Sooner or later, every business needs to partner up with vendors to fulfill some of its needs. Choosing the right vendor isn’t an easy process, as it demands a lot of team attention, evaluation, and analysis.
However, it is a common practice to simplify this process as much as possible and take into account only one vendor selection criteria — the price. But low price alone won’t make your cooperation pleasant or successful. Other factors that characterize your partnership play no less important role, and neglecting them will only create additional issues.
As a result, you won’t be satisfied with the quality of your cooperation and decide to change vendors. Until you understand how the correct vendor selection process works and adopt it, you will face the same issues, stay discontented and waste lots of money and time jumping from vendor to vendor.
In this article, we will describe an efficient supplier selection process, what criteria are essential and how to partner up with vendors wisely.
Main Steps in Supplier Selection Process
So, you decided to cooperate with a new vendor. The easiest solution will be to google and scroll through the first few pages to find a company that provides your desired services. However, choosing the first vendor you see wouldn’t go well for certain.
The next vendor selection phases will help you go through this process wisely and with maximum value for your business.
To find your ideal vendor, firstly, you need to understand what are your needs and what aspects you need to be covered by the partner. The best way to achieve that is to assemble a team of employees who are directly interested in selecting suppliers and let them define the business requirements your potential vendor should meet.
As a result, you should have in writing the next info:
- what product or service you are expecting from a vendor;
- what are the business and technical (if needed) requirements for the
- aforementioned product or service;
- what requirements should not only the product, but the vendor company meet.
When you have an approved vision of your needs and requirements, you can start your research and look for companies that can meet your expectation and provide a decent level of services.
We suggest taking your time and thoroughly checking vendors’ backgrounds, brands, and reputations as service providers and employers. Try to look for testimonials, and reviews from former and current clients and employees, and check their social media and profiles on different listing websites and directories.
An occasional bad review might not be a problem, but regular complaints or inadequate replies from the vendor company should definitely be a red flag for you.
Request for Proposal (RFP)
A request for proposal is a document companies send to potential vendors to initiate the negotiations. RFP helps businesses to describe their requirements for potential vendors in a clear way and later compare their proposal by objective criteria.
A good request for proposal (RFP) should include:
- introduction and executive summary;
- an overview of your business and its background;
- a proposal instruction for the vendor (what structure should it have, when should it be submitted, what are the contact details they should use to send it, etc.)
- the list of requirements the vendor should meet;
- terms and conditions of the cooperation you seek.
When you have received several offers, you need to evaluate each and compare them. The best way to do it will be to use a vendor comparison matrix to consider only objective criteria and minimize human emotion.
Assign every criterion a certain point and its weighting. Check every vendor proposal (luckily, if you had done it right, you received proposals written by the same template), score the potential suppliers by selection criteria, and do the math.
As a result, your evaluation team will have numbers to power up decision-making instead of emotions or political schemes.
Most likely, after the proposal evaluation, you will have several possible vendors that received a great score and will be able to cover your needs. Then, you might want to choose that made a better impression on you or is ready to provide a bonus or discount for you.
When you are done with the vendor selection phase, you go to contract negotiation. Work carefully on contract terms, understand what the bottom line for you is, and where you can compromise. Remember that your selected vendors aren’t your cleaners, but partners. Hence, don’t push only for your best interest and don’t demand the impossible.
Don’t forget to write down possible liabilities, risks, and how you will address complex situations and force majeure that might happen during the contract period.
Supplier Selection Criteria
So, what criteria should you take into consideration while choosing a vendor?
There is a set of important aspects you need to learn about potential suppliers before signing a contract, otherwise, you might be unpleasantly surprised by your supplier’s performance, policies, or lack of integrity.
To avoid that from happening, we suggest gathering and evaluating as much info about the vendor before signing any contract or initiating a partnership.
