Vendor selection and

contracting
By nadia khizar
Vendor
 A vendor is a party in the supply chain that
makes goods and services available to
companies or consumers. The term "vendor"
is typically used to describe the entity that is
paid for goods that are provided, rather than
the manufacturer of the goods itself.
However, it is possible for a vendor to
operate as both a supplier (or seller) of goods
and a manufacturer.
How a Vendor Works

 A vendor, also known as a supplier, is a

person or a business entity that sells
 something. Large retail store chains such as
Target, for example, generally have a list of
vendors from which they purchase goods at
wholesale prices that they then sell at retail
prices to their customers
 Some vendors also can sell directly to the
customer, as seen with street vendors and
food trucks. In addition, a vendor can act as
a business-to-business (B2B) sales
organization that provides parts of a product
to another business to make an end product.
 supplier
 The supplier is defined as a business or person that
make goods available to another business or service.
Suppliers are known as the first link in the supply
chain, forming only B2B relationships and providing
goods to manufacturers, in rather large quantities.
 In today’s competitive market, suppliers are

essential to almost every business as they help them

get the most out of their product by sourcing raw
materials and finding better options for raw
materials as the market starts becoming saturated.
Many manufacturers are focusing on their suppliers
as a way to achieve long-term competitive advantage
 stakeholder
 A stakeholder is a party that has an interest
in a company and can either affect or be
affected by the business. The
primary stakeholders in a typical corporation
are its investors, employees, customers, and
suppliers.
How to Select the Right Vendor for Your Business

 The vendor-selection process can be a very

complicated and emotional undertaking if you
don't know how to approach it from the very
start. Here are six steps to help you select the
right vendor for your business. This guide will
show you how to analyze your business
requirements, search for prospective vendors,
lead the team in selecting the winning vendor,
provide you with insight on contract
negotiations. and avoid negotiation mistakes.
Analyze the Business Requirements

 Before you begin to gather data or perform interviews,

assemble a team of people who have a vested interest
in this particular vendor-selection process. The first
task that the vendor-selection team needs to
accomplish is to define, in writing, the product,
material or service for which you are searching for a
vendor. Next, define the technical and business
requirements. Also, define the vendor requirements.
Finally, publish your document to the areas relevant to
this vendor-selection process and seek their input. 
 Have the team analyze the comments and create a final
document.
 Assemble an evaluation team
 Define the product, material or service
 Define the technical and business

requirements
 Define the vendor requirements
 Publish a requirements document for

approval
Vendor Search
 Now that you have an agreement on the business and
vendor requirements, the team now must start to search
for possible vendors that will be able to deliver the
material, product or service. The larger the scope of the
vendor-selection process, the more vendors you should
put on the table. Of course, not all vendors will meet
your minimum requirements and the team will have to
decide from which vendors to seek more information.
Next, write a Request for Information (RFI) and send it to
the selected vendors. Finally, evaluate their responses
and select a small number of vendors that will make the
"Short List" and move on to the next round.
 Compile a list of possible vendors
 Select vendors from which to request more

information
 Write a request for information (RFI)
 Evaluate responses and create a "short list" of

vendors
Request for Proposal (RFP) and Request for Quotation (RFQ)

 The business requirements are defined and

you have a short list of vendors that you want
to evaluate. It is now time to write a 
Request for Proposal or 
Request for Quotation. Whichever format you
decide, your RFP or RFQ should contain the
following sections:
 Submission details
 Introduction and executive summary
 Business overview and background
 Detailed specifications
 Assumptions and constraints
 Terms and conditions
 Selection criteria
Proposal Evaluation and Vendor Selection

 The main objective of the proposal evaluation

 and vendor selection phase is to minimize
human emotion and political positioning in
order to arrive at a decision that is in the best
interest of the company. Be thorough in your
investigation, seek input from all
stakeholders, and use the following
methodology to lead the team to a unified
vendor selection decision:
 Do a preliminary review of all vendor
proposals
 Record business requirements and vendor

requirements
 Assign importance value for each

requirement
 Assign a performance value for each

requirement
 Calculate a total performance score
 Select the winning vendor
Contract Negotiation Strategies

 The final stage in the vendor-selection

process is developing a contract negotiation 
strategy. Remember, you want to "partner"
with your vendor and not "take them to the
cleaners." Review your objectives for your
contract negotiation and plan for the
negotiations by covering the following items:
 List/rank your priorities along with alternatives
 Know the difference between what you need and
what you want
 Know your bottom line, so you know when to walk
away
 Define any time constraints and benchmarks
 Assess potential liabilities and risks
 Confidentiality, non-compete, dispute resolution,
changes in requirements
 Do the same for your vendor (i.e., walk a mile in
their shoes)
Contract Negotiation Mistakes

 The smallest mistake can kill an otherwise

productive contract negotiation process.
Avoid contract negotiation mistakes and
avoid jeopardizing an otherwise productive
contract negotiation process
Qualities to Look for in an Outsourcing Vendor

 Starting and running a business is a huge

task and you already have a lot of things on
your plate to handle. In such situations, it is
always better to outsource some of your
tasks to a third-party service provider. So
what are the qualities one should look for
while selecting an outsourcing vendor? We try
to clear some of your doubts by providing the
qualities you need to look for in an
outsourcing vendor:
 Reliability
 The outsourcing vendor you are looking for

should be highly reliable in terms of service

delivery. One needs to get an opinion from
the past customers and get a sense of
reliability from the vendor. If the vendor lets
you down, your customers will be directly
affected
Quality
 Make sure that the outsourcing vendor you

are opting for has been providing quality

services to all its customers. You need to
ensure that you receive quality services
consistently and not only once or twice.
Providing your customers with poor quality
services can result in spoiling your brand
name
Experience
 We need to ensure that the outsourcing vendor

you are opting for is an experienced

campaigner in that particular field. Having an
experienced vendor in the field gives you an
added advantage as you do not have to worry
about the intricate details related to the
services. The vendor can also provide some
valuable feedback on how various processes
need to be taken care of as they have the
required experience
Range of Services
 It is important that the outsourcing vendor is

specialized in providing a range of services.

In case you need a service to complement the
present service being provided, it would be
easy to employ the same vendor for that
purpose rather than searching for a whole
new vendor. The existing vendor will be in a
much better position to understand your
business needs
Communication
 Outsourcing a service to a third-party vendor

comes with a host of communication

problems. It is important that there is
constant communication between you and
the vendor. This helps in understanding the
processes and how certain things are to be
handled. Lack of communication between the
two parties can lead to deterioration in the
quality of services
Value for Money
 It is important that the outsourcing vendor

provides you with services at a reasonable

price, but not always. The quality of services
needs to be at par with the cost you are
paying for them. The services need to bear
the value for money that you are investing
into it