Successful Vendor Selection Process
The vendor selection process can be a very complicated and emotional undertaking if you don’t know how to approach it from the very start. Success here will put you on the right track in selecting the right vendor at the right price. Lack of effort, poor planning or taking shortcuts will serious jeopardize the success of the vendor selection process. Here are five steps to help you select the right vendor for your business. This guide will show you how to analyze your business requirements, search for prospective vendors, lead the team in selecting the winning vendor and provide you with insight on contract negotiations and avoiding negotiation mistakes.
1. Analyze the Business Requirements:
Before you begin to gather data or perform interviews, assemble a team of people who have a vested interest in this particular vendor selection process. The first task that the vendor selection team needs to accomplish is to define, in writing, the product, material or service that you are searching for. Next define the technical and business requirements. Also, define the vendor requirements. Finally, publish your document to the areas relevant to this selection process and seek their input. Have the team analyze the comments and create a final document. In summary:
Assemble an Evaluation Team: The evaluation team must be composed of decision makers and knowledgeable employees from every area that has a stake in the successful outcome of selecting a vendor for the product, material or service that is going to be sourced outside of your company. For parts and services that only affect a few small areas, a small team of three to five people will be sufficient. For larger products and services that affect several areas (or maybe the entire company), five to ten people may be required. More than 10 people may become unmanageable.
Define the Product, Material or Service: Writing a definition of the product, material or service that you are selecting a vendor for will be the easiest task that you have to accomplish and the most important. For smaller and simpler projects this may only be one paragraph or a reference to a bill of materials entry. For larger projects this may be several paragraphs. By writing or publishing the definition, all of the stakeholders will be aware of what the team is trying to accomplish. Secondly, as the project progresses, people may try to add specifications or additional features. This definition can be referred to throughout the project to help keep the team on track and on target.
Define the Technical or Business Requirements: If the vendor selection process is for a part of subassembly, the specifications can be obtained from the bill of materials, engineering drawing or manufacturing procedures. If it is a service or software, then specific business requirements must be defined. The bigger the scope of the project, the more requirements you have.
Define the Vendor Requirements: The vendor selection process would not be complete without listing the criteria that the vendor itself must meet in order to be considered and evaluated for the job. Remember, the quality of the vendor is just as important as the quality of the goods and services that they will be delivering. These criteria must be based upon the type of product or service that you are seeking to outsource and the price you are willing to pay.
Publish a Requirements Document for Approval: Once all of the above steps are complete, aggregate your findings and requirements into a comprehensive document. The team members will share this document with the key employees in their areas and seek feedback. After the team members accomplish this, and the document is up to date with appropriate feedback, the leader of the vendor selection team will present the updated requirements document to upper management to seek their feedback and approval. This document will be the basis for generating a Request for Proposal (RFP) or