Key pitfalls in vendor selection


    One of the most critical processes during an outsource project is vendor selection. There are numerous companies that will take at least part of that responsibility away from you but ultimately it is you signing the contract. When deciding on a vendor here are some points to keep in mind.


    Firstly, what are your requirements? If you don’t know what you want then it is impossible to find the right vendor for you. Whatever your requirements, however niche, there will someone out there that fits. It is a bit like the world of online dating. You are the prize catch and every outsource company wants a piece of you, or your money at least. Being specific, and I mean really specific, will weed out the majority of the potential unsuitable suitors. Vendor companies will claim they are an expert at everything as they are trying to win your business. Being specific will reduce the number to manageable proportions.


    What is your risk profile? By that I mean, how adverse to risk are you when trying to outsource this function. If you can determine that, then this will futher reduce the number of potential vendors you have to wade through. As an example, a company approached me recently wanting to outsource printing of documentation for their customers. This is not a core function of the company and, although key, they could tolerate quite a high risk profile with their vendor. This meant that we could advise vendors in countries that we would not normally have suggested. The client was happy to sign with one of the suggestions, and they have set up a successful relationship, that has its ups and down but delivers to their expectations and saves them quite a bit of money. Going for a tier 1 vendor in a tier 1 market doesn’t always make sense.


    Use a predefined score card and be consistent. It is easy to be dazzled by an excellent vendor sales team and not follow through with due diligence and select based on criteria not personality, although personality might be one of your elements in your score card.


    Chose the right size of vendor for your company. As stated above, always going for a tier 1 vendor doesn’t mean you will get the best service. If your outsource agreement is $300M you will nearly always get a good service, but if you are considerably smaller, chose an outsource vendor that will value your business and tailor their relationship to you rather than tell you how you should run the relationship.


    Verify the references. Make sure you are not speaking to the brother in law of the vendor companies sales manager. It is surprising how often this sort of thing happens so you should be aware and ask the right questions along with getting confirmation from other people within the reference company.


    Perform a site visit. Plan it in, but just the threat of a site visit can change the information that a vendor provides. If they claim to have 3000 employees, and you are planning a site visit you may find that this, among other things is a fabrication. Be sure to set an agenda for the visit that provides you with enough information to aid in the selection process. A visit that consists of a tour plus a few ad hoc meetings may not provide you with enough opportunity to discover the truth. The vendor will usually set the agenda so don’t be afraid to question and amend anything they have proposed.


    Take it in stages. Work on a long list of a about 10 then narrow it down to a short list of about 3. Ensure you have RFI documents for all 10 and use these to move to RFP. Once you have this level of detail you can start planning how to whittle it down to the final vendor.


    Try a pilot. If you have a few vendors, and they are all looking like potential candidates you might want to think about running a pilot project with each of them. This can also be done with the chosen vendor as it will shake out any significant issues and provide insights into their day to day running. There will of course a be a separate contract, usually much smaller, for the pilot and once completed, it is easier to progress to full contract signing with greater confidence.


    Lastly, don’t be afraid to ask for help. There are a number of companies who can help you through this process. Try not to let them take over as you will have to deal with the vendor in the long term so get involved. Any search in Google can throw up plenty of companies who specialise in this area, although personal recommendations are always preferable.


    The points above could be added to with many more. Some of the key points taken from this are, know your requirements and get involved. In this way you know what you want and are willing to make decisions. Finding the right vendor can make an outsource relationship run smoothly, but it is not guarantee of success, but that is for another article.