Purpose and Description:
Vendor assessment is for evaluation of performance of existing vendor or it can be for a new vendor. To assess the ability of a potential vendor to meet commitments regarding the delivery and the consistent provision of a product or service. It increases the chances of the organization to develop a productive and fair relationship with a suitable and reliable vendor and to improve long term satisfaction with the decision.
In today’s word of economy, a business outsource, the expertise or its critical operations to third party, be it supply chain, consultant, relationship management, customers management, account management, store management, outsourcing for other areas. Vendor assessment is conducted to ensure that the vendor is reliable and that the product and service meet the organization’s expectations and requirements.
When solutions are in part provided by external vendors or when the solution is outsourced, there may be specific requirement in regard to the involvement of a third party.
There may be a need to ensure that the supplier is financially strong, capable of maintaining specific staffing levels, compliant with standards and able to commit appropriate skilled staff to support the solution for the business requirement.
Vendor assessment is conducted to ensure that the vendor is reliable and that the product and service meet the organization’s expectations and requirements.
Vendors are also called as external stakeholders and internal stakeholders are within the company.
Vendor assessment is performed keeping five key elements in mind. The standards of the organisation, the complexity of the initiative, and the criticality of the solution may influence also the level of formality in which venders are assessed. Here, we see five key elements in which venders are assessed.
Licensing and Pricing Models: The licensing and pricing model is taken into account in case where a solution or a group of solution or component of a solution is purchased or outsourced from a third party. Hence, pricing models are concerned and you have to evaluate those pricing models and take a better decision.
Vendor Market Position: It is important to be able to compare each vendor with the competitors and decide with which market player the organisation want to get involved. The comparison of the organisation’s profile with each vendor’s customer community may also be a factor in the assessment. The dynamics of vendor assessment market position are also a very important part. Especially, if the organisation intends to establish long-term partnership with the vendor.
Terms and Conditions: Terms and conditions refer to the continuity and integrity of the provided products or the services. There may also be consideration regarding the vendors use and responsibility for protecting the organisations confidential data.
Knowledge and Expertise: A common reason for using third party vendor is that they can provide knowledge and expertise not available within the organisation. It may be desirable to target vendors with expertise in particular methodologies, terminologies, or various technologies with the goal of having that the expertise transferred people within the enterprise.
Vendor experience, Reputation and Stability: Vendor’s experience with other customer may also provide valuable information on how likely it the vendor will be able to meet their contractual and non-contractual obligations. Vendor can also be evaluated for conformance and compliance with industry standards which shows their reputation and stability in the industry itself.
Vendor assessment is of two types: Formal and Informal
Formal: Formal is through the submission of Request for Information (RFI), Request for Quotation (RFQ), Request for Tender (RFT), and Request for Proposal (RFP).
Informal: It may also be very informal through words of mouth and recommendation. The standards of the organization, the complexity of the initiative and criticality of the solution may influence the level of formality in which vendors are assessed.
Vendor assessment is a critical process where one needs to keep a track on vendor profile. It consists of procurement, account payables, contract, legal contract system, contact, facilities, and other engagements.
Vendor Assessment Flow:
- Analyze the business requirements
- Vendor search
- RFP and RFQ
- Proposal evaluation and vendor selection
- Contract negotiation strategies
- Analyze and zero down the vendor
- A medical organization needs a specific database clinical system
- List of vendors are selected for RFI
- RFP and RFQ
- Vendor are short listed
- Contract negotiation
- Analyze and zero down the vendor
Advantages: An effective vendor assessment reduces the risk of the organization developing a relationship with an unsuitable vendor and is likely to improve long-term satisfaction with the decision.
Disadvantages: Can be time-consuming to gather sufficient information on multiple vendors. Some information may not be readily available. Vendors with new and innovative products may score poorly because they do not have a significant history in the market.
Price: When keeping the budget in mind, it’s really helpful in listing down the vendor pool, but what may appealing in terms of money can be the strategy of the vendors to attract the client later. The vendor may come up with hidden strategies to make up for the loss vendors had earlier and the team has to be extra cautious here.
Expertise: It is always good to zero down on a vendor who offers expertise on many products or services but organization should really consider expertise and service level. There may be a chance that the vendor is expert in only few areas however declaring themselves to have expertise in many.
Service Levels: Definitely the organization will get what they are looking for, however, there might be chances of differing prices, demanding of the same kind of requirement but with different vendors. The organization need to realize the time is money.
The key to vendor assessment is time is money. The vendor may be offering many expertise at a low budget but is still may not be suitable for the organization if it does not meet the service level agreement (SLA).