Vendor Selection Process

Vendor Selection Process
Experts will tell you that the outsourcing vendor selection processes can be pretty
complicated and also an emotional undertaking - that is, if you do not know how to
approach it from the very beginning. Here are steps to help you select the right
outsourcing vendor for your business. This guide will help you analyze your business
needs, search for prospective vendors, pilot the team in choosing the winning vendor(s)
and provide you with the knowledge on contract negotiations and effectively avoiding
negotiation errors.
a. Examine the Business Requirements

Before you start the whole process of gathering data or performing interviews, you
should first assemble a team of individuals who sure have a vested interest in this kind
of vendor selection process. The very first task that the outsourcing vendor selection
team will need to carry out is to clearly define (in written form) the material, service or
product that you are looking for in an outsourcing vendor. Then, define the technical and
the business needs as well. Also, you need to clearly define the vendor requirements.
Lastly, you will also need to take time to publish your document to the aspects that are
relevant to this outsourcing vendor selection process and also seek the team's input. You
should have the team evaluate the comments and create a final document.
Quick Summary:
i. Put together an evaluation team
ii. Define the material, service or product
iii. Define the business and technical needs
iv. Define the vendor needs
v. Finally, publish a "requirements" document for the team for approval.
b. Outsourcing Vendor Search

Now that you and the team have an agreement on the business and outsourcing vendor
requirements, the team must now begin to search for prospective vendors that will be
able to deliver the product, service or material. The bigger the scope of the vendor
selection process then the more vendors you should consider putting on the table. You
need to understand that not all vendors will even meet the minimum requirements and
the team will have to come to a decision of which vendors you will seek more
information from. Then write a RFI (request for information) and immediately send it to
the chosen vendors. Lastly, carefully evaluate their responses and pick a small number
of promising outsourcing vendors that will be short listed and move on to the next step.
The Successful Vendor Selection Process

The Five Step 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. 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 accomplish is to define, in writing, the
product, material or service that you are searching for a vendor. Next define the technical and business requirements. Also,
define the vendor requirements. Finally, publish your document to the areas relevant to this vendor selection process and
seek their input. Have the team analyze the comments and create a final document. In summary:
1. Assemble an Evaluation Team

2. Define the Product, Material or Service
3. Define the Technical and Business Requirements
4. Define the Vendor Requirements
5. Publish a Requirements Document for Approval
2. Vendor Search
Now that you have agreement on the business and vendor requirements, the team now must start to search for possible
vendors that will be able to deliver the material, product or service. The larger the scope of the vendor selection process the
more vendors you should put on the table. Of course, not all vendors will meet your minimum requirements and the team
will have to decide which vendors you will seek more information from. Next write a Request for Information (RFI) and
send it to the selected vendors. Finally, evaluate their responses and select a small number of vendors that will make the
"Short List" and move on to the next round. In summary:
1. Compile a List of Possible Vendors

2. Select Vendors to Request More Information From
3. Write a Request for Information (RFI)
4. Evaluate Responses and Create a "Short List" of Vendors
3. Request for Proposal (RFP) and Request for Quotation (RFQ)

The business requirements are defined and you have a short list of vendors that you want to evaluate. It is now time to write
a Request for Proposal or Request for Quotation. Which ever format you decide, your RFP or RFQ should contain the
following sections:
1. Submission Details
2. Introduction and Executive Summary
3. Business Overview & Background
4. Detailed Specifications
5. Assumptions & Constraints
6. Terms and Conditions
7. Selection Criteria
4. Proposal Evaluation and Vendor Selection
The main objective of this phase is to minimize human emotion and political positioning in order to arrive at a decision that
is in the best interest of the company. Be thorough in your investigation, seek input from all stakeholders and use the
following methodology to lead the team to a unified vendor selection decision:
1. Preliminary Review of All Vendor Proposals

