Selecting a Vendor: 5+ Things To Consider
Procurement and project management involve several key processes, one of which is selecting a vendor. And if you’re in a state like Texas, then the starting point when selecting a vendor is having enough knowledge regarding the vendor-selection process.
In every business, robust vendor selection and proper investing are the keys to achieving your target goals. This is why every company needs ERM (enterprise risk management) as its top strategy to help it prepare during the vendor selection process.
The negatives associated with poor vendor selection can easily cripple your company’s reputation and performance. Things like delayed delivery of products or poor product quality are some of the few hazards of poor vendor selection. Therefore, you need to learn how to select vendors that are right for your business.
What Is the Vendor Selection Process?
The term “vendor” refers to an individual or company selling products and services and is known as a supplier.
Therefore, the vendor selection process comprises a series of procurement steps used to determine product or service requirements and match them with vendor capabilities and pricing.
Why Is Vendor Selection Important?
As noted earlier, the vender selection process is a useful tool for every business, and here are the benefits of delivering this process:
- Helps businesses avoid fraudulent and low-quality vendors;
- Limits risks by ensuring that the vendor is financially viable and can deliver products, services or purchases on time;
- Obtains competitive bids to get better terms with sensible prices;
- Allows you as a business to get better customer references;
- Enables you to improve customer satisfaction and maintain a good reputation along with maximum value for the current clients.
Who Uses the Vendor Selection Process?
Within a company, more than one group or team can use the vendor selection process during procurement. However, the main group that uses this process at all times is the business procurement team.
The procurement team can choose members from other functional areas to be included in the vendor selection group for reasons such as:
- To make a collaborative decision;
- To evaluate vendor financial investments and reliable partners;
- To deal with technical products and services;
- To carry on negotiations.
5+ Things To Consider When Choosing a Vendor
1. Quality of product or service
Quality is the top most important thing to consider when selecting a vendor. To ensure you get quality products that fit your budget, always see the samples and, more importantly, research the vendors’ work and vendor recommendations.
For example, if you’re looking for a vendor to help design your cubicles, ask for a portfolio of various designs. After that, you can make a field trip to confirm whether their work meets your requirements.
The quality of product or service and cost are two important aspects that need maximum consideration during the vendor selection process. And so, when it comes to price, you need to be very price-conscious. Not all lower prices mean you will save a lot, and not all high prices mean you will get top quality products or services.
So, to get an accurate bid, you need to communicate to potential vendors the full extent of your needs. Read the fine print to avoid getting hit with hidden charges and ensure that every bid contains every line-item cost. Your request for bids should include all this information.
3. Check references
Just like when hiring an employee, references are also important when selecting a vendor. A reference helps you add to your criteria checklist:
- Vendor punctuality;
- Recommendation (would they hire them again?);
- Quality workmanship (did anything go wrong, and if so, how did they handle it?).
4. Vendor’s ethics and integrity
Just like the professionalism of the vendor’s employees, the vendor’s ethics and integrity are also important things to consider.
There are several ways to find out information about vendor integrity and ethics. One of the easiest ways is by simply doing an internet search of the vendor’s name.
Note: This information may not yield much, so you can opt for other methods, such as Home Adviser or Better Business Bureau.
5. Vendor customer service
One thing that references help us to know is how good a vendor’s customer service is. Remember that the vendors who will likely take great care of you are the ones with exemplary customer service.
How To Select the Right Vendor for Your Business
1. Analyze the business requirements
The first step to selecting the right vendor for your business is defining and analyzing business requirements. So, start by understanding your business needs and what to expect the third party to deliver.
Afterward, select a team of experts with strong knowledge of the vendor selection process to help identify the right vendor. This team will help with:
- Defining the right product service or material your business requires;
- Outlining both business and technical requirements;
- Describing vendor requirements and responsibilities of vendors (the features a business is looking for in a vendor);
- Create and publish a document stipulating all the above requirements.
