Simplifying the Vendor Selection Process

Oct 26, 2005

John Lakey

Contemporary companies rely on outsourcing for success in today’s competitive marketplace, and selecting a vendor is now as important a process as developing new products.

Products and services are selected for cost, requirements, overall quality, stability of the supplier, time-to-market and traditional partnerships. The purchase approval process often involves more than one criteria and one opinion and requires the establishment of a broad-based team to manage the process.

Creation of a repeatable evaluation process is critical and development of a process that works for your company is not as hard as many think. It’s worth the time and effort and can be broken down into a four step approach that will allow selection of the right vendor for the job.

The key to a successful cost-based evaluation is that the product or service in question is an undifferentiated offering (e.g., long distance phone service). When evaluating offerings that can be differentiated, it becomes much more difficult to find a company that offers a solution that is clearly superior along all dimensions your organization would like to consider.

In these situations, cost is joined by other evaluation areas such as: functionality, ease-of-use, company history and financials and value-added services.

A Four-Step Plan

Sophisticated product and service evaluations can be accomplished in four steps:

  • Evaluating Business Needs
  • Request & Assess Offers
  • Vendor Interviews & Proof-of-Concepts
  • Negotiation

    Step 1 - Evaluating Business Needs: This is where you ask the tough questions that drive the execution steps in the successive steps in the process:

  • What need you are looking to satisfy?
  • Which evaluation categories you will use?
  • What are your business, technical and usability requirements?
  • How you will roll your evaluation into a scorecard?

    The evaluation team should be made up of representatives from all of the key stakeholder groups. This allows for clear reporting back to stakeholders as the process proceeds and for balanced discussions.

    Establish a base set of scorecard categories and a base scorecard that is the default for any evaluation. A good starting set is: business requirements, technical requirements, TCO, usability and vendor health.

    By turning this starting point into a reusable template, you will give the cross-functional evaluation team more faith in the process. You can then discuss deviations from the process upfront for a given evaluation which increases the sense of transparency and is critical to generate the buy-in necessary to successfully move from evaluation and selection to implementation.

    Step 2 - Request & Assess Offers: Once you understand the requirements that your evaluation team will be working with and how you will score the vendors you are evaluating, the next step is to gather the information necessary to fill in the scorecard and to create a shortlist of vendors for interviews and, where appropriate, proof-of-concept activities.

    Assuming you have options, consider whether you need to send out a request for information (RFI). Do you have a solid understanding of the market? Are you dealing with a limited number of potential vendors? Are you ready to get proposals?

    If the answer to these questions is “yes” then you may be able to send out a request for proposal (RFP) directly to each of the potential vendors. Often, vendors are more responsive to requests that have quantifiable requirements and dollar goals than to general requests for information.

    After you get the information you need, fill in as much of the scorecard as possible. Your goal is to see if any vendor fails to meet your “must have” requirements.

    Evaluate which vendors withdrew from consideration and why. Finally, work with the evaluation team to document who made the short-list and why. Document everything so that the evaluation team has clear logic to support the short-list decision.

    Step 3 - Vendor Interviews & Proof-of-Concepts: Once the evaluation team has a short-list, it should move quickly to invite vendors in to engage in a set interview schedule.

    All vendors will need the agenda in advance and each member of the evaluation team should try to be present for each meeting. If the evaluation involves a process or technology, consider a proof-of-concept as a piece of the vendor interview process.

    There should always be a section of the evaluation scorecard that includes vendor interviews. These dog and pony shows are important because they will demonstrate the personality of the vendor and their level of commitment to your account.

    Step 4 - Negotiation: After the vendor interviews end and all of the evaluation team’s questions are answered, the team should pick the finalists for negotiation.

    Use the scorecard to make the determination. It is generally easier to complete the scorecard with preliminary pricing allowing you to narrow the field to the clear scorecard leaders and then to revisit the scorecard as the negotiating process continues with the few remaining vendors.

    Some companies like to work with the entire short-list and to get final pricing up front which is okay, but it can take longer than narrowing the list before the evaluation team hands the recommended finalists over to purchasing. Finalized pricing will give the evaluation team the last element of the scorecard.

    To generate the buy-in necessary for implementation, it is important for the evaluation team to present the final scorecard to the broader stakeholder group and answer any questions about the recommended vendor that may come up.

    By properly evaluating which products and services organizations can save time and money. Implementing a flexible and repeatable model for evaluations will give all stakeholder groups comfort that the evaluation was fair and complete, which will give the resulting projects the legitimacy they need to succeed.

    John Lakey is a Manager with Acquity Group, a business and technology consultancy. Lakey has over nine years experience in business process optimization, project management, team leadership, system design/development and acquisition integration.


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