2. Record Business Requirements and Vendor Requirements
3. Assign Importance Value for Each Requirement
4. Assign a Performance Value for Each Requirement
5. Calculate a Total Performance Score
6. Select a the Winning Vendo
7.
5. Contract Negotiation Strategies
The final stage in the vendor selection process is developing a contract negotiation strategy. Remember, you want to
"partner" with your vendor and not "take them to the cleaners." Review your objectives for your contract negotiation and
plan for the negotiations be covering the following items:
1. List Rank Your Priorities Along With Alternatives

2. Know the Difference Between What You Need and What You Want
3. Know Your Bottom Line So You Know When to Walk Away
4. Define Any Time Constraints and Benchmarks
5. Assess Potential Liabilities and Risks
6. Confidentiality, non-compete, dispute resolution, changes in requirements
7. Do the Same for Your Vendor (i.e. Walk a Mile in Their Shoes)
6. Contract Negotiation Mistakes
The smallest mistake can kill an otherwise productive contract negotiation process. Avoid these ten contract negotiation
mistakes and avoid jeopardizing an otherwise productive contract negotiation process.
Introduction To Vendor Evaluation
Introduction
As a consumer, when you want to purchase an item, whether it is a new car or a flat screen television, you will most likely
do some research on the prices of your local stores or from vendors on the internet. When you have narrowed your search
you then look at other criteria that may be important to you, like warranty or availability. Lastly you will look at other less
tangible criteria such as your previous experiences with the vendor and how their customer service was. This behavior is
exactly the same for companies when they want to evaluate the vendors in their supply chain.
Unless your company only uses one vendor for each item they purchase, there will enviably be occasion when a decision has
to be made as to which vendor gets your business. There are a number of different scenarios when this will occur, for
example when the item is purchased for the first time and when an item is no longer single sourced.
Purchasing An Item For The First Time
When a decision has to be made between vendors, the purchasing department will use some vendor evaluation method to be
their tool in the decision. If the item is to be bought for the first time, the purchasing department may have contacted a
number of vendors and sent them a Request for Quotation (RFQ). Each vendor would then complete the RDQ with the
information that was required, normally price and terms. The purchasing department would then use these completed
quotations, in conjunction with other information they have collected on the vendors, to make short list for further evaluation
or make a final selection. The purchasing department would evaluate the vendors based on a number of criteria they had
decided upon which may include objective criteria such as price and warranty and subjective data which would include past
experience with the vendor. Based on the weighting given to these criteria the purchasing department would be able to fairly
evaluate each vendor.
Choosing Between Vendors
If the sourcing of an item has been from a single vendor but another vendor has been approved to supply the same item, a
decision would need to be made on vendor selection when a requisition has been received by the purchasing department.
Many companies use a vendor evaluation tool that allows transaction data to be analyzed to give a comparison between
vendors. The vendor evaluation uses criteria that have been determined by the purchasing department to compare vendors
such as price, delivery reliability, delivery date adherence and quality of the item. There are any numbers of criteria that can
be used in a comparison and these are usually weighted so that important criteria are given more credence. For example, a
company may decide that quality of the items it receives from vendors is more important than price, which in turn is more
important that delivery reliability. The company would then weight these criteria so that the overall score reflects that
requirement.
Conclusion
Vendor evaluation is important as it can reduce supply chain costs and improve the quality and timeliness of the delivery of
items to your company. The skill in evaluating vendors is to determine which criteria are important and the weighting that
these criteria are given. It is important to remember that these criteria may be different for each item you are sourcing and
possibly different between regions or countries. Objective data is useful to compare the information that you can obtain from
each purchase order and goods receipt, but sometimes the subjective data that your purchasing agents can provide such as
customer service and the willingness of the vendor to accommodate your requirements, is as or more important in a vendor
evaluation.

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Vendor Selection Process

a. Examine the Business Requirements

b. Outsourcing Vendor Search

The Successful Vendor Selection Process

1. Analyze the Business Requirements

1. Assemble an Evaluation Team

1. Compile a List of Possible Vendors

3. Request for Proposal (RFP) and Request for Quotation (RFQ)

4. Proposal Evaluation and Vendor Selection

1. Preliminary Review of All Vendor Proposals

1. List Rank Your Priorities Along With Alternatives

Purchasing An Item For The First Time

Choosing Between Vendors

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