Choosing the Right Vendor for Your Needs

There is a misconception that vendor management only starts once you've signed a contract with a vendor or when they're onboarded.

In actual fact, vendor management starts the moment you decide to retain the services of a vendor.  In fact, one of the most important factors that ensures a smooth vendor relationship is that you pick the right vendor in the first place.

If you do the vetting of vendors properly, you will be able to flush out subpar and dishonest vendors. You will also be able to select vendors that will give your company the best value.

When you're able to secure a number of competitive bids from prospective vendors, you create competition between them. Which means you  will be able to negotiate better terms, bring down costs and improve your overall efficiency.

This article will give you an oversight of the vendor selection process. We will also provide practical tips on selecting the best vendors and avoiding unnecessary mistakes in the process.

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What is a vendor?

Before diving into the vendor selection process, perhaps it's necessary to first   define what a vendor is.

A vendor is an external company that you hire to provide goods or services that you need to run your business. It is essentially a way to outsource a portion of your own business to a third-party.

No business can do everything in house. Sometimes I need extra help to accomplish certain tasks or provide sellable goods. So instead of hiring more people and expanding your staff, you might choose to outsource that function to a vendor.

This can be a way to bring costs down. You don't have to pay salaries or benefits to the vendor's employees. The vendor completes a single project and then they move on to the next customer.

Another benefit of using vendors is to instantly grow your capacity to meet a surge in customer demand.

Vendors are often called suppliers, although that represents just one side of the vendor equation. Most retailers depend heavily on their suppliers to provide the goods they sell to customers. But vendors can also provide essential services to a company.

Vendors range in size and scope from a single individual performing the work on their own, or a multinational leveraging  global supply lines to furnace you with goods.

There are many examples of where hiring a vendor could be beneficial for your company. You could contract a caterer to provide snacks and drinks for an office party or in the break room during important meetings. Another common vendor is cleaning services—which allows your own employees to focus on getting work done.

Other vendors can install computers and IT equipment, source office furniture and technology, or keep your janitorial stores replenished.

There are a number of different types of vendors that are typically used in the industry:

  • IT services
  • Manufacturers
  • Retailers
  • Wholesalers
  • Marketing services
  • Maintenance services
  • Cleaning services
  • Printing services
  • Catering services
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Why it's difficult to find the perfect vendor

It's often difficult to assess vendors properly due to the number of vendors you have to employ to run your business, as well as the scope of their operations. Many companies make use of hundreds or even thousands of vendors. Often these vendors are linked together in supply chains spanning the globe.

This makes it extremely difficult to keep tabs on the activity of all your vendors, do due diligence on all of them, or track their performance.

Keeping track of all your vendors becomes even more difficult if you consider that many vendors use subcontracting vendors—who in turn make use of their own subcontractors. You might never know  how far this chain stretches —or the full list of vendors your business depends on to survive.

To remain competitive in a global, always-on, online economy, many companies are expanding their global operations and have to make use of more and more vendors.

Many companies still use a manual vendor management process. They store vendor-related  data on spreadsheets or hard drives scattered between different countries and areas of operation.

Is it any wonder when this data gets outdated? So even if you request more detailed records from different divisions of your company or from individual vendors, what they provide may not provide an accurate picture of their current status.

The result is that you don't have good visibility into the affairs of all your vendors. It also makes it  difficult to track the  performance of your vendors.

Which also means that if something goes wrong with a vendor, you won't be able to act quickly enough to avert any negative impact to your supply line.

Examples here could be if a vendor is struck by a natural disaster, is caught in some kind of financial or ethical violation, or has to call an unplanned recall. If you don't have proper visibility when it comes to vendors, it becomes almost impossible to choose the right vendor for each application.

If you still use a manual vendor management workflow, how do you expect to know which vendors are safe to use, and which ones to avoid?

A lady signing a contract with a ballpoint pen.
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The vendor selection process

The reason that most companies enlist the services of vendors is to fill a gap in their business operations.

Usually the vendor selection process starts with a manager that identifies the need for a vendor. They will work together with a financial officer and someone from legal to ensure that the vendor meets certain financial requirements.

Finally, the human resources department will take the vendor through the necessary onboarding steps to get them up and running to service a particular need in your company.

Generally, this process involves three main parts. Firstly, someone draws up a list of requirements for possible vendors. This describes exactly the type of goods or services you require the vendor to provide.

Then a Request for Proposal (RFP) is published through recruiting agencies or sent through to lists of potential vendors or are advertised in trade papers. This is a formal request for vendors to submit proposals stipulating the ways they will be able to meet your requirements, and at what terms.

Finally, the responses from potential vendors are evaluated, culminating in the final selection of a vendor or vendors to do the work.

Before a specific vendor can be chosen, your company has to decide on certain criteria to which any potential vendor has to comply.

These criteria aren't restricted to the actual work or even remuneration for the goods or services they will provide. They might include essential social, ethical, or legal standards to which they have to comply.

The criteria could involve any one of the following broad categories:

  • The amount of money you are willing to budget for the duration of the vendor relationship.
  • The speed with which the vendor should provide particular services or goods.
  • The vendor's compliance with social responsibility or environmental requirements.
  • You might require vendors to submit certification that prove their compliance with certain ISO standards.
  • You might also require the vendor to submit specific System and Organization Controls (SOC) reports to ensure that they operate within acceptable ethical standards.

You might also require vendors to submit financial  reports or have minimum credit scores that prove their financial viability.

