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While our vendor relationships may be technically transactional, their reality is much more nuanced and complex. Our vendors and suppliers are as interwoven with our business success as any internal team, and effective vendor management starts with quality vendor selection.

But, far too often, we get ahead of ourselves when it comes to our vendor choice. We’re understandably excited about the opportunities and growth potential our vendor selection unlocks, to the point of shortchanging critical first steps of vendor evaluation that ultimately ensures a long and fruitful working relationship.

Remember, the first step to vendor management is vendor selection and choice – but they’re far from the least important ones. Instead, they build the foundation for business success while going a long way toward preventing avoidable fraud, waste, and abuse.

What is Vendor Selection?

Vendor selection involves the entire process of soliciting, identifying, evaluating, and ultimately picking the vendor or vendors that are the best fit for our company. Far from a quick decision, vendor selection can be a long, complex, and laborious process. However, shortchanging the process or taking any shortcuts throughout vendor selection can prove disastrous if we overlook vital details.

Understanding vendor selection and then developing a comprehensive framework that fits your business are two of the first steps we can take to effectively create a long-term, fruitful vendor relationship that’s fruitful and profitable for all involved.

Which Departments and Individuals Are Typically Involved in Vendor Selection?

The vendor selection process varies from company to company; a small “mom and pop” operation will have vastly different approvals and processes from a typical mega-corp, for example. Still, for most businesses, you’ll tie in as many internal stakeholders as possible to get an objective and unbiased view of which vendors are the best for your business.

To start, getting a list of criteria and requirements from those interacting with the vendors, whether it’s your product team, developers, marketers, or otherwise, is usually best. Beyond that, vendor selection usually involves decision-makers and driving forces like: 

  • The CFO: the CFO may have the final say in the vendor selection process but should be looped in early and often. Far too often, we go in one direction without clear guidance or parameters from our C-suite team, and missing their insight can cause time and money to be wasted iterating the same process multiple times.
  • Director of Procurement: the highest level that interacts with vendors most often, the Director of Procurement is a wealth of knowledge and experience who can lean on past procurement management techniques to tailor your vendor selection process best to manage what matters.
  • Team Leads & Department Heads: those with the most interaction should have a significant say in the vendor selection process – they’ll be the ones interfacing and managing vendors, and the best supplier on paper could have subtle negative traits that are a game-changer for those on the ground.

For major vendor selection processes, you may want to establish a committee to outline requirements, review vendor choices, and interview prospective suppliers. While not necessary, sometimes two heads are better than one, and there’s a benefit to getting everyone together at once to execute vendor selection rather than piecemeal the process.

The Simplified Vendor Selection Process in 5 Quick Steps

“Simplified” vendor selection tends to be anything, but there’s rarely a comprehensive guide that covers all bases or contingencies you may encounter. Still, developing a basic framework for vendor selection goes a long way toward tailoring the process to your company and creates a shared understanding and way forward across the enterprise.

Analyze your Business Needs

As we’ve mentioned numerous times, adapting the vendor selection process to your unique requirements is a key first step. If you’re an SMB, there’s little use adapting a large retailer’s vendor selection checklist and vice versa.

Analyzing those needs also helps clarify vendor requirements and enables you to communicate them effectively, saving time by ensuring a common understanding between you and potential vendors. The process includes identifying critical tasks and deliverables required from potential vendors, workshopping them across the enterprise to include department heads, managers, and c-suite executives as needed, and then codifying the requirements in a comprehensive and understandable document.

Due diligence at this early stage goes a long way toward ensuring a smooth process as vendor selection continues.

Create a Candidate Shortlist

You’ll likely get a flood of unqualified or unsuitable vendor candidates from the outset. That’s unavoidable. What is avoidable, though, is wasting time spinning your wheels by looking deeply at each and every applicant. Instead, create a shortlist based on essential criteria to narrow the playing field and let decision-makers focus on the handful of prospects with the most significant potential.

