5 Phases of a Successful Vendor Selection Process (With Tips)

Updated January 26, 2023

Businesses use vendors for a variety of reasons, from refilling the vending machines to producing your products. Deciding which vendor to use for which service can require much research and consideration. In this article, we discuss what a vendor is, what the vendor selection process involves and tips to help streamline the process.

What is a vendor?

A vendor, also referred to as a supplier, is a third-party entity often hired to perform tasks that a company outsources. Vendors could be a company with multiple employees or an individual who completes the work alone. Companies may also choose to hire vendors to delegate important tasks their team needs help with. Using vendors can help a company save money since vendors typically complete one project and are not salaried employees. Vendors can assist companies who can't keep up with customer demand and provide vital services. Vendors used by companies may include:

  • Retailers

  • Manufacturers

  • Software developers

  • Wholesalers

  • Maintenance providers

Vendors can also perform tasks such as printing brochures for marketing campaigns or cleaning up after events on behalf of a company. Companies may also use vendors to provide or install computers, purchase office furniture and order janitorial supplies.

Related: What Is a Vendor?

What is the vendor selection process?

The vendor selection process is what many companies go through to choose which businesses or individuals they want to hire for a variety of jobs or responsibilities. For example, an organization may want to hire a company to provide snacks in the break room or choose a janitorial company to provide office cleaning services. It's common for a vendor selection process to involve a manager and someone in budgeting and compliance to make sure the vendor passes any financial restrictions and a human resources contact to complete any onboarding procedures the company may have.

Steps in the vendor selection process

Before hiring a vendor for collaboration, you can consider these steps:

1. Analyze your business needs

When a company needs a vendor, it's important to decide the most important aspects to cover before hiring. Department leaders and hiring managers who have an interest in the vendor's services can determine what tasks and deliverables may be necessary. Since vendors provide a variety of services or physical products, it could be necessary to create a business requirements document to detail everything that is needed.

2. Make a list of candidates

When management creates necessary deliverables, the search for an appropriate vendor can begin. A company can determine how to contact each candidate, either via email, in person or by phone, and send a request for information (RFI). Companies may use their own network and vendor history to help find the right fit. The management team can evaluate each vendor and inquire about services available, cost and timeframe, and some companies may rank potential vendors based on budget and services provided to help streamline the process.

3. Meet potential vendors

When the hiring team creates a shortlist of potential vendors, you can reach out and schedule a meeting with each vendor candidate. This meeting may be helpful to clarify any project details, confirm pricing and verify that they can meet the deadline while staying on budget.

Some vendors may provide samples of prior work to confirm the quality of their services. This initial meeting could be a good time to review a portfolio or receive any testimonials from previous clients. Companies should send a request for proposal (RFP) to confirm more details about the services needed.

Related: Request for Proposal: Definition and What to Include

4. Review RFPs and clarify details

As potential vendors return RFPs, the team deciding on the right vendor can meet. Review each RFP and clarify any company details. Research each vendor's work history, commitment to project completion and customer testimonials. The company may formally reach out and make an offer to a vendor once confirming pricing details and scheduling. It may be helpful to have a secondary option in case the first choice can't commit to the specifics of the contract.

Some companies may have policies that include hiring the lowest cost vendor instead of the most experienced. Each company has to choose what is best for their budget and requirements, but it's important to know that there are many aspects to vendor selection that may use other company guidelines besides price.

Related: How to Write an RFP (With Template and Example)

5. Write a contract

The hiring company may consult with executives and the accounting department to verify contract objectives and deliverables. Since a contract is a legally binding document, it may be beneficial to confirm that both parties agree with the terms. Contracts typically include vendor compensation and payment terms, including due dates of estimated payments. A contract may also have stipulations for vendor termination and provide protections for both parties in case of any disagreements.

Related: What Is Vendor Management?

Tips for choosing vendors

To make the best selection before signing any contracts, you can use these tips:

  • Research each vendor: Proposals may include extensive information about the services offered, but it's also important to research each vendor beyond the RFP.

  • Verify reliability: Companies should ask questions and verify project completion. Check with former clients of the vendor to ensure projects stayed on time and within budget.

  • Confirm quality and value: Some vendors may provide physical products, so it may be important to verify the product before selling it to customers. Companies may want to ensure each product is as high quality as the one before and after it.

  • Look for experience: Some vendors may have a long history of providing quality products and services to customers. Hiring an experienced vendor could ensure that they complete the contract on time and according to the company's specifications.

  • Ensure communication: Without clear communication, there can be disagreements about what needs to get done, how it should get done, timing expectations and other important aspects to finish a project. It's important that both parties agree so you know exactly what you're getting into when making your decision.

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