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Tips for choosing the right vendor

Here are a couple of pointers that will help you choose the right vendor for your particular needs and requirements:

Tip 1: Perform a background check on each vendor

The first tip would be to do your research and make thorough inquiries into each vendor applicant.

When selecting a vendor, it's easy to put more focus on the goods and services that a vendor is willing to provide, without doing proper inquiries into the company offering these services.

When you evaluate a vendor, make sure to find out how long they have  been doing this type of work. What is their reputation in the market? Do they have the capacity to deliver on their promises?

Before signing a contract with a vendor, you have to make sure that they have already done something to this scale or volume before. Otherwise, you might run into problems with that vendor down the line.

Tip 2: Talk to their other customers

As part of your investigations into the vendor, ask around and inquire from their previous customers about their experience with the vendor.

Did they deliver what they promised—and did they stick to the agreed timeframe? Were projects completed? Another important question is whether they stayed within their assigned budget.

This will give a clear indication of the type of relationship and experience you will have with this vendor.

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Tip 3: Verify the consistent quality of all goods

When a vendor supplies you with goods that you will sell to customers, you have to be 100% confident that the product will always be of the expected quality.

Vendors will often provide samples of a high quality they apply for a vendor contract. But when the goods eventually arrive in your warehouse they're either of lower quality, or inconsistent.

That is why you have to verify the consistent quality of all goods from a vendor before deciding to make use of their services. Each has to be of the same calibre as the one before.

Tip 4: Choose vendors with experience

Going with the experienced rather than the cheapest vendor is often prudent. Find out the history of the vendor. Do they have a track record of delivering high quality goods and services over a span of several years at least?

Even if the experienced vendor is a bit more expensive, it could end up saving you money in the long run.

The vendor with the solid track record will be more likely to fulfil their contractual duties to the level you expect from them—accurately, on time, and to the agreed quality.

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Tip 5: Communicate clearly and often

At every stage of your engagement with vendors, you have to ensure that everyone is on the same page. Your communication with vendors has to be clear and precise.

Both of you must agree on the terms of your agreement before the contract commences. Your expectations from the vendor have to be spelled out from the very start.

They must know exactly what goods or services are expected from them, the manner in which they are required to perform these duties, and what is the timing of the project.

No one should be able to claim ignorance after the fact. This will save you a lot of time and headache in the long run. It could well mean the difference between a successful outcome and abject failure.

Make sure that you know exactly what you're getting yourself into with a particular vendor from the start.

Brainstorming over paper
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Mistakes to avoid when selecting vendors

Vendors can dramatically increase your turnaround time and improve the overall efficiency of your business—if they're managed properly.

This starts with choosing the right vendor for the job. When it comes to selecting the best vendor for each application, you have to be deliberate and strategic.

Think about the type of vendor network you want to put together. Consider all your options and avoid the following 3 mistakes that companies often make when selecting vendors:

Mistake 1: Judging a vendor by their proposal alone

Something you have to avoid is to judge a vendor by their proposal alone without scrutinising their track record or reputation as a company.

You have to ensure that the vendor is capable of delivering on their promises. Does the vendor behave in a professional manner? Will you be able to form a comfortable, efficient work relationship with them?

Also, do you think that the vendor will go out of their way to keep you happy?

The answers to these questions could well mean the difference between forging a long lasting relationship with a new vendor, or condemning yourself to months of headache and frustration.

call
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Mistake 2: Being indiscreet

Earning a lucrative contract is highly desirable for any vendor. Which means that they will use any type of advantage they can to get ahead—including fishing for privileged information that could put them ahead of the competition.

When dealing with a vendor during the selection phase, you have to be on your guard. It is not uncommon for vendors to phone around and talk to members of your staff, trying to gain a tactical advantage.

If a vendor finds out the details of a competitor's bid, they can adjust their offering to sweeten the deal in their favour. This will jeopardise your entire vendor selection process.

It will also damage your credibility—so always be discreet when communicating with potential vendors.

Mistake 3: An RfP that is unclear and imprecise

If you don't structure your RfP properly, each vendor will get a different idea of what's expected of them.

The result is that every proposal will look different and contain different information. This makes it almost impossible to compare different proposals against each other.

If you leave room in the RfP for interpretation, each vendor will make their own assumptions as to your intent.

When you're putting together an RfP, make sure that your intentions and expectations are clearly set out. Give vendors proper guidance as to how you want them to structure their proposals.

You have to include all the information you need to make a proper evaluation. Otherwise you set yourself up for frustration.

It may even scuttle your selection process altogether—which means you will have to start over from scratch.

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Conclusion

Vendors can provide the vital goods and services you need to keep your customers happy, while keeping costs down.

If you choose the right vendor for each application, you will lower your vendor-related risk. It will also improve your business performance, boost your cash flow, grow profitability and overall increase your customer satisfaction.

It can be time consuming going through the process of selecting vendors. Gathering information on potential vendors and analysing the results to make the right choice takes a considerable commitment.

This is where vendor management systems will be able to help. The technology will be able to guide you through the whole vendor selection process.

Some VMS developers even offer risk intelligence services to give you access to the inside scoop of potential vendors—financial reports, insider knowledge and news reports. This makes it a whole lot easier to decide between vendors.

These risk intelligence services may include automatic on each vendor—for example, when they run into financial difficulty, are faced with lawsuits, or if there is a fall in their credit scores.

So it might be something you have to consider when choosing a VMS for your company.

With the right technology and processes on your side, you will be able to avoid vendors that are not up to scratch. This will end up saving you a lot of time, hassle, and money in the long run.

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