Generally, the team must determine, outline, and evaluate all the requirements by collecting as much information as possible.
2. Vendor search
With the requirements document published, it’s time to find suitable vendors. The team will start compiling a list of possible vendors and send a request for information (RFI) to each one of them. After that, the team will move on to the evaluation process to analyze each vendor’s capability and create a ranking of more suitable vendors.
Note, RFI may include request for proposal (RFP), request for quotation (RFQ), request for bid (RFB) and other relevant forms.
3. Create an evaluation model
The third step is all about weighing the vendor’s requirements against the potential value they deliver. Furthermore, they have to put priority as another key aspect to consider. Creating a weighting model will achieve this model, for example:
If a particular vendor has a score of 8 (on a scale of 1 to 10) on requirements and a 4 (on a scale of 1 to 5) on the priority of that specific requirement, then the overall score is 12 out of a possible 15.
Using such a model helps define the vendor differences, thus allowing you to choose the best possible vendor.
4. Conduct briefings with your top listed vendors (with high scores)
This step is essential in ensuring a common understanding between your business and the vendor. So, conduct a meeting with your chosen vendors to discuss the stated requirements.
5. Conduct vendor’s evaluation, then schedule demos
This practical evaluation process showcases the practical side of things and evaluates the vendor’s intangible aspects. In this step, the evaluated and selected vendor should provide the organization’s solution overview. This includes the organization’s current fees and technological and business requirements.
In addition, the selected vendor should provide a demo before finalizing the deal. This step showcases their solution capabilities and visiting their site is imperative.
6. Complete vendor selection process and contracting
The team will now evaluate all the processes shown in the above steps and select the winning vendor (primary option) to work with.
After that, prepare a contract that will clearly outline the following:
After that, prepare a contract that will clearly outline the following:
- Time frames;
- Vendor repayment.
Contract cancellation strategy will be a key aspect for the team to use in this step because it might help save more money.
Top 3 Mistakes When Selecting a Vendor
Here are three main failures when choosing a necessary vendor. Below we’ll describe each of the pitfalls.
1. Communication breakdown
Not communicating every detail clearly is one of the main mistakes most organizations and individual customers make during the vendor selection process. So, avoid this by clearly stipulating all details and communicating them well.
2. You have looked at the offering but not at the vendor
Analyzing the bid and vendor is necessary to ensure you make a sound decision. Evaluating the vendor is, in fact, the most crucial step that will help you avoid making the wrong decision and awarding the contract to the wrong vendor. So, ensure they have given references and check procurement departments.
3. Not gathering all requirements
Gathering requirements from stakeholders is usually a beginning process for every vendor selection process. Therefore, ensure that you gather all information, both for current needs as well as future needs. Another thing that people fail to do is gather information for all sectors, i.e., technical, legal, etc. So, be sure to gather them all.
Dos and Don’ts of the Supplier Selection Process
The criteria for choosing a vendor is an important aspect of every business investment; therefore, you need to know what to do and what not to do.
Expert Tips for Choosing Vendors
- Incorporate technology, such as AI (artificial intelligence), into your vendor selection process.
- Ensure that you have factored in all the costs you will incur under a specific vendor before completing the process.
- Include in the contract the negotiated delivery times, early payment discounts, and quantity discount terms.
- Ensure your evaluation and selection of vendors is beyond competitive pricing.
- Pay attention to references to better determine the best vendor for your needs.
Overall, selecting a vendor is a pretty complex process. Sourcing enough details and requirements are the most important steps in any vendor selection process.
Choosing a vendor can be a straightforward process when you have thorough knowledge of how to choose a vendor and consider all the important factors when selecting vendors.
Keep in mind vendor selection criteria vary from one organization to another based on several things, such as the market they are operating in and goods and services.
To help you select the right vendor for your business, use this vendor contract. This legal document/template addresses almost every aspect of what you should cover in the vendor selection process.