Assignment on Vendor Selection Process

Materials Management

Paramjeet Singh Roll No.-S-48

Vendor Selection Process

Moser Baer India Limited
In modern era of industrialization and globalization, every organization has to ensure that their product must meet the international standards and quality requirements to remain competent in this rapidly changing industrial environment. To achieve this, it is a necessary requirement that vendor from which the organization is getting the supply of raw material or any other kind of necessary inputs should be selected correctly. The vendor selection process can be a very complicated and emotional undertaking if the organisation don't appreciate and put in place an approach to address it from the very start. We follow certain established and tested steps to select the right vendor for our organisation. The Standard Operating Procedure (SOP) prescribes that how to analyze the requirements, search for prospective vendors, lead the team in selecting the winning vendor and provide insight on contract negotiations and avoiding negotiation mistakes. The following steps provide the basic framework of Vendor Selection Process adopted and utilised by the organisation for selecting reliable vendors on whom the organisation can trust upon to successfully fulfill its business demands and fulfilling its business objectives: Analyzing the Business Requirements Before starting to gather data or perform interviews, it is imperative to assemble a team of people who possess in-depth understanding of the processes at the organisation and have a vested interest in the organisations vendor selection process. The first task that the vendor selection team needs to accomplish is to define, in writing, the product, material or service that is required to be sourced from the prospective vendor/(s). Next, to define the technical and business requirements and the vendor requirements. Finally, the requirements/specifications so set need to be published in the relevant area or made available through the

internet to prospective vendors for soliciting/obtaining their input. Then the vendor selection team analyzes the comments and creates a final document. In brief following actions points are involved under this step:

1. Assembling Evaluation Team, 2. Defining the Product, Material or Service, 3. Defining the Technical and Business Requirements, 4. Defining the Vendor Requirements, 5. Publishing a Requirements Document for Approval.
Vendor Search Under this step, equipped with the detailed information about business and vendor requirements, the team start to search for possible vendors those will be able to deliver the material, product or service. The larger the scope of the vendor selection process the more vendors will be available for obtaining the initial RFP. Of course, not all vendors will meet organisations minimum requirements and the team needs to decide that from which vendor/(s) they want to seek more information. Next it is required that a formal document, Request for Information (RFI), is drafted and sent to the selected vendors. Finally, the vendor selection team evaluates their responses and selects a small number of vendors that will make the "Short List" for further processing. In brief following actions points are involved under this step:

1. Compiling a List of Possible Vendors, 2. Selecting Vendors to Request More Information From, 3. Writing a Request for Information (RFI), 4. Evaluating Responses and Creation of a "Short List" of Vendors
Request for Proposal (RFP)/Request for Quotation (RFQ) Under the above two steps the business requirements have been defined and a short list of vendors is prepared that for the purpose of evaluation. Next is to to write a Request for Proposal /Request for Quotation. The RFP/ RFQ contain the following sections:

1. Submission Details, 2. Introduction and Executive Summary, 3. Business Overview & Background, 4. Detailed Specifications, 5. Assumptions & Constraints, 6. Terms and Conditions, 7. Selection Criteria,
Proposal Evaluation and Vendor Selection The main objective of this phase is to minimize human emotions and political positioning in order to arrive at a decision that is in the best interest of the organisation. Thorough investigation of the gathered information, input from all stakeholders is done and then following methodology is used to lead the team to a unified vendor selection decision:

1. Preliminary Review of all Vendor Proposals, 2. Recording of Business and Vendor Requirements, 3. Assigning Importance Value for Each Requirement, 4. Assigning a Performance Value for Each Requirement, 5. Calculating a Total Performance Score 6. Select the Winning Vendor.
On receiving the RFP / RFI responses Date and time stamp the receipt of responses. Acknowledge each receipt. Have the responses been received on time? If not will you accept late responses? Have you received all the responses you expected? Will you chase up the outstanding responses or will you ignore those vendors who have not responded? How complete is each response? Have you received everything you requested from each vendor?

Reviewing and analysing the RFP / RFI responses Analyse each RFP / RFI response using a score card.

Review each requirement listed in your RFP / RFI and check the answer(s) provided by the vendor. Use a simple Yes or No marking, or a combined weighting and scoring method to indicate to what degree your outline requirements are met by the vendor / software eg as the sample below. NB: Vendors will tell you what their software can do and will present their product in the best light. They will not tell you what it cannot do. You have to find this out yourself - so work carefully and record the evidence as you find it.

Repeat the process, using a new scorecard for each software / vendor.

On receiving the RFP / RFI responses

Date and time stamp the receipt of responses. Acknowledge each receipt. Have the responses been received on time? If not will you accept late responses? Have you received all the responses you expected? Will you chase up the outstanding responses or w ignore those vendors who have not responded? How complete is each response? Have you received everything you requested from each vendor?

Reviewing and analysing the RFP / RFI responses

Analyse each RFP / RFI response using a score card. Review each requirement listed in your RFP / RFI and check the answer(s) provided by the vendor. Us simple Yes or No marking, or a combined weighting and scoring method to indicate to what degree yo outline requirements are met by the vendor / software eg as the sample below. NB: Vendors will tell you what their software can do and will present their product in the best light. They tell you what it cannot do. You have to find this out yourself - so work carefully and record the evidence find it. Repeat the process, using a new scorecard for each software / vendor.

RFP / RFI SCORECARD Evaluation Criteria General ledger Accounts payable Purchase order Accounts receivable Sales order Invoicing Job costing Fixed assets Payroll Employee expenses HR Recruitment Time and attendance Absence management Talent management Training Health and safety ESS / MSS Workflow Reporting and analytics Operates on existing network Uses existing database Uses existing operating system TOTAL SCORE MAXIMUM SCORE

Reviewer: RJ Weighting 3 3 3 3 3 3 3 2 3 3 3 3 3 3 3 3 2 3 3 3 3 3 3

Date: 3/11/08 Score 3 3 3 3 2 2 0 1 3 2 2 2 2 2 2 2 0 3 3 2 2 2 2 48 69

Vendor: A Points 9 9 9 9 6 6 0 2 9 6 6 6 6 6 6 6 0 9 9 6 6 6 6 143 207

Negotiation Strategies The final stage in the vendor selection process is developing a contract negotiation strategy. It is the policy of the organisation that to develop a battery of Vendors with a long term perspective hence, the vendors are selected not only with respect to a particular assignment basis but with a view that they will be nurtured and be taken care of so as to develop a lasting relationship and association. Having regard to the organisational objectives and selection of vendors a contract is negotiated and the plans for the negotiations be ordinarily covers the following items:

1. Listing of Priorities Along With Alternatives, 2. setting the standards and noting down the Difference Between what
are the needs of the organisation and What it want,

3. understanding the Bottom Line in clear terms So it can be made

clear that when to walk away out of the negotiation,

4. Defining the time constraints and benchmarks, 5. Assessing potential liabilities and risks,Standard contract terms viz;
Confidentiality, non-compete, dispute resolution, changes in requirements, etc.

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