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The Successful Vendor Selection Process

The Five Step Vendor Selection Process

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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 Vendor

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.

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