No matter what industry your company specializes in, it will need to work with reliable vendors that support vital operations and deliver a competitive advantage. But if you choose the wrong partners, it could mean overpaying for goods and services, waiting around for vital deliveries and dealing with a wide range of order-to-cash (O2C) complications.
The easiest way to avoid these issues is by properly evaluating and selecting your suppliers at the beginning. When you have an in-depth understanding of the vendor selection process and know what criteria to look for, you’ll have no trouble finding trustworthy partners for the goods and services you need.
A step-by-step guide to vendor selection
So, how do most businesses decide on vendors and what are the top organizations doing to ensure they get the best of the best? We’ll get into the nuances of partner evaluation later on, but in general, companies in every industry follow these five steps during the vendor selection process:
1. Determining business needs
Before you start selecting vendors, you’ll need to have a solid understanding of what your business is looking for. This will involve a careful consideration of several important factors, such as:
- Volume and quality
- Ideal timelines
- Anticipated growth
- Company culture
- Expectations for automation and digital workflows
- Seasonal trends
- Other unique business needs
If you define your goals before this process gets started, you can keep your company’s best interests in mind while completing the remaining steps.
2. Vetting potential vendors
After setting your goals, it’s time to gather a list of prospects. First, you should track down as many companies as you can that deliver the products or services your business requires. From there, you can compare and contrast these vendors and send requests for information (RFIs) to candidates that stand out.
Of course, the vetting process is simple on paper, but it can be extremely time-consuming and requires a lot of due diligence to find the right fit. When evaluating candidates, there are many ways AI tools can help streamline and improve your existing process, including:
- Gathering and analyzing large data sets like performance metrics, reviews, etc.
- Machine learning strategies to rank vendors based on established criteria above
- Enhanced data accuracy and speed
- Scalable vendor evaluation processes
- Ongoing analysis of vendor relationships and performance
3. Developing criteria for vendor evaluation
Though you’ll probably start thinking about vendor selection criteria while sending out RFIs, it’s a good idea to refine your criteria once you’ve gotten some responses. Based on this feedback, you’ll likely notice differences between vendors when it comes to the products they offer, the level of professionalism they display and other factors. You might also learn about industry-specific criteria during this process, and you can and should incorporate those points into your evaluation process.
4. Evaluating and connecting with vendors
Once your criteria are finalized, you’re ready to assess each vendor you’re considering based on these factors. While going through this process, examine and compare their RFIs, the reviews they’ve received from other clients and any other relevant information you can find. That should help you shortlist your options so you can schedule demos and meetings and send requests for proposals to your leading candidates.
5. Making a decision
Finally, you’ll be ready to choose a vendor for the products and services you’re looking for. Once you’ve found your finalist, you can start drafting contracts that include payment terms, deliverables, work schedules and more. After the contract is signed, it’s time to begin the onboarding process.
What to look for in potential vendors
Though many businesses view pricing as the most fundamental criterion in the vendor selection process, you shouldn’t focus solely on the bottom line. If you take a narrow-minded approach to this process, you could end up dealing with low-quality products, late deliveries or other unforeseen problems.
The following aspects of each vendor’s operations and services can have a significant impact on the value of the relationship:
- The quality of their products and services
- The overall value they offer
- Any discounts they provide
- Their ability to deliver orders on time
- Customer references and reviews
- Their financial situation
- A history of regulatory compliance
Best practices for managing vendor relationships
Your efforts to build strong relationships with vendors will start at the negotiating table, but they shouldn’t stop there. These best practices for vendor relationship management will help you set the right tone with your suppliers and promote healthy and rewarding partnerships.
Evaluation and negotiation
While vetting and negotiating with potential vendors, you’ll want to:
- View supplier evaluation as a two-way street. During the assessment process, you need to ensure potential vendors can deliver products and services. However, you should also look at challenges that could arise during your working relationship (like expectations for growth and scaling, preferred software platforms, etc.) and discuss potential solutions to these issues.
- Don’t get overly competitive during negotiations. The vendors you’re negotiating with could become critical partners in the future, so you shouldn’t try to squeeze them dry during this process. Instead, focus on creating as much value as possible for both sides to build mutual, sustainable business ties.
- Start formal transition activities after establishing new relationships. Once you’ve chosen a vendor, you can begin talking to them about decision-making procedures, shared performance metrics and other vital transition activities.
Post-negotiation
Once the ink is dry on a new vendor contract, you should move forward by:
- Assigning a manager to each of your vendors. If you have a dedicated manager for each of your strategic supplier relationships, you’ll give your partners access to a strong internal advocate.
- Encouraging vendors to get involved. When your vendors have innovative ideas or valuable input on your strategic planning, you’ll want to hear all about it. Because of that, it’s in your best interest to establish mechanisms your suppliers can use to share their thoughts with ease.
- Regularly assessing your relationships with vendors. By weighing the results of your partnership against predetermined metrics for success, you can gauge the value of this relationship and manage supplier performance as needed.
Vendor relationship management and the P2P process
After you’ve chosen new vendors, you’ll regularly interact with these businesses in the context of the procure-to-pay (P2P) cycle. This process covers the operational side of a company’s procurement strategy and includes tasks such as processing invoices and creating purchase orders to give a vendor instructions.
Tech plays a key role in the P2P process, and if your business doesn’t have access to the right systems and tools in place, these activities might not be as efficient as they could be – potentially resulting in longer AP days (the amount of time you take to pay vendors after getting invoices). While this could help you save money in the short term, long AP days can frustrate vendors, dramatically weakening your relationships.
Fortunately, investing in your P2P process with smart software and automation solutions can have the opposite effect. By investing in the right tools, keeping a close eye on your AP days and resolving any P2P-related inefficiencies you find, you’ll keep your vendors as happy as possible. On top of that, these solutions often promote long-term scaling and growth, so they’ll deliver returns for years to come.
Enhance your P2P process with Zone & Co
Whether or not your company already has a strong vendor selection process, it can’t afford to ignore the consequences of P2P issues. If your P2P process has room for improvement, you can address this situation with help from Zone & Co. We can help automate your workflows, extend your ERP’s native capabilities, and integrate your core business systems to deliver additional enhancements with tools such as:
- ZoneCapture. ZoneCapture gives businesses the power to use AP automation in NetSuite for invoice capture, helping them avoid errors and shorten processing times.
- ZoneApprovals. Businesses can use ZoneApprovals for approval automation and bulk approval processing.
- ZoneReconcile. With ZoneReconcile, companies can take care of reconciliation tasks inside NetSuite and benefit from automatic transaction matching.
If you’re ready to make meaningful changes to your P2P workflow and optimize your supply chain, Zone & Co’s products can deliver these benefits and others. Get started by scheduling a demo of our platform and revolutionize your operations from the back office to the delivery door.
Frequently asked questions
What are the key steps in the vendor selection process?
For most companies, vendor selection involves five basic steps:
- Defining product/service-related needs
- Researching potential vendors
- Finding criteria for vendor evaluation
- Assessing potential vendors
- Choosing a finalist and starting onboarding
What criteria should be used to evaluate vendors?
The value vendors bring to the table is crucial, but this is far from the only factor you should think about during your search. Along with that, you need to consider the quality of vendors’ products and services, whether or not vendors can complete orders on time and their overall financial situation (among other criteria).
How can I improve vendor relationships?
Enhancing your procure-to-pay process is one of the most significant steps to build better relationships with vendors. The more efficient this process is, the more quickly you’ll be able to approve vendor payments – keeping these companies satisfied as a direct result.
