Purchasing – Made Easy
Over the years we’ve been exposed to thousands of large and small project tenders and been fortunate to learn more about best practices when selecting the right supplier(s). I could start with a few stories but I’ll leave that for another time. For now, the guide below outlines key steps that you need to take to select the most appropriate vendor, contractor, agency or supplier firm for your business.
Purchasing may not be your main role so you need to work efficiently and economically – a typical short listing process for a small to midsize company can consume 18 or more man hours. Larger companies require considerably more time.
The 5 steps in this guide show you how to save time and effort whilst ensuring that you achieve the best possible outcome. We’ve used the principles in this guide to assist more than 20,000 buyers . The guide should be used by professionals and executives within small, midsize and large, private or public organisations.
First, a short list of the 5 key steps to determine what you need, identify potential tenderers and choose the best, whilst saving valuable time and effort.
– Decide the key criteria that you will use to evaluate tenderers
– Gather preliminary information about appropriate tenderers
– Request proposals in a standard comparable format
– Remember to think strategically
– Manage the relationship(s)
1. Decide the key criteria that you will use to evaluate tenderers
Your short list will be shaped and decided by the criteria with which you evaluate prospective tenderers. The relative importance of each criterion will depend on your business strategy and objectives. We’ll review some of the more common criteria below.
Financial strength and security
You must perform credit checks. You should assess whether they have sufficient cash flow to service your needs and that they will be in business to deliver your requirements.
Good service and open, clear communication
You need things to happen on time and you need partners that will give you plenty of warning if deadlines are going to be missed.
Speed and flexibility
By being flexible and fast, your suppliers will help you quickly respond to opportunities and threats.
Sustainability, quality and reliability
Sustainability, quality and reliability are important because your customers associate these with you, not your suppliers.
Price and value for money
Price must be used with caution; savvy buyers focus on “overall value for money”; they give great importance to finding firms that offer the most economically advantageous tenders, based on their key criteria.
Find out who has used and may be able to recommend firms on your short list. Find out if your short listed firms are on any pre-qualified lists.
After applying your short listing criteria you may still have too many prospective tenderers. Do a little more research to narrow your list down to no more than six. The next step highlights some of the best places to find potential tenderers and how to extract the relevant information to refine your short list.
2. Gather preliminary information about appropriate tenderers
Search for and find potential tenderers via a variety of channels. Recommendations and sources of pre-vetted suppliers often form the foundation of most searches. Ask business contacts, specialist websites and others who are in contact with the types of firms that you are looking for. Trade directories, trade associations, business advisers, exhibitions and the trade press are all valid sources.
Gather more preliminary information about your potential tenderers. Formally, this is known as the Request for Information (RFI); use this process to reduce a long list to a short list of organizations that are willing and able to fulfil your requirements.
Basically, you need to achieve insight into potential tenderers’ organisations and their capabilities. For smaller requirements, the prospective tenderer’s website, followed by a phone call and brief conversation may provide sufficient information to decide who should be on your short list.
Once you have a manageable short list, approach the potential tenderers. Provide a clear brief, summarising what your requirements are and giving an idea of the level of business you hope to place. Instead of specifying exactly what you want to purchase, you may want to ask for their suggestions. For example, you might explain to technology suppliers what you want your new IT system to be able to do and ask them to come up with recommendations. The next stage is pivotal, especially for high value purchases..
3. Request proposals in a standard comparable format
Use a Request for Proposal (RFP) – this is a formal method of receiving the detailed information that will enable comparison of proposals from different firms for a specific product or service. It should provide all of the information required to make an informed buying decision.
The RFP may include (depending on the nature and value of the potential purchase):
– Basic information about the company
– Extent and scope of requirements
– Proposed time frame
– Detailed design information and requirements
– Commercial requirements and budget
– Evaluation and award criteria
– Submission instructions
– Non-disclosure agreement
You should compare the short listed tenderers in terms of what is most important to you. For example, the quality of their product or service may be more important than location. Rank and score the criteria according to your priorities.
4. Remember to think strategically
Think about what your business actually needs in order to achieve your specific objectives. Discuss this internally and with business acquaintances; build some flexibility into your selection schedule. You may find that your initial short list criteria needs to be amended or you may find that you need more than one firm to deliver against a key objective. For example, to achieve the objective of “increased sales”, you may find that in addition to a website developer you also need a specialist search engine marketing agency.
Also, consider how many firms you want, or need, to work with. You might find that buying from a small group or a single firm provides benefits such as greater control and bargaining power. However, you may need the specialist skills that only a broader base of firms can provide. Also, buying from a close group or a single supplier carries greater risks (for example, a single firm may be more likely to let you down, or go out of business).
Be sure that your selected provider is able to make a sufficient margin at the price quoted for the business to be commercially viable. It is always good practice, wherever possible, to meet suppliers and see how their organisations operate. Check whether your supplier will be outsourcing work to subcontractors, or whether they rely on other suppliers for critical inputs. If so, it would be wise to assess any relevant third parties too. Finally, your business’ reputation may be judged on the labour practices and environmental record of your suppliers. Therefore, it is important to consider the ethical and environmental aspects of any third party relationships.
5. Manage the relationship(s)
Once you have decided which firm(s) you want to work with, you must negotiate terms and conditions and draw up contracts. You should always agree terms and service levels before you start trading. Clarify and communicate your priorities and let your partners know how they will be judged by you. Written and signed contracts help avoid uncertainty, minimise the risk of disputes and are a handy reference document for the timely resolution of disputes. In fact, keeping all relevant ongoing project correspondence is important. We’ve found that the absence of a paper trail fuels misunderstandings and makes it harder to resolve disputes.
Ideally, you should review opportunities to deepen relationships with your most important and strategic suppliers. Share your plans and explain how they could be involved. The most proactive suppliers will offer advice regarding how their input could improve your business. Regularly review supplier performance, proactively provide feedback, look for opportunities but also be ready and prepared to shop around for alternative suppliers if necessary. Regular feedback is one of the most important factors that we have found to improve performance, especially when working with smaller firms.
Follow the 5 steps in this guide to increase the likelihood of successfully selecting the right provider in the least amount of time.Firms that make the wrong selection decisions face immediate direct costs (for example, costs to end the relationship) and ongoing costs related to lost opportunities. By following the advice outlined in this guide you are also more likely to reduce the average number of man hours required to engage a new partner (as reported above, currently 18 man hours). Start by deciding who you want to include in your shortlist, request information in a specific standard format and apply your criteria religiously. Think strategically, communicate proactively,provide constructive feedback, collate and store relevant communications, and manage the relationship professionally.
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