Vendor selection is one of the most challenging, yet integral, duties of a procurement professional. To satisfy internal business needs, procurement departments are tasked with outsourcing indirect services and securing critical inputs that keep production lines up and running.
Even with vertical integration—the truth is—businesses can’t do everything alone.
Partnering up with a vendor, in theory, should simplify business operations and allow more energy and resources to be focused on core functions. However, it can also be a source of great stress and strain if not approached strategically.
To help you navigate the vendor selection process, ProcurementIQ has outlined each phase, as well as a few dos and don’ts to consider. Without a clear idea or blueprint of how this process should unfold, complications and misunderstandings are sure to arise. The process is challenging enough as it is, so going into it prepared is essential.
1. Assemble an evaluation team and define business requirements
First, you’ll want to form a team of people who are fit to execute the task of selecting a qualified vendor. Together, this team should have what it takes to define, in writing, what is needed from the product, material, or service for which you are selecting a vendor, as well as the technical and business requirements. Vendor requirements also need to be defined. Assembling a team ensures a system of support, one that can anticipate needs and offer diverse insight.
- DO make sure everyone understands their roles within the team. A truly diverse team may include the buyer, as well as others with a vested interest, such as stakeholders and contract specialists.
Once the team has drafted the abovementioned requirements, create a final, cohesive document. The document should include a clear understanding of stakeholder needs and priorities. It may also be helpful to map out a vendor selection process flowchart so that everyone understands next steps.
- DON’T rush through this step. Take the time to be incredibly specific now, so you don’t create confusion down the road. It will also keep the team streamlined and focused on needs instead of wants.
2. Conduct market research and establish vendor selection criteria
Now that your requirements are clearly defined, it’s time to search for possible vendors that can fulfill them. Once you’ve compiled a short list, it may be necessary to write and send a Request for Information (RFI) or begin a catalog of vendor profiles or company reports.
Then, evaluate the responses, refine your list, and establish your vendor selection criteria. This can be in the form of a vendor selection criteria checklist that you can use to refine your focus in the next phase. You and the rest of your evaluation team should leave step two with a better understanding of what your ideal vendor should look like.
- DO seek outside help if needed. In some cases, it might be difficult to create that initial list of vendors. If so, specialized market research companies or an independent external consultant may be good options to consider.
Additionally, a quick Google search can connect you with a vendor selection criteria template to help you get started. You may even be able to find category-specific guides that break down the most important criteria for a given market.
- DON’T assume the major names in the market are the best fit. Instead, consider all your options, as well as your future needs, rather than just your current needs. Think about where you want your company to be in five to 10 years. Does your vendor selection criteria account for this growth?
Example 1: Costco SWOT analysis
Leaning on best practice evaluation tools, like SWOT and PESTLE frameworks, can help you identify opportunities and red flags in each potential partnership. For example, a buyer who’s sourcing Personal Paper Products might find that Costco Wholesale Corporation offers unique strengths and weaknesses:
Conducting a SWOT analysis on a different company? ProcurementIQ’s Supplier Profiles can help.
Example 2: Vendor selection matrix
While the brand awareness of Costco and its high-ranking position in the market might be suitable for some buyers, a strategic buyer will consider the competition before making a decision.
Using a competitor matrix when selecting a vendor helps contextualize individual suppliers, showing you who its competitors are and how they stack up.
ProcurementIQ subscribers have access to 5,000+ supplier profiles and unique vendor selection matrix tools. Learn more
3. RFP vendor selection and building your vendor selection scorecard
Based on the criteria set in step two, you’ll want to make a formal Request for Proposal (RFP) or Request for Quotation (RFQ) and create an official vendor selection scorecard, which will help you score the vendors based on their responses. Scoring allows your team to identify a potential supplier’s strengths and weaknesses.
There are a few different ways to approach scoring; one popular approach is to weigh the importance of each requirement. Weighted scoring allows you to prioritize the sections of the proposal that are most important to your business.
Example 3: Vendor selection scorecard
Say you’re sourcing Janitorial Services and you’ve identified several strengths your vendor should possess. It may be difficult to find a vendor that fully satisfies your wish list, but weighting critical factors based on importance can help you determine the best course of action.
Market-specific scorecards for 1,000+ categories are available from ProcurementIQ.
- DO make sure the RFP is well structured and includes clear guidelines for how vendors should respond. In addition, RFP software offers an automated approach to scoring, thereby ensuring an apples-to-apples view of your options.
- DON’T forget to ask for and check those references. A firsthand account of the vendor’s past performance is priceless information and can give you a clearer picture of what a partnership with them would look like.
Also, to ensure an even playing field, make sure to refrain from giving a potential vendor information about competitors’ price offerings. This type of indiscretion has the potential to jeopardize the whole process.
4. Score the proposals and complete vendor selection process
Before you begin scoring, it’s important to have a scoring strategy. For example, will your team know which company submitted which proposal, or will you be scoring blindly? Blind scoring has the benefit of preventing unintentional personal bias.
In either case, once scores have been set, the next step is to circle back to your project’s requirements. It’s unlikely that you’ll find a vendor that perfectly meets all of your criteria. As a result, your team may have to restructure some priorities to come to a final conclusion.
- DO document this process thoroughly and make sure everyone is updated along the way. If further review or clarification is needed, you may need to advance the top two or three vendors to a finalists round. If so, consider providing feedback to the ones that didn’t make the cut.
- DON’T judge a vendor solely on the proposal. Some vendors look good on paper but may not be the best fit depending on the type of partnership you’re looking for. General vendor impression should account for something, particularly when there are a couple vendors that score very similarly.
5. Develop a contract negotiation and management strategy
Phew! You’ve come a long way. Once you’ve selected a vendor, the last step is to draft the contract. This step is not to be taken lightly, as there are various risks and liabilities that need to be considered.
Work collaboratively with your chosen vendor to ensure priorities are met and benchmarks are clearly defined. If the process needs to be lengthened to incorporate any suggested changes, so be it. Once a final draft is established, you can sign the contract. And celebrate!
- DO have a backup plan. If, for whatever reason, a priority cannot be met, have a plan that includes alternatives. Lastly, ask for the best and final pricing and service level agreements (SLAs). At this stage, it never hurts to ask!
Example 4: SLAs for Call Center Services
Category-specific SLAs can help you set realistic benchmarks for suppliers to meet. A vendor’s performance, based on predefined SLAs, can help you determine their value and prepare to either renegotiate your contract at the end of the term or switch to a better-suited provider.
- DON’T make a decision based on price alone. Make sure functionality and service expectations are prioritized as well. Also, make sure to thoroughly review the contract before signing. You’ve come this far; don’t miss something important because you were eager to cross the finish line.
The vendor selection process requires an incredible amount of effort, resources, time, and energy, as it should. Approaching each phase of the journey with intention and clear protocols will help ease the process and ensure your end result is a reliable one. After all, creating successful partnerships could be the difference between stagnancy and growth in your business.
Need help with vendor selection? ProcurementIQ offers a suite of vendor management tools, supplier profiles, vendor sourcing guides, and other market intelligence solutions for procurement professionals. Contact us today to learn more about our products and services.
By: Mara Michael
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