Considerations for a shortlist include service or product scope, costs, and project timelines.

You’ll also want to find vendors where they are rather than waiting for the “best in class” suppliers to find you first. While you may find some ultimately unavailable, effective outreach methods, including email, in-person meetings, or phone calls, go a long way toward finding the best candidates. You’ll also likely publish a Request for Information (RFI), fed by your first step’s needs analysis, to nurture initial communication.

Meet Potential Vendors

We’re increasingly dispersed and remote, but that doesn’t mean you should skip “in-person” vendor interviews and discussions. The best “on paper” vendor may fall apart with little direct scrutiny, so getting them on the line early can help determine the best fit quickly.

You’ll generally schedule face-to-face or virtual discussions with shortlisted candidates to focus on project specifics, pricing structures, and deadlines. This is also a way to validate your published business needs and RFIs to ensure a common understanding from the beginning.

Review RFPs and Clarify Details

Requests for Proposals (RFPs) review is the next formal step to validate their compliance with requirements and ultimate suitability to your unique needs. This is the step in which shortlisted candidates are narrowed down further via in-depth research into the vendor’s work history, reliability, and commitment to project completion. This step is often when higher-level managers or executives get involved, as the least-qualified vendors should have already been disqualified from the process.

Now, you’re ready to lock in a deal but should also create a contingency plan or list of backup options if the primary vendor cannot meet specific contract requirements, ensuring business continuity.

Develop a Contract

A comprehensive and well-developed contract is the final step in vendor selection but not the final word in vendor management. This also tends to be the most collaborative phase across the enterprise as stakeholders validate requirements and include parameters unique to specific sections, such as payment term input from the AP section.

Contracts usually include essential elements like vendor compensation, transparent supplier payment schedules, clearly defined project objectives, and well-structured termination clauses.

Both vendor and buyer then carefully review draft documents to agree upon terms and ensure clarity before beginning a working relationship.

Why it’s Important to Determine Your Vendor Evaluation Criteria

You can’t manage what you don’t measure, and managing vendor selection starts with a clear set of guidelines that drive evaluation and decision-making. To that end, you should begin with a collaborative brainstorming session with key stakeholders encompassing all possible questions, criteria, and concerns. What is the vendors’ work history like? Are they historically comfortable working with the payment terms you prefer? How often do they miss deadlines?

Pulling in multiple input sources is a great way to leave no stone unturned, as different stakeholders have varied experience with vendors, ensuring a comprehensive and well-informed set of criteria. It’s best to narrow down brainstormed options down to a handful of top points to cover, then codify those criteria in a weighted checklist to evaluate applicants objectively and fairly.

What Primary Evaluation Criteria Should Teams Incorporate in Vendor Selection? 

Your evaluation criteria are as varied as your overall business needs, and no single checklist is sufficient to cover all possible bases. Still, standard criteria include the following, which serve as a practical starting point to trigger collaborative conversation when building vendor selection evaluation criteria, checklists, and scorecards: 

  1. Product fit, quality, and capacity – do they offer what you need, in the quantity required, as fast as you need them? This is a binary yes/no criteria and an easy way to narrow down the field rapidly.
  2. Reputation & reviews – quality vendors are proud of their work history and use reviews or feedback as social proof to drive further work. Limited history isn’t a dealbreaker, but you should look more closely at those without a portfolio of reviews backing up their offer. Top vendors usually offer case studies as “proof of work” to drive further conversation, so asking for any available documentation is a great idea.
  3. Pricing – the best vendor is of little use to your company if you can’t afford them; ensure they match your budget and (ideally) can scale as you grow.
  4. Years in business and operational longevity
  5. Systems – do they automate procurement? What sourcing platforms do they use? Ensuring a vendor fits within your existing ecosystem or that you can mutually adapt to one another reduces friction during vendor onboarding and throughout supplier management.  
  6. Customer and client lists
  7. Customer service – how responsive are they, and how often do you expect to engage with them? Communication is key in dispersed or remote operations, and ensuring customer service matches your expectations saves stress and hassle down the road.   

