This is the toughest part of the vendor selection process. 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 seriously jeopardize the success of the vendor selection process. This part of the process will be shorter and less complex for basic part and commodity vendors (eg. basic raw materials, office supplies, gas/electric, etc.) and fundamental services (eg. janitorial, heating/cooling system maintenance, office machine service contracts, etc.). It will take longer for more complex parts and multifaceted services (eg. Software outsourcing, call center services, etc.). Regardless of the size and scope of the material or service that you will be selecting a vendor for, following these steps will help insure the success of rest of the vendor selection process.
1. 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 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 ten people may become unmanageable. Examples of large projects include complex subassemblies, computer information services and large customer service call centers.
2. 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 and 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.
3. Define the Technical and Business Requirements
If the vendor selection process is for a part or subassembly, the specifications can be obtained from the bill of materials, engineering drawings 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 should have.
Sample material specifications for plastic PVC pipe:
- Nom. Pipe Size (inches): 3/4 (0.375)
- Outside Diameter: 0.675 (+/- 0.01)
- Inside Diameter: 0.437 (+/- 0.005)
- Minimum Wall Thickness: 0.091
- Total Wall Tolerance: +/- 0.0008
- Maximum PSI Rating: 600
Example business requirements for an after hours answering service:
- Available 24 hours per day, 7 days per week, 365 days per year (24/7/365)
- Ability to change greeting per our request
- Caller rings through successfully 99.5% of the time
- Ability to page service technicians via cell phone or pager
- Ability to escalate calls to the supervisor on duty
Sample business requirements for a software package:
- Integrated inventory, order processing, shipping and accounting system
- Optional payroll and costing system
- Inventory part number must be a minimum of 18 characters
- Customer notes must be available for the order level and for individual order lines
- Price overrides must be approved by a supervisor
- Ability to print barcodes for detailed inventory tracking
- Inventory transaction history must be available online for a minimum of five years
4. 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 or 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.
Sample vendor requirements:
- Have a local delivery service for same-day orders
- Have a market capitalization of at least $250 million
- All employees must be bonded and insured
- Provide at least five references that we can talk to directly
- Provide electronic ordering processes
- At lest 50% of the raw material must originate from within the United States
- Technical service must be available from 8:00am to 8:00pm US Eastern Time
5. 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 update 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 Request for Quote (RFQ).