Contextual Strategy Group - CGI Logo CREATING BETTER CUSTOMER RELATIONSHIPS

Businesses cannot function in isolation. Every company must interact with its customers and partners in order to be sustainable on the market. To accomplish their business objectives, companies co-operate with other companies.

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Successful businesses require, among other things, reliable, professional vendors who can provide quality goods and services that support profit margins. It may not always be easy to find dependable vendors; however, a properly implemented vendor selection process minimizes the potential risks of vendor relationships.

About Vendor Selection

Dependable vendors are of utmost importance to every company. Vendors supply the goods and services that businesses can’t profitably provide for themselves. Simply put, vendors are business partners and as such essential to sustaining business. They must be reliable, trustworthy, and professional. Vendor selection is therefore a crucial and complex process involving much more than simple price comparisons.

The process of selecting the right vendors for any business includes analyzing the company’s business requirements, searching for relevant vendors, presenting potential suppliers with written requests, evaluating proposals and ultimately, choosing the most valuable vendors.

Analyzing Business Requirements

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Before focusing on a specific list of potential vendors, companies should detail in writing their requirements regarding the products, materials, and services they are looking for. Businesses searching for particular product suppliers must distinguish between the expected functionality of the product and non-functional requirements associated with product features and attributes.

To illustrate, an order fulfillment packaging and labeling system may meet or exceed functional requirements regarding its capacities. However, if it comes from an overseas supplier without a ready source of replacement parts, or only works with a specific software incompatible with the company’s system, it does not meet the necessary non-functional requirements.

On the other hand, service requirements must be defined with the inclusion of expected service level. For example, when seeking a property maintenance service company, it is advisable to list all expected services, their type, quality and frequency (e.g. monthly pressure-washing, general landscaping etc.).

Business requirements should also define all technical and specific vendor requirements. These must be expressed concisely and accurately in order to further narrow down the list of suitable vendors.

Vendor Search

After analyzing their business requirements, companies looking for vendors should perform market research to identify vendors that can potentially meet these requirements. Any list of potential vendors will most likely include those who offer insufficient information regarding their products and services. In this case, the company should write a Request for Information (RFI) and submit it to the vendor.

The subsequent responses are evaluated to determine whether the vendor can meet requirements or should be excluded. This helps companies narrow down their search and create a short list of potential vendors.

Types of Requests

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Once a list of potential vendors has been established, the next step in the selection process is to issue formal requests to all the vendors. A company can either issue a Request for Proposal (RFP) or a Request for Quotation (RFQ). The RFP asks vendors to specify how they would provide a service or solve a business problem as well as how much they would charge for such a solution. It is necessary to issue an RFP when the company knows their own requirements but is not familiar with the particular solutions available, such as specific technologies. Therefore, the RFP asks for the vendor’s particular solution, in addition to their price.

The RFQ, on the other hand, is mainly focused on prices. It is issued when companies know exactly what products and services they require. Both RFP and RFQ documents should include the following sections: Submission Details, Introduction and Executive Summary, Business Overview and Background, Detailed Specifications, Assumptions and Constraints, Terms and Conditions, and Selection Criteria.

Proposal Evaluation and Vendor Selection

After receiving vendor proposals, the company should perform a preliminary review and clarify any questions or ambiguities with the vendors. The next step in vendor selection involves listing all suitable vendors and applicable requirements in a spreadsheet. Each of these requirements should be assigned a relative importance value on a scale of 1 to 10. Next, each requirement should also be assigned a performance value based on what the company has been able to assess regarding each vendor’s performance of a particular requirement.

Finally, the company can calculate the total performance score of each vendor. An individual importance value should be multiplied by a vendor’s performance value to get a performance score for each requirement. Totaling the sum of all performance scores of an individual vendor will result in a total performance score for the vendor.

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Total performance scores are not an absolute valuation of vendor proposals. Instead, they serve as significant guidelines in the process of vendor selection. There are other factors included in this process, such as prices, experience, flexibility, and testimonials from vendors’ past clients. All of these aspects should be considered in the final stages of vendor selection.

Companies should not approach vendor selection exclusively from a cost-saving perspective. Vendors can be seen as business partners who may provide value in various business areas. Selecting the right vendor should be a gradual and informed process based on a list of defined requirements, vendor reputation and experience, in addition to accurate performance and pricing details gathered through written RFQs and RFIs. Above all, vendors must be reliable and trustworthy. Companies should co-operate with potential vendors in order to make impartial, informed decisions and build a mutually beneficial business relationship.

Our Solution

We have created a system to help companies choose the right vendor for their individual business needs. We guide you through the complex selection process by analyzing requirements, writing formal requests on your behalf and providing proposal evaluations to narrow down the search. All the potential vendors for your business are thoroughly researched, analyzed, and evaluated in the selection process.

Our structured approach to vendor selection will enable you to find the best vendors on the market that fit all your needs. The selection of the right vendors will consequently maximize your business success.