Sometimes, business ethos or personal goals drive additional criteria that are harder to quantify but no less important; sometimes, the best vendor can still be missing the “it factors” a c-suite stakeholder expects that ultimately derails vendor selection. Additional criteria in this vein can include:

  1. Credit rating & financial reputation
  2. Company mission, goals, and values
  3. Health, safety, and environmental standards

Free Vendor Selection Checklist / Scorecard

A vendor selection scorecard is a valuable tool in ensuring all criteria are covered while serving as an objective tool to rack and stack potential candidates during vendor selection. Ensure that all stakeholders have a sufficient say in what criteria make the cut and how much each point weighs on the overall score; you’d hate to get to the end of vendor selection and be blindsided by a key point that’s gone overlooked. Basic criteria may include:

Vendor Name

Vendor Criteria

Team Evaluation Guidelines

Vendor Score (1-5)

Product Fit

Provide team instructions here


Cost

Provide team instructions here


Company Reputation & Reviews

Provide team instructions here


Product Quality

Provide team instructions here


Example Scorecard

We’ve put together a basic vendor selection scorecard to get you started on the right path, but remember how important it is to adapt vendor selection criteria to your unique needs:

Lenovo

Vendor Criteria

Team Evaluation Guidelines

Vendor Score (1-5)

Product Fit

Provide team instructions here

5

Cost

Provide team instructions here

5

Company Reputation & Reviews

Provide team instructions here

4

Product Quality

Provide team instructions here

3

Mistakes to Avoid

Mistakes in vendor selection are common, especially for newer teams or those less experienced in exhaustive and deep vendor selection management. To that end, here are a handful of common mistakes we see that are easily avoidable – with a little due diligence and careful time management.

Insufficient Research

As the saying goes, “measure twice, cut once,” and you can consider deep research into potential vendors the most effective way to start measuring candidates. Due diligence can uncover red flags early, saving time throughout the vendor selection process and (better yet) preventing a lousy hire down the road.

Ignoring Vendor Compatibility

If a vendor doesn’t mesh well with your ecosystem, including values, ethos, mission, environmental outlook, and other qualitative factors, they won’t be a good fit overall. This mistake is why “in-person” interviews, whether physical or virtual, are important when moving forward with potential vendors. 

Narrow Focus on Cost

If you go cheap, you may pay more in the long run as you waste time, energy, and money on a budget-friendly vendor who can’t perform. Cost is an important deciding factor but shouldn’t be the primary “make or break” criterion in vendor selection.

Overlooking Contract Details

We aren’t all lawyers, but that doesn’t mean we should race through contract overview and negotiations. Scrutiny and discussion go a long way toward developing a common understanding of payment terms, termination criteria, deadline expectations, and more – all factors that could come back to haunt you if you skip close contract details.   

Ignoring Vendor Stability

A sloppy vendor can wreak havoc on your supply chain, so ensure they have a long and verifiable track record of delivery and compliance.

Neglecting Scalability

If your vendor can’t grow with you, you’ll find yourself repeating the laborious vendor selection process far more often than necessary – which ultimately cuts into your bottom line. It’s better to go too big than too small, and your vendor should be able to outline a growth plan to match your own.

Overlooking References and Reviews

Social proof isn’t the final word, but it’s a key part of a holistic and comprehensive look at vendor quality. Are past customers happy? Are there any common trends or themes that come up in feedback that you should focus on? Quality vendors should have no problem providing references or reviews.

Conclusion

Vendor selection is the first step toward a quality vendor relationship. You wouldn’t rush into a business partnership, and your vendor is one of your most important partnerships – it’s far more than a transactional buyer/seller arrangement. Quality supplier management is an ongoing, iterative task, but it all starts with effective selection and initial controls. Likewise, building a vendor checklist scorecard that you update often as your organization learns is an important tool in your overall standard operating procedure and documentation toolkit.