Supplier selection tips: do this, don’t do that

Supplier_selection_tips_100.jpgSelecting the perfect contractor is essential to ensure that your department is able to achieve its goals to reach its full potential. One bad choice can spoil an entire operation and disproportionately set back fiscal and business goals. Follow these helpful supplier selection tips to ensure that you/your department do not fall victim to avoidable problems.

In this article, the separate stages of supplier selection are discussed, with helpful tips on each so that you can be sure the contractor you choose is the contractor you need. The selection process is broken down into five stages:

1. Setting criteria
2. Calling for bids
3. Evaluating and selecting bids:

• Risk assessment
• Due diligence

4. Contracting
5. Maintenance

Setting criteria
It is crucial to the entire selection process that you have a clear idea of who or what you are looking for in a contractor before doing anything else. Remember, this process is akin to hiring a new employee. You will require a solid view of what you need before you start looking for who can fill that need. There are several resources that can help with your initial research, but when setting your criteria be sure to remember the following:

Ask yourself important questions to get a clear idea of what you are looking for in a contracted business partner. Let these suggested questions be a start as you begin your selection process:

• What are we buying? What services/goods/labourers are we looking for?
• What is our quality threshold?
• How much are we going to need?
• What price points are we looking for? What price points are unacceptable?
• How many contractors are we looking for?

Don’t let yourself become distracted from your criteria. Once these parameters are set, let them act as commandments in your search. It is always important to remember that the market for contracting, especially government contracting, is intensely competitive. If one firm does not meet your needs, another will.

Calling for bids
Once you have a clear picture in your mind of the type of business partner that you need, it is time to call for bids. While in this stage of the selection process:

Make sure that your call is heard far and wide. One of the more important supplier selection tips in this article is to remember that the process of selection will be easier as more businesses respond to your call. A smaller pool of applications may seem less daunting, but it actually makes it more difficult to find that perfect partner.

Include a request for proposal (RFP) questionnaire in your application process. Rather than allowing any old contractor to bid for your business, make sure they have the chops. Remember those criteria we had you think of? This is the time to consider what you are looking for and come up with a list of questions that contractors can answer to prove to you that they have what you need. Things to consider including on the questionnaire are:

• Licenses
• Bonds
• Insurance coverage
• Lawsuits, both pending and resolved
• Financial standing
• Personal business policies and procedures

Evaluating and selecting bids

Now for the real work. You have optimised the number of applicants you will receive and they all responded to your rigorous RFP questionnaire, and because you used a supplier directory to find suppliers, you have a daunting number of applicants. The bad news is that we do not have a supplier selection tip for you here. This bit is just going to be a lot of work. But, we do have some things for you to keep in mind:

Don’t forget your criteria. We told you to build that list for a reason and this is not the time to abandon it. Keep that supplier selection tip from earlier in mind: this is like hiring a new employee. Now that you have all the applications, it is time to compare them to that image of the perfect new hire and throw out whoever is not going to be what you need:

• Is the business too big?
• Is the business too small?
• Do they have a history of poor decision-making?
• Is their licensing inconsistent with your needs?
• Are their price points too high?
• Do you doubt their ability to meet your needs?

Remember to consider all possibilities.

Negotiate. This is an important aspect of the selection process that cannot be forgotten. If an applicant seems perfect but their price points are too high, try to bring them down. Remember, competition for your contracts is fierce; remind the applicant that the prices are yours to set. And again, remember your criteria. If they won’t budge, move on.

Risk assessment
Once a shortlist has been drawn up, you will want to perform a risk assessment of the businesses that you are considering partnering with so that you can be sure the one you pick is not going to be a huge mistake (or if it is that you are prepared).

Rank the applicants based on risk. Generally, businesses will assess risk as either “High”, “Medium” or “Low” − or “Class A” (high), “Class B” (medium) and “Class C” (low). This ranking will make the final selection all the easier once your assessments have been completed.

Don’t forget anything. This is an important part of the selection process and probably one of our most important supplier selection tips. This is where you conceive of and prepare for the worst. Failing to consider a possible negative outcome can be disastrous. Start by asking yourself these questions:

• Will contracted workers be working on site?
• Will these workers be working during or after business hours?
• Will workers have access to potentially sensitive information (private, business, financial, etc.)?
• Will the potential absence of this partner, for any reason, become a hindrance to business as usual? (Will the absence of sanitation staff bring productivity to a halt? Will a missed shipment of paper result in a disaster?) If something happens to this business partner (bankruptcy, foreclosure, contract abandonment, etc.), will we be okay in the short-term?

Brainstorm any possible outcome and consider the risk.

Due diligence
Now that you have an idea of the risk involved with each of your contract applicants, you can probably narrow the shortlist down even further. With these last few applicants make sure to do your due diligence in response to the risks that you determined in the last stage. Always:

Review the applicants’ RFPs and perform onsite audits. These are vital to truly understanding the potential risks involved in a contracted business partnership and will give you a much clearer idea of how production and business operations will run with your future partner. We are suggesting these as the bare minimum to do your due diligence, so be sure to complete them.

Don’t consider your job done after this step, especially if the applicant ranked “High” (Class A). In this case, a simple onsite audit probably will not suffice. Create a business continuity plan, perform a review of information on security and system organisation controls, etc. Depending on the potential risk of a business partner, you need to make sure that you are prepared for anything.

Now that you have done all that, it is time to award your contracts. You are nearing the finish line. Don’t start to jog when you are so close because this is the single most important stage of the process. So, remember:

Write an extensive and exhaustive contract that will cover everything. Every aspect of your partnership and future business relationship should be contained in this contract. We want to see extensive detail. This contract should be almost comedic in how thorough it is. As a starting point, your contract should include and consider:

• Licenses
• Insurance policies
• Expectations
• Responsibilities
• Types and frequencies of reporting and reviewing
• A process by which the contract may be changed (varying the scope of work)
• Ownership of work product(s)
• Acknowledgement that the contractor is subject to review
• Privacy and information security
• Data theft
• Ongoing monitoring
• Dispute resolution
• Process by which information will be handled and returned
• Etc.

Remember, the more thorough the contract is, the more prepared you are in the event of change or disaster. Leaving something out is leaving yourself vulnerable.

This is our final and most important supplier selection tip:

Don’t stop there. The contract is only the beginning of your business relationship. Maintaining that relationship is just as important as starting it. All of that assessment is for nothing if your contracted partner fails to meet expectations as the relationship continues. Make sure that expectations are understood and frequently reviewed so that your departmental goals are reached.

Now that you have selected and maintained a contracted partnership with your ideal supplier, be sure to follow our supplier selection tips in every contracted endeavour and you are sure to always come out on top.

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