Effective Vendor Selection for effective Vendor Management System

According to Gartner, Vendor management is a “discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal lifecycle.” Vendor management should enable organizations to select vendors suited for their business requirements, develop vendor contracts, manage and control vendor performance, and build a sustainable relationship for the long-term efficient business operations.

However, the first step in vendor management involves the selection of the right vendor. The very first step is most crucial in many management practices as they define the course for businesses. Vendor selection involves extensive research and deliberation to select the best fit for the vendor. The selection process involves understanding the supplier products and process adopted by the vendor so as to avoid any vendor risk in the future.

Step 1: Define the organization objectives

Analyze all the internal business and technical needs which the vendor’s product needs to fulfill. This can be done only if the decision maker has required expertise and knowledge of the business processes and understands the vendor management process. The final outcome should be a clear definition of resource requirement with all technical and business requirements. This requirement information gives a better idea of how the vendor is going to add value to the organization. Define the type of outsourcing agreement – Fixed Price, Time and Material costs or a hybrid of both.

Step 2: Request for Information

As vendor selection involves evaluating various possible vendors, the organization needs to have information on the capabilities of the possible vendors. With Request for Information (RFI) proposal, vendors share the required information which is further evaluated for shortlisting a few vendors for further consideration. Do not neglect a vendor on the first go but shortlist only 2-3 vendors for a request for proposal (RFP).

Step 3: Request for Proposal (RFP)

Now with only a few vendors to be evaluated, a detailed evaluation would be warranted. Develop an RFP. The RFP should contain project overview, objective, structure and timeline of the proposal, the scope of work, resource technical and business specification, vendor profile and the brief conditions of the contract.

Step 4: Evaluate Response

After receiving the proposal, business should develop an effective evaluation framework along with relevant KPIs for the vendor and assign weights to them. With received information, the framework would help in the fair evaluation of the vendors on the important criteria. This step would also help in understanding how the vendor processes would be integrated with internal processes and help establish internal controls for vendor management and risk mitigation. At this step, it is also important to understand the regulatory compliances and standards followed by the vendor to assess the quality of service and assess the possible risks associated with the particular vendor. With VComply’s Compliance Library, organizations can assess the vendor regulatory compliances helping them to evaluate the vendors.

Step 5: Final Selection

Final selection of vendor involves signing an agreement contract. The contract needs to define the measurable KPIs, a timeline of service, pricing policy, integration measures to be taken by both parties, performance evaluation cycle and most importantly, agreed upon quality of work.