A preferred vendor is a vendor who has been investigated by a company and approved. When a company needs services, it turns to these vendors first, which means that being on the preferred list can put a business in a powerful position. As a general rule, only really large companies and institutions use preferred vendors, and people must apply to enter the preferred program.
There are several qualities a company looks for in a preferred vendor. Reputation in the industry is certainly important, as are issues such as on time performance, reasonable costs, and high quality of products and services. Vendors also need to be fully licensed, bonded, and insured, as applicable, with ample evidence of certification and experience in the area they specialize in.
Business practices at a vendor may also be important. A company which wants to promote sustainability, for example, will only use vendors with vetted environmental practices and a demonstrated commitment to environmental stewardship. Likewise, a religious company might prefer to use vendors which share its religious beliefs.
Many companies also expect some concessions from preferred vendors. By adding a company to a preferred list, a company is saying that this company will be its first resource for goods and services, and that it will not look elsewhere unless a vendor cannot provide the needed services. In return, a company may ask for discounts from the vendor, and for other special treatment, as the company considers itself to be a very important customer.
Some companies enter what is known as a preferred vendor agreement, a contract between a preferred vendor and the company which is intended to spell out the terms of the relationship. Having such a contract can be a very good idea, as it ensures that everyone understands what the expectations are, and it can lay the groundwork for legal recourse if a problem develops. This type of contract should be read carefully by both parties to confirm that there are no surprises in the terms of the contract.
The procurement department often manages relationships with preferred vendors, and it has a vendor list which it distributes to other departments. When people need something, they are expected to see if a vendor on this list provides it before looking at outside vendors.
