Estimated reading time: 5 minutes

• Vendor selection process is a critical part of any enterprise. Vendor selection helps organizations identify, select, and assess potential suppliers for products and services.

• So, if you own or manage a company or an organization, the truth is that you’ll have to undergo a vendor selection process.

• As a business owner, you’ll be required to work with diverse suppliers and vendors. That means you’ll establish an evaluation or assessment criteria that will form the foundation of your selection process.

Here Are Five Phases of the Vendor Selection Process

Phase 1 – Pre-solicitation planning

In this stage, you will lay down the foundation for your sourcing process. Pre-solicitation planning involves identifying your product or services based on your company’s internal policy and culture.

This stage ensures the products and services you source as well as the vendors and supplies you work with, align with your company’s internal policies and cultures.

You’ll determine whether the products or services will be outsourced from outside the company – or whether they’ll be sourced outside. This is the stage of rigorous market research and establishing your sourcing objectives and policies.

Once you’ve determined that you want to work with an external vendor, you’ll draft a request for proposal RFP. An RFP is formal documentation of inquiry of the buyer’s needs and requirements. The RFP asks relevant external suppliers and vendors about their suppliers – including delivery deadlines, costs, and associated costs or quality issues.

Phase 2 – Vendor selection

Vendor selection process is the formal stage of selecting a suitable vendor(s) depending on received submissions. Once the request for proposal submissions is received from various vendors and suppliers, they’re assessed for suitability.

Vendor selection process is the formal, strategic stage of evaluating every submission based on the application requirements. Vendors are evaluated based on given metrics – financial stability, delivery time, cost, time in business, trustworthiness, and reputation.

Organizations will individually select how they evaluate their vendors. While some organizations will entirely limit their bid winners to the suppliers who quoted the lowest costs, the most common evaluation method is the vendor who provides the most value at the lowest cost.

Phase 3 – Award contract

Award contract is the stage of awarding the contract after determining the vendor you want to work with. Firstly, detail your expectations and requirements to the vendor, and ensure they can meet (or exceed) these requirements.

For instance, you can mandate the vendor to follow your organization’s internal culture and policies. An orientation program can help familiarize the vendor with the organization. Give the vendor time to know your organization, policies, cultures, and expectations.

Vendor orientation is crucial in building a connection or relationship with selected or suitable vendors. Vendor orientation helps the buyer (the organization) to specify all its requirements and expectations beyond what is spelled out in the contract.

Phase 4 – Contract management

Contract management is the practice of managing contracts with vendors – from overseeing contract creation, execution, and evaluation – to ensuring the contract maximizes an organization’s financial stability and minimizes risks.

  • Project plan. The first step of contract management is establishing a project management plan. Once you’ve selected the vendor and awarded the contract, it’s time to create a project plan. The project plan must be served to both the internal and external project players.

Sharing the project plan with internal and external project managers ensures that every party contributes to moving the project forward. It also helps in project monitoring and control.

  • Communication plan. It’s crucial to remember that some components of the project will fail without proper communication. A detailed communication plan must be created and provided by the vendor project manager, and ensure suitable avenues of communication. In addition, the communication plan must establish how many reports are needed and at what frequency.
  • Performance plan. Have clear expectations of what the vendor must deliver. Monitoring the performance of your supplier or vendor ensures proper project monitoring and control.

If performance isn’t up to par, it’s advisable to follow up with a comprehensive backup plan. Give timing and changes to your performance plan. And conduct regular audits if you’re worried about the project’s performance.

  • Auditing. Every organization must audit its plans, processes, and performance levels. Auditing must be planned for long before the actual project. Auditing must contain the least disruption and be as unbiased as possible. Each project has specific audit benchmarks – cost, delivery, time, quality, and knowledge transfer.

When conducting audits, you’ll find regular project disruptions or delays. There are three common types of delays: excusable, non-excusable, and buyer imposed. Excusable delays are factors beyond the vendor’s reach or control – bad weather, terrorism, fires, floods, or storms.

Non-excusable delays emanate from vendor negligence or failure. For instance, when vendors fail to make timely communication or when they accidentally or deliberately miss out on critical project details.

Buyer-imposed delays occur when buyers extend the project. Penalties or additional costs may be incurred if the vendor or supplier establishes that the buyer has violated the initially agreed requirements or added project deliverables.

Phase 5 – Contract closure

Contract closure can only occur after the vendor and buyer have satisfied the contract’s requirements. The contract cannot be closed if it contains violations, litigations, or disputes. Contract close-out cannot happen if the contract is being assessed or evaluated for some form of ethical abuse or ethical violations.

Contract Closure Follows the Following Steps

  • Verifies the contract fulfillment. This step involves looking at whether the contract requirements have been met, either in terms of services, products, or performance. Relevant documentation is assessed and evaluated to ensure conformity to established contract requirements.
  • Collect evaluation reports. These documents are often available as part of a company’s monitoring and control processes. As part of contract closure, you want to ensure that all these different documents indicate contract completion.
  • Verifying contract requirements. It’s critical to ensure that the vendor hasn’t intentionally or unintentionally left out something. In most cases, you verify by testing that the service or product is working effectively.
  • Making vendor payments. Vendor management requires that you play your part in meeting the contract obligations. Organizations and procurement teams are required to honor their agreements. You’re responsible for ensuring the vendor receives their payments.
  • Contract closure documents. Prepare contract closure documents to certify that the contract was successfully awarded and closed. These documents will be examined as future proof in projects that are similar in quality and cost.

Understanding the vendor selection process aids in making the entire process smooth and efficient.

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