analysis helps in identifying the right supplier for a business, which is an important factor in achieving success.
  • It helps entrepreneurs to negotiate better prices and terms of delivery with suppliers.
  • Vendor analysis helps to identify any weaknesses in a supplier's business model and to determine if they can meet the requirements of the entrepreneur.
  • It also helps to assess the financial capability of the supplier to realize a given type of sale.
  • By conducting a vendor analysis, entrepreneurs can make sure that the supplier is reliable and trustworthy.
  • It enables entrepreneurs to gauge the market prices and apply appropriate margins or cost surcharges on sales.
  • Lastly, vendor analysis enables entrepreneurs to minimize risks associated with entering into a longer-term partnership with a new supplier.

Limitations of Vendor analysis

  • Vendor analysis can be time consuming and costly. It typically involves collecting and reviewing a lot of data and information, which can take a long time.
  • It can be difficult to get accurate information about suppliers and their operations. This can lead to incorrect conclusions or decisions.
  • Vendor analysis can be subjective. Different people may have different opinions about the same supplier.
  • It is also difficult to accurately measure the financial capability of suppliers. This is especially true if there is a lack of financial records or information.
  • Vendor analysis does not take into account the quality of the goods or services that a supplier provides.
  • It also does not consider the supplier’s ability to meet deadlines or the customer service that the supplier provides.
  • It is also difficult to measure the relationship between the supplier and the entrepreneur. This is especially true if there is a lack of communication between the two.

Other approaches related to Vendor analysis

One of the approaches related to vendor analysis is to identify the key players in the industry and analyze their strengths and weaknesses. This includes:

  • Assessing their market position and reputation in the industry.
  • Examining the variety and quality of their products or services.
  • Evaluating their financial capacity to meet the requirements of the entrepreneur.
  • Analyzing the terms of delivery and payment that the supplier offers.
  • Investigating the personnel of the vendor, including the background and experience they possess.

In addition, the entrepreneur should consider the supplier's pricing structure, customer service, and ability to meet deadlines in order to ensure that the required quality and quantity of goods or services are delivered on time and within budget. Overall, vendor analysis allows the entrepreneur to assess the capabilities of potential suppliers, identify any potential risks, and make an informed decision regarding the supply chain.


  1. Jagannath, S., Kavyashree N., Niranjanamurthy M., Merode G. G., Vos L., Wagner C., (2013) p.2360-2370
  2. Fedeli S., Forte F. (2011) p.211-226
  3. Ainsworth, R. T., Othman R., (2012) p.1-10

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Author: Weronika Czarna