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Three critical factors to bear in mind when embarking on a supplier selection exercise
The drive for tangible benefits associated with business change is greater than ever in today’s economic climate. For many organisations, change is delivered in conjunction with third party suppliers such as system integrators and IT software vendors, and therefore getting value for money through procurement is even more important.
The costs of procuring the wrong suppliers can add up to tens, if not hundreds, of millions of pounds on large programmes in lost benefits; as well as the time spent to address soured supplier relationships and maybe even to start again with a new set of suppliers or vendors midway through.
You may be a programme sponsor or manager, or a procurement lead about to embark on a supplier selection exercise. How do you maximise your chances of ‘picking winners’ amongst candidate suppliers to help you achieve the desired benefits? Here are some of our views based on working with clients on supplier and vendor selection.
We believe there are three critical factors to bear in mind:
1. Make sure you’re really ready to start supplier selection
There is no point starting supplier selection if the core scope and objectives of the programme are not fully understood or agreed within the organisation yet. This can lead to the wrong supplier decision or wasted time in a long, protracted supplier selection process whilst stakeholders are, in parallel, trying to reach agreement.
However, some deliberate interaction with suppliers and vendors can be very helpful in firming up views and generating additional ideas – but make sure you’ve got clear enough views first otherwise you won’t really be in control of the process.
2. ‘One size doesn’t fit all’ in supplier selection processes
Many organisations don’t deviate from the standard approach of a paper-driven Request for Information (RFI) followed by a paper-heavy competitive Request for Quote (RFQ) or Proposal (RFP), often involving suppliers already known to them. If innovation is really important, you may need to consider some different organisations to the ones you know and have a dialogue first to understand the ‘art of the possible’.
If speed is really important, you may need to consider a two-step sourcing strategy; for example to starting requirements and design work quickly with an initial supplier, followed by delivery with others when the shape of the solution is much clearer. Occasionally there may only be one supplier, or an incumbent supplier, who can best do the work. You may need to develop a special process that creates as much commercial leverage as possible in this circumstance. So, all in all, there is rarely a ‘one sized’ approach that will get the best results.
The selection process should also test suppliers and vendors against a particular set of required services or benefits, and therefore detailed aspects should be designed specifically with this value-focus in mind. For example, if facilitation and engagement skills will be critical don’t rely on a ‘show and tell’ presentation of the RFQ from the sales team to assess this – ask their proposed team to facilitate some problem solving with you. Where software is concerned, if scaleability and performance are important, build in a performance simulation and talk to the vendor’s other high-volume customers.
3. Agree a commercial and supplier engagement model that will deliver results over the long-term
The focus of supplier selection is often disproportionately on the short-term and getting to the signed contract quickly. Success is often mistakenly defined in terms of what percentage a supplier was beaten down on their commercials. Whilst overpaying and commercial naivety are to be avoided, there needs to be careful consideration of the cost-quality relationship. Aggressive upfront negotiation can result in losing the suppliers’ ‘A-team’ people or driving them to recover margin elsewhere; such as through sub-contracting, carrying out too much work off-shore or through over-use of change control processes - in all cases potentially costing the business severely in the long-run. A balanced relationship, where the supplier is rewarded fairly, will almost always deliver better long-term value than a one-sided cost-focussed arrangement.
The value focus highlighted above should extend to putting in place the longer-term commercial and engagement model as part of the selection process. In this way suppliers will be incentivised to deliver value over the course of the programme and good supplier management processes and governance will already be set up to minimise later problems.
We have set out below our views on the relative value of some approaches and tools for supplier selection.
Taking the time to consider these critical factors and the views below will ensure a win-win situation for you and your supplier.