The selection of suppliers is one of the most important issues to make a project successful.
Below, I describe the steps that must be done in the supplier’s selection of a project. The decision on which of the steps are going to be done or not depends on the criteria of who carries out the process and the cost and impact of the project.
1. Define the selection criteria.
The first thing is to define the criteria that will be used to select suppliers.
In general, the best providers are those with more history in the market, those that have good financial strength, and the ones that have the most experienced staff. In that order of ideas, selection criteria can be defined based on:
- Years in the market and financial strength of the proposing company
- Experience of the proposing company in the production of the required services and products.
- Experience of the team assigned to the project.
- Compliance with business requirements and requested deliverables
- Time for delivery of products and services
- Costs of required services and products
- Etc.
The table below is an example for supplier evaluation. The scores are given according to the importance of each criterion and this depends on each company.
Table 1. Example of selection criterion
2. Enabling Requirements.
In order to guarantee compliance with minimum requirements, enabling requirements can be defined. An enabling requirement is a requirement that, if not met, will prevent the proposer from participating in the selection process. Here are some examples:
- The proposing company must be more than 5 years old from its constitution
- The proposing company must have assets of more than USD 1,000,000 at the date of the presentation of the proposal.
- The proposing company must certify at least 3 contracts with an object similar to the one dealt with in the contracting process for an amount not less than USD 150,000.
3. Request for information and Request for proposals.
3.1 Information request
Prepare a request for information (RFI) document in which the project, the requirements and concerns are presented to potential suppliers. This document is sent to a relatively large number of potential proponents.
Based on their response, reduce the number of possible proponents (Normally, no more than 5).
3.2 Request for proposals
Prepare a request for proposals (RFP) document.
This document must contain the following information:
- RFP Title
- Purpose of the RFP
- Background that motivated the process of contracting the products and / or services that the RFP deals with.
- Description of the contracting company.
- Objectives of the project
- Business processes that require the product or service
- Business requirements [1]
- Scope of the products or services that are being contracted
- Deliverables to produce
- Place of provision of services or delivery of products
- Methodologies to be used for the development of products and services
- Working language
- Structure and formats for the presentation of the proposal (Technical and economic)
- Documents to be attached to the proposal
- Selection and award schedule
- Mechanism for communication and request for information and clarifications.
- Modality of contracting.
- Costs associated with preparing the proposal
- Guarantees and Policies
According to the agenda of the contracting process, you can receive the proposers to present their proposals and carry out demonstrations (if applicable).
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[1] For information on requirements survey see section 5 of the document 10 steps for your project to be successful.
4. Evaluation of proposals.
Visit or contact reference clients and obtain information on the quality of the products and services provided by the proposing companies. This step is of the utmost importance.
Receive and analyze the proposals based on the selection criteria and prepare a comparative table of the different proposals, assigning scores to the different criteria. Here is an example.
Table 2. Example of selection criterion filled out.
It is important that the supplier analysis is not only quantitative. For example, in the evaluation presented, supplier number 1 has the highest score, however, it has the least financial solidity [1], this supplier obtained the lowest score when referencing it with other clients and it is the one that showed the least functionalities during the product demonstration. He also scores highly for written project references and for offering the lowest cost on the proposal. Written references contradict the direct reference process and present the least financial solidity, therefore it is necessary to analyze thoroughly before considering contracting with this provider.
Pre-select two suppliers and negotiate costs and conditions with them, letting them know that there is another pre-selected.
5. Decision
Based on the evaluation of the proposals you should decide according to what best suits the interests of the company and the project.
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[1] The financial strength of a company should never be underestimated. In a selection process, I had a company that presented a good technical proposal but whose financial indicators were not good, so it was discarded. The company went bankrupt two months later.
Author: Juan David Castañeda Sánchez
About the Author:
Mr. Castañeda is an Electrical Engineer from the National University of Colombia and a Business Specialist from the ICESI University. He has more than twenty years of experience in structuring, selecting suppliers, contracting and managing projects in public sector entities and private companies in Colombia, Bolivia, Brazil, Ecuador, Panama, Peru and Venezuela.
For more information please email: info@gprycon.com
