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The 5 Phases of the Vendor Selection Process
By Keith MathisPM Expert Live

Let’s face it. No matter how hard we try or how much we want it, we can’t do it all. Regardless of the size of your organization, you will eventually come across at least one aspect (usually several) that is not feasible or cost effective to do for yourself. Whether it is buying paper, printer ink, food, or a new MRI machine, you will sooner or later find that you must go in search of a vendor.

Hiring a vendor has several advantages. It can reduce operational costs, enhance working conditions, improve responsiveness, and save significant money.

While outsourcing to a vendor may be necessary, there are also times when it is not wise to do so.

  • If you and the potential vendor do not have the same goals.
  • If you feel like you must micromanage the entire project and process.
  • If you hate confronting someone over poor performance.
  • If you want 100% control.

If any of these situations apply to you, hiring a vendor may not be the best choice.

Doing market research will help you save time and money in the vendor selection process. First, you need to find out if there is even anyone capable of doing the needed service. This should take place before you put forth any type of solicitation. Determine if there is more than one company that can provide the product or service you need. If there is, this allows for competition in the bidding process. This could turn out very well for the buyer and will aid in getting your financial goals met faster. Research will let you see what similar organizations have done. You can find out what practices, processes and norms have worked and those that haven’t. In addition, you can find what other organizations have paid in the past to gain an estimate on your cost.

When it comes time to choose your vendor, be specific with clear expectations. Let the vendor know what you expect. Clearly detail all responsibilities and boundaries. Establish a positive win-win mind set. Let the vendor know that you are there to help him or her. Create a clear flow of communication so there won’t be any confusion. Set a clear monitoring schedule. Know and communicate deadlines.

Regardless of how much research you do, it is possible to choose a bad vendor. It is a challenge for the buyer to know which vendor will meet their needs while doing a quality job. There is a five phase process to assist you in the vendor selection process.

Phase 1 – Pre-solicitation Planning

This planning process is customized to the individual organization or agency due to the internal culture, policies and procedures needed for acquiring goods and services. During this process, you will determine whether products or services will be produced within the organization or outsourced to a vendor. This is the time to use the market research that you have conducted.

Once you have determined that you are going to hire a vendor, a Request for Proposal (RFP) will be drafted. The purpose of a RFP is to detail the buyer’s requirements, to ask or solicit proposals, and to detail how the procurement team will evaluate and negotiate a future contract. Make sure your contract terms and conditions are clear, detail pricing and all incentives or conditions, and create provisions for changes or amendments to the contract. It does take time to properly complete a RFP, so allow enough time for prospective vendors to ask any questions and submit their proposal.

Phase 2 – Vendor Selection

Once you have responses to your RFP, it is time to go through each submission and select a vendor. Some key areas to examine are the financial stability of the organization, the length of time in business, recommendations from similar organizations, and the trustworthiness of the organization. Conducting a risk analysis will determine whether the vendor is stable enough to be considered for a contract. This analysis should be fair, unbiased, and standardized.

Organizations will use various evaluation processes to determine who their vendor should be. The process is based on how the organization chooses to examine and measure the bids which come in during the procurement process. Some procurement processes require that the lowest price vendor be chosen in every situation. The most common method is the vendor who provides the best value compared to cost.

Phase 3 – Award Contract

Once you have determined which vendor you would like to use, it’s time to award the contract. The first thing to do when speaking with your vendor is to make sure you have clearly detailed your expectations. For example, mandating that the vendor follow the organization’s internal best practices for running the project or conducting business. An orientation time can help with this. Vendor orientation is important in immediately building the connection on how the vendor/customer relationship should function. It allows you to give all expectations beyond what is designated in the contract.

Phase 4 – Contract Management

Before the vendor gets started on the project, create a statement of work. Both the internal and external project managers should have a current project plan. This will allow for better monitoring and control. It also helps each manager to assist in moving the project forward. Benchmarks can be used to compare the present project to established standards. They are normally set as part of the monitoring process; however, if they have not been set, benchmarks must be discussed so all parties are monitoring the same things.

It is also important to remember that everything on the project will fail without proper, timely and precise communication. A detailed communication plan must be established by the vendor project manager and the buyer and must detail what type of reports are needed and at what frequency.

Monitoring the performance of your vendor verifies the results and status of the project. So what do you do if performance is not measuring up to where it should? Follow the backup plan which should have been created during the planning process. Specifically detail what needs to be changed or adjusted. Give details and timing of performance changes. If you are worried about the performance of the project, conduct regular audits.

Every organization has a right to audit their project, performance, and efficiency levels. Auditing should be planned for on the front end of the project with details of how and when it should take place. It should be as unbiased as possible with a limited amount of disruption. Each project will have specific points of interest for audits, such as costs, quality, and transfer of knowledge. As you’re conducting your audit, you may find that the project is going to be delayed. There are three types of delays: Excusable, Non-excusable, and Buyer Imposed. Excusable delays are those which are not considered to be the fault of the vendor. For example, severe weather, strikes, fires, floods, and terrorism are all out of the hands of the vendor. Non-excusable delays are those which are considered to be due to vendor failure or negligence. They are looked at as being under the control and power of the vendor. Bad planning and procrastination are such delays. Finally, buyer imposed delays take place when the buyer extends the project. Penalties and cost might still be associated to both sides, but the delay has been driven by the buyer and not the vendor.

Phase 5 – Contract Closure

Contract closeout can only take place after both the vendor and the buyer have fulfilled the contract. The contract is not able to be closed if it includes disputes or litigation or if it is being evaluated for some type of ethical abuse.

Contract closeout should involve the following steps:

  • Verify the contract has been fulfilled: Look for documentation that gives evidence contract requirements have been delivered either in products, services, or by performance.
  • Collect documentation and evaluation reports: In most cases these reports have already been established by the organization as part of the monitoring and controlling process. You want to make sure all of those evaluation reports indicate a completion of the contract.

  • Verify all contract requirements have been fulfilled: It is very important to make sure that the vendor has not intentionally or unintentionally left something out. In many cases, this is noticed in areas such as the final documentation, testing, or verification that the product/service is working effectively.

  • Make final payment to vendor: Vendor management requires that you do your part in honoring all contract obligations. You are accountable to make sure the vendor has received the proper payment.

  • Prepare contracts closure document: This document is used to review the contents of the contract to give a summary of what has taken place in the fulfillment by the vendor of this contract. It will be examined as historical documentation in future projects that are similar in nature and cost.

Understanding the proper step in the vendor selection process will aide in making the whole process run more smoothly.

Dr. Keith Mathis, founder and CEO of The Mathis Group, specializes in Project Management, Management Leadership, and Marketing training for private businesses and government agencies of all kinds. He offers 33 Project Management courses, is a Project Management Professional, is certified by the Project Management Institute and will customize every training session to your individual company’s needs. The Mathis Group also sponsors www.pmexpertlive.com, which is a powerful project management resource with free reports, podcasts, videos, and a monthly newsletter. He also offers customized management training and coaching on any subject with prolific communication and professionalism.

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