So, evaluate a potential supplier by next parameters:
Top Mistakes In Vendor Selection Process
While evaluating prospective vendors, you might make some mistakes that can bring down the whole experience. However, knowing about the main threats might help avoid them and prepare mitigation plans.
So, what are the main errors you might do while searching for the right supplier?
Not Aligning Processes
Though your partnership with a supplier should be cooperation, you still need to prioritize your processes over vendors. If you need to adjust much for the supplier to work efficiently, most likely, you have chosen not the best option on the market and need to spend more money.
Hence, it would be wise to figure out if the chosen vendor can be flexible enough to cater to your needs with maximal efficiency.
Rushing Through the Supplier Selection Process
Sometimes, we tend to rush and finish a task as soon as possible. Sometimes, we have a deadline that significantly cuts our opportunity to think over our choice. However, it might only harm your supplier selection.
To go efficiently through the vendor selection process, you need time to prepare all necessary documentation, navigate your options, carefully estimate every offer, agree on the selection with superiors and all parties interested, etc.
If you decide to sacrifice any of these steps to speed up the process, you will definitely feel the consequences later, and they won’t be positive.
Not Considering Future
In your vendor selection process, you need to think not only about your current business objectives but your potential needs and requirements in the future. Why? Every company plan to expand, otherwise, it will shut down eventually. Your volumes will increase accordingly, as well as your expectations and requests.
Hence, when you sign a contract with a vendor, you need to ensure that they have the capacity to grow your cooperation volumes to match the growth of your company. If you miss this at the initial stages, you will need to change vendors and hence, lose the time and money you would be able to dedicate to other activities.
We have talked about some documents you need to create for your supplier selection process. We suggest that you go even further, and document every decision, and its reasoning.
Storing this data is essential for knowledge transfer and continuity of processes. This data will help you onboard new employees who will take care of your procurement process and simplify future supplier selection activities.
Not Having Stakeholders on the Same Page
Supplier selection is an important decision for a company. This process concerns not only the procurement but C-level management and possibly other departments. Hence, your supplier selection should not happen in a vacuum, and the future partnership should not be a surprise for your colleagues and superiors.
To avoid any misunderstandings or miscommunications, synchronize with all stakeholders during the selection process. You can include them in the team that will work on gathering requirements or reviewing proposals. It will also simplify the process of approving the selection: instead of simply asking for approval, you integrate key people into the decision-making process.
IT Industry: Selection Criteria for Vendors
IT outsourcing becomes more and more popular, as non-tech companies seek software solutions to enhance their productivity or customer services, but do not have their internal IT team.
The right IT vendor becomes a long-term partner, as on average, the development of a mature software solution for business takes at least 6 months and can last for a few years. Hence, you need to make the selection process seriously, as you will need to work closely with a selected partner.
When choosing an IT vendor, generally, you need to pay attention not only to the same aspects as with any other vendor but consider criteria specific to the IT industry.
They usually include:
- location (there are always options of onshore, nearshore, and offshore vendors);
- tech infrastructure;
- technologies the company works with;
- the cooperation models they offer (dedicated team, outstaffing, etc.);
- the expertise of the developers.
IT vendor selection is only the first step. Even if you choose the right vendor, without adequate vendor management you will have a big chance of failure.
But it should not be only your effort: IT vendors should also be interested in providing the best services possible. For example, we in Altamira focus not on just writing code but on providing a solution tailored to your business need and goal.
Cooperating with Altamira, you benefit from:
- a team of experts who know how to help you determine requirements and deliver a solution, especially for your business;
- client success and project managers who stay in touch with a client constantly and whose priority is to ensure superior client experience;
- high level of ownership over the project, meaning that we are ready to take responsibility for project success and viability;
- personal approach to every client and every project;
- flexible cooperation and payment terms.
Choosing the right vendor demands a lot of focus and dedication from a procurement team. However, a thorough approach will give its results and introduce you to a reliable partner who will be able to strengthen your business instead of generating additional issues.