Procurement and project management involve several key processes, one of which is selecting a vendor. The starting point for selecting a vendor is gaining sufficient knowledge of the vendor selection process.
In any business, selecting a vendor with the right investing strategy is key to achieving target goals. Every company can benefit from enterprise risk management (ERM) to prepare during the vendor selection process.
Poor vendor selection can cripple a company’s reputation and performance. Delayed delivery or poor product quality should be red flags when selecting a vendor. Keep the following tips in mind when selecting a vendor for your business.
What Is the Vendor Selection Process?
A vendor or supplier is the individual or entity that sells products and services to other businesses. Selecting a vendor is the first in a series of procurement steps used to determine a business’s product or service requirements and to set appropriate prices.
Selecting a vendor is critical because it starts the entire sales chain.
Why Is Vendor Selection Important?
Selecting a vendor is one of the most important steps for any company because businesses are only as good as the products and services they deliver. By defining criteria for selecting a vendor, you can reap the benefits of having quality vendors for everything you offer your customers. Knowing how to find better vendors helps business owners:
Avoid fraudulent and low-quality vendors;
Limit risks by ensuring that the vendor can deliver according to the terms of the contract;
Stay competitive with similar businesses; and
Maintain customer satisfaction by providing maximum value at reasonable prices.
Anyone within a company may be responsible for selecting a vendor. For instance, the janitorial department may have its own vendors for cleaning supplies. However, for a company’s products and services offerings, the primary team responsible for selecting a vendor will be the procurement team.
Each member of the procurement team will be part of the decision-making unit for selecting a vendor. This team should include individuals from several departments across the business so their decisions will:
Reflect the needs of the entire company;
Accurately evaluate vendor investments and services;
Negotiate with vendors and write contracts; and
Benefit the company, the customers, and the vendors equally.
5 Things To Consider When Choosing a Vendor
When it is time for selecting a vendor, the following five points should be carefully considered.
Quality of product or service
Quality is the most important thing to consider when selecting a vendor. To ensure that you get quality products that fit your budget, ask to see samples and research the vendors’ work and recommendations. For example, if you’re looking for a vendor to help design cubicles, ask for a portfolio of various designs. You can also visit a showroom or another company where the vendor’s work can be seen to confirm whether the work meets your requirements.
Quality does not always mean costly. When selecting a vendor, give equal weight to the cost of the product or service as well as the quality. You are looking for the best product you can get for the price you’re willing to pay. Remember that just because something is expensive does not always mean it will be the best product available. You can also be “penny wise and pound foolish,” as the saying goes, and end up spending more on returns than you saved up front.
Knowing how to select a vendor can help you find both quality and affordability. Communication is essential for obtaining an accurate bid. Tell your potential vendors exactly what you are looking for and read the bids carefully so you can avoid hidden costs.
References are just as important when selecting a vendor as they are when hiring a new employee. References should be used for your criteria checklist to determine:
Vendor punctuality and accuracy;
Ethics and integrity
The vendor’s ethics and integrity are important elements to consider when selecting a vendor for your company. The vendor’s honesty and trustworthiness in business is an essential factor in choosing someone to work with. You will want to be reasonably sure that your vendor is honorable and dependable.
There are ways to conduct your vendor search to include information about the vendor’s ethics and integrity. Communication on selecting a vendor from others in the industry can be found online via Yelp or Google reviews. Home Adviser and the Better Business Bureau may also have information that can help with the decision-making process, specifically when there have been complaints or legal actions against the vendor.
The process of selecting a vendor relies heavily on the vendor’s customer service. Read through customer reviews to see how the vendor treats customers. A reputable vendor will have both good and bad reviews and will make a noticeable effort to correct any negative reviews.
For instance, if a client complained about a late delivery, did the vendor make excuses or offer a refund or a credit towards a future order? An ideal vendor will be one who treats all customers as though their complaints are reasonable and correctable.
How To Select the Right Vendor for Your Business
Knowing what to consider when selecting a vendor is an important prerequisite to the vendor selection process. Follow these steps each time you need a new vendor for your business:
1. Analyze Your Business Requirements
The first step to selecting a vendor for your business is defining your business requirements. Begin by understanding your business needs and what you expect the vendor to deliver. A vendor can only provide an accurate bid if the business owner provides an accurate request for services.
When you know what you need, assemble a procurement team to create your “selecting a vendor” criteria checklist. The procurement team will create the request for proposal (RFP) that will be sent out to prospective vendors. The team will define:
The product, service, or material that the business requires from the vendor;
The business and technical requirements;
Vendor requirements and responsibilities; and
The request for proposal or request for information.
2. Start Your Vendor Search
The procurement team will take the requirement documents and compile a list of possible vendors. Depending on the products or services needed, several different lists may be needed. Each vendor will receive a request for information packet, which may contain a request for proposal (RFP), request for bid (RFB), or other forms, depending on the nature of the project or request. Selecting a vendor from the list will be possible after the vendors have completed the forms and returned them.
