Vendor Sourcing Process

A sourcing or tender process is used to select the best product or service for a certain category of
expenditure.

Unfortunately, lots of these processes are not run well, resulting in loss of large saving opportunities,
delivery of poor quality products, or less favorable terms.

When selecting suppliers through a tender or sourcing process, the buyer works in collaboration
with internal customers or budget holders. Internal customers are buyer’s colleagues working in
other departments, such as finance or manufacturing. They are the ones who originally raised the
need for the purchase and who will be actually transacting with the selected supplier. Internal
customer involvement is usually highest (around 70%) at the specification stage and then drops to
around 30% in subsequent stages.

1. Specification development
What are the needs of your internal customer i.e. the person who requires the product or service to
be purchased? As a buyer, you challenge and “translate” these needs in specifications that suppliers
can understand.

The objective of buyers at the specification stage is twofold:

 Reduce total costs

 Safeguard a competitive market at the upcoming negotiation stage

Developing specifications in its turn is a 4 step process:

 Assess Customer needs

 Assess what the market has to offer
 Develop specifications
 Define winning criteria

2. Market Assessment
Once you have a clear picture of the business requirements, your next step is to formally invite
suppliers to quote for your business.
You formally approach the market via:
Request For Information

 This is used to pre-qualify suppliers to whom you would send the RFQ.
 An RFI is usually a simple and short questionnaire for the supplier, which enables the
buyer to judge if the supplier is promising and has a good chance to win the business.
 An RFI is optional. If you know the market relatively well, there is no need for an RFI.

A Request for Quotation

 This is a formal request to the supply market to quote for your business.
 The RFQ is a more complex document with a company presentation, bidding instructions
for suppliers and detailed information about the project and requirements.

3. Negotiation
At the negotiation stage, you analyze the offers and select the most promising suppliers to negotiate
with. Only then you prepare for negotiation.

During the meeting, your goal is to clarify the terms of the offer and get additional value beyond
what has been offered, this might range from a lower price, a better quality product, improved
payment terms etc. At the end of this process, you conclude the deal with the best supplier.

Most suppliers build in a price concession in their first offer. In order to obtain this concession, you
must:

 Build competition – To get the best results at the negotiation stage, you should have two
or more credible alternatives.
 Carefully analyze all quotations to get a feel for a stretching but credible target.

4. Contract discussion
You prepare a formal contract with the supplier and you limit your companies’ exposure.

 
The Vendor Selection Process
How to Select a Vendor Formally?

The vendor selection process is probably one of the most important tasks that a business will
undertake. Without good vendors who provide your quality stock, business services and company
supplies at competitive prices, with good terms and delivery schedules, your company’s bottom line
and profits will be sorely compromised.

Two Vendor Selection Processes

The process to selecting a vendor can be trying and vexing for many companies. To simplify there are
two ways that you can select your vendors:

 By choosing directly.

 By letting vendors tender for your work.

The first option, choosing your vendors directly, is the most common option. Vendors usually tender
for more complex and ad hoc work as well as contracts that will last for a year or more.

Requirements for a Proper Process to Selecting a Vendor

Whichever option you choose to use, your must first analyze your requirements:

 What products do you require?

 What quality levels are you seeking?

 What stock levels do you require?

 How often do you require delivery?

 What price points are you seeking?

If it is a service that you are purchasing then your requirements should be far more detailed, after all
you want to ensure that you are getting exactly what you wanted in your vendor selection process.

The Easy Process to Select a Vendor

If you have decided to choose one or more vendors then your vendor selection process becomes
that much easier. Start by identifying a number of vendors that should meet your demands. Ask
them for their catalogues. If you are a reasonably large company, this request will be answered with
a suggestion that a sales representative visits you.

Don't Pay List Price When Selecting a Vendor - Negotiate

This is your chance to negotiate good price levels and terms. No one ever pays list, however small
they are. Once you have decided on your vendors, you should set up a Master Agreement that sets
out the price, terms, delivery times and product ranges or services that have been agreed. You now
have a group of vendors to work with.

A More Complex Vendor Selection Process - Tendering

If you are tendering for suppliers then the process to select a vendor is a little bit more complex.
Once again you start with your detailed requirements. Now you produce a Request For Proposal
(RFP) detailing your requirements, delivery expectations and your terms and conditions.

You can then post this on any number of web sites or publish them in the appropriate magazines.

Get Bids & Then Negotiate Even When Selecting a Vendor Through Tenders

You should then receive a number of bids to provide the goods or services that you are requiring.
Now is the time for you to evaluate each of bids, best undertaken in a formal manner, with the
intention of choosing your new vendor or vendors.

There now follows a period of negotiation with your chosen vendors and the signing of the Master
Agreement.

Whichever route you choose, you are entering into a formal business contract with your new
vendors so your process regarding vendor selection must be detailed, formalized and understood by
all parties.

 
 What is a Vendor Evaluation?
Supplier evaluation refers to the process of evaluating and approving potential suppliers by
quantitative and qualitative assessment. The purpose is to ensure a portfolio of best in class
suppliers is available for use.
It is also a process applied to current suppliers in order to measure and monitor their performance
for the purposes of reducing costs, mitigating risk and driving continuous improvement

BENEFITS
1. Increase performance visibility. When companies do not know the facts about how their
suppliers are performing, supplier management tends to be based on guesses. Moreover, the simple
act of measuring performance can help improve performance. This improvement can be even more
dramatic when companies award additional business on the basis of suppliers meeting performance
goals.
 
2. Uncover and remove hidden waste and cost drivers in the supply chain. The supply chain is
full of potential risks that can originate from suppliers in regards to CSR. Some of these risks can be
avoided by better communications between customers and suppliers. By better understanding
supplier performance and supplier business practices and processes, customers can help suppliers
drive waste and inefficiency out of the business, resulting in higher-quality suppliers and lower costs.
 
3. Leverage the supply base. By measuring supplier performance, an enterprise can set a
threshold for its suppliers that can lead to higher-quality results. Companies can better plan new
products and services based on a good understanding of its suppliers’ capabilities and performance
levels.
 
4. Align customer and supplier business practices. Ideally, suppliers should run their business
in alignment with their customers: share the same business ethics, expect similar standards of
excellence, show commitment to corporate social responsibility and continuous improvement
 
5. Mitigate risk. Insight into supplier performance and business practices helps reduce
business risk, particularly given companies’ increasing dependence on its key suppliers. Risks can be
financial and operational and increase with geographic distance.
 
6. Improve supplier performance. The goal of supplier evaluation should be supplier
performance improvement. While simply measuring performance has a positive effect, supplier
evaluation can be most effective when it leads to continuous improvement activities and actual
supplier performance improvement.Follow-up activities, such as supplier training and development,
and corrective actions to address supplier evaluation findings are the best ways to obtain
measurable and positive results.