By ASIM ANSARI

VENDOR DEFINATION
A third party that performs functions on your
company’s behalf or provides services to your company.

Some examples include:

 Core Processing
 Information and Transaction Processing
 Security Monitoring
 System Development and Maintenance
 Strategic Alliances
 Internet Services
OBJECTIVE
Develop a methodology to objectively
evaluate service providers or products,
ensuring that the best one is selected
for a given situation. The intent is to
consider all relevant factors and
minimize the subjective issues that can
potentially influence such a decision.
IMPORTANCE FOR VENDOR
EVALUATIION
One of the most important processes
performed in organizations today is the
evaluation, selection and continuous
measurement of suppliers.

Selecting a vendor is now as important a

process as developing new products.
Supplier selection process is a multi-criteria
problem, which includes both qualitative and
quantitative factors.
Thus relatively small cost reductions gained in the
acquisition of materials can have a greater impact
on profits.
Suppliers have a large and direct impact on the
cost, quality,technology, and time-to-market of
new products
‘’A sound supplier selection and
proper evaluation today can reduce
or prevent a host of problems
tomorrow’’
Supplier Selection Process
Steps in Supplier Selection Process
Evaluating Needs and Defining Objectives
Gathering a Limited Pool of Vendors
Interviewing with Vendors
Selecting and Applying the Method
Evaluating Needs and Defining
Objectives
 What need you are looking to satisfy?
 Increase product quality
 Which evaluation categories you will use?
 What are your business, technical and usability requirements?
 What are the must requirements?
 Max price, min performance, etc
 How will you score the requirements?
Gathering a Limited Pool of
Vendors
Evaluating all potential vendors takes much time
Basic screening and elimination due to lack of must
requirements
OUTCOME: vendors pool
Interviewing with Vendors
One by one interview with vendors
Gap analysis between your requirements, objectives
and vendor properties
Scoring each criteria
Selecting and Applying the
Method
Select method for evaluation
Calculate overall vendor score using selected method
Select the vendor with best score
Supplier Evaluation Criterias
The evaluation criterias are fundamental to choose the
best supplier. They are specific to each firm, because they
vary according to the needs.

The criteria exposed in the following slides are the most

common ones.*

Six categories of criteria selected

Vendor Evaluation Criterias
The six classes for the suppliers’evaluation
measurement:

 FINANCIAL HEALTH
 EXPERTISE
 OPERATIONAL PERFORMANCE METRICS
 BUSINESS PROCESSES & PRACTICES
 ENABLING BEHAVIORS OR CULTURAL FACTORS
 RISK FACTORS
Financial Health
In order to evaluate if a potential supplier is in good
financial position, a buyer can use indicators such as:
Sales
Profitability
Liquidity
ROI
Debt ratio
Transparency of finances
Expertise
The purchasing department of the firm should choose
its suppliers according to its capabilities:

Network capabilities
Quality and production capabilities (dedicated level?)
Technical level compared to sector average
Spread of technical creation
Investment in R&D
Operational Performance
There are a large number of criteria in this category, such
as:
 On-time delivery
 Lead time
 Responsiveness
 Inventory management and control: reorder management,
forecasting capabilities…
 Order acceptance, processing & fulfillement
 Customer service
 Preventive maintenance
 Hours of operators training in Total Quality Control (TQC) or JIT
Business Processes and Practices
How does supplier provide a product or service at the
best value, on time and exactly as required from the
buyers?

 Best practice and quality based information.

 This evaluation business can help get at the root causes of supplier
problems.
For example: is the quality standard of the products met by the
production process (preventing defection) or by inspecting the
quality of the products after production?
Behaviors and Cultural factors
The evaluation criteria of such a category focus on the
long term sustainability of potential suppliers:

What is the improvement culture of the supplier? Are

his information capabilities always up-to-date?
What is his intention of coordination?
How well the relations are maintained?
Risk Factors
A supplier’s risks are risks for the buyer. Indeed, if a
supplier takes too much risk, it can have a great
impact on his customer.
Risk factors can be uncovered in the previous criteria
exposed, but also in criteria such as: trade relations,
currency exchange, insurance, legislations.
Set of questions for vendor
evaluation
What is your annual revenue?
How many customers worldwide? In what industries, and
market-cap classifications?
What percent of your revenue is software vs. services
(consulting, maintenance and support)?
How many enterprise deployments do you have worldwide?
Give two examples, preferably related to the [insert relevant
industry here] industry?
How do the analysts rate your company?
What percentage of revenues is dedicated to research and
development?
Please describe your pricing options?
Does your product provide the ability to limit/enable product
functionality at the group and/or user levels?