3. Create an Evaluation Model
The procurement team will then determine on selecting a vendor or vendors based on a ranking system. As the documents are returned, the team will select primary and secondary choices based on their evaluation. Compare each vendor’s products or services and costs with their competitors. When selecting a vendor, the team should develop a method of scoring the bid sheet to easily compare bids.
The team should be able to quickly review the bid sheets and analyze the vendors on a scale. For instance, product quality may have a scale of 1 to 10, and a particular vendor may score 8. Price may have a scale of 1 to 10, and the same vendor scores 7. This vendor has a score of 15 out of 20. Another vendor scores 9 in quality but only 4 in price, so that vendor’s score is 13. This helps when selecting a vendor who will suit the business’s needs.
4. Conduct Briefings With High-Scoring Vendors
Once you have a ranked list of vendors, sit down with your top scoring vendors and discuss your requirements in more detail. Talking over the project or your business needs with your prospects helps with selecting a vendor who will understand your business needs and ensures that both parties will be on the same page when it is time to write the contract.
Reviewing requirements helps to prevent miscommunication between the business and the chosen vendors before moving on to the final steps. When both parties are in agreement, they can finalize the business arrangement.
Step 5. Observe and Evaluate Vendor Demo
Once you have followed the steps for selecting a vendor and narrowed down your choices, schedule a practical demonstration of the product or service you are requesting. This helps confirm that the vendor is a good fit for providing the product or service. It also confirms for the vendor that he or she wants to work with your business.
Selecting a vendor without a practical evaluation and demonstration relevant to the vendor’s product is a risk for both parties. The business owner or procurement team should see the vendor in action to determine if the product or service is essential to the business’s needs. The vendor will also be better able to determine if the business is a good fit. A demo can prevent misunderstandings between the parties before the contract is written and signed.
Step 6. Complete Vendor Selection Process and Sign Contract
The final step to the process of selecting a vendor is making an offer to the winning vendor (your first choice) and writing the contract. The procurement team should review all final choices after seeing the practical demonstrations, consider the results of the briefings, and select the preferred vendor. It is advisable to select a secondary or backup vendor in case the primary vendor is unable to accept the contract.
The company’s legal department or attorney will work with the procurement team to write the contract. The legal document should clearly state all the details the team worked out during the selection process, including:
Time frames for beginning and completion;
Penalties for breach or rescission.
Top 3 Mistakes When Selecting a Vendor
It can be easy to make mistakes when selecting a vendor, especially if you feel rushed or fail to consider what you need before accepting bids. To avoid wasting time and money, consider the following common errors when planning a vendor selection strategy.
1. Having a Breakdown in Communication
Clearly communicating details is critical when selecting a vendor. Failing in this area is probably the biggest mistake businesses make during the vendor selection process. Communicate with your prospective vendors and be sure there is no miscommunication.
2. Looking at the Offering but Not at the Vendor
Selecting a vendor means evaluating the vendor as well as the bid. You’re not just accepting what the vendor can provide. You’re also accepting the provider. Check references and talk to the procurement team so you can give the contract to the right vendor.
3. Not Gathering All Requirements
Gathering requirements from stakeholders is usually the beginning of the process of selecting a vendor. Be sure to gather all the information needed to make the best choice. Consider your current and future needs and have all sectors of the business define their requirements.
Dos and Don’ts of the Vendor Selection Process
Whether you already had your own checklist or used this to create your “selecting a vendor” criteria list, having carefully reviewed guidelines for choosing a vendor is essential. The criteria for selecting a vendor is an important aspect of every business investment. Consider these guidelines for what to do and not do:
Don’t wait until the last minute to try to find someone who matches your criteria.
Don’t take glowing reviews at face value.
Don’t assume that everyone is on the same page until you confirm it.
Don’t take their word for it that everything will work out.
Do have a list of reputable vendors on hand before sending out your RFPs.
Do check references and reviews of your chosen vendors.
Do communicate clearly and concisely with your vendor.
Do ask for a demonstration of the product or service.
Expert Tips for Choosing Vendors
A few additional tips for selecting a vendor that you might want to keep in mind include the following:
Incorporate technology, such as artificial intelligence (AI), 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, quantity discounts, and any other relevant terms.
Evaluate and select vendors based on more than just competitive pricing.
Pay attention to references to better determine the best vendor for your needs.
Selecting a vendor can be a complex process. Sourcing enough details and requirements is the most important step 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. Communication on selecting a vendor across all company teams is essential.
Keep in mind, when selecting a vendor, criteria vary from one organization to another based on the market it operates in and the goods and services it provides. To help you select the right vendor for your business, consider using this vendor contract. This legal document/template addresses almost every aspect of what you should cover in the vendor selection process.
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Ilona Riznyk is a Content Specialist at Lawrina. In her role, she creates and manages various types of content across the website, ranging from blog articles to user guides. Ilona's expertise lies in meticulous fact-checking, ensuring all the published content is accurate and reliable.