How to Evaluate a Vendor in 6 Easy Steps

What You Need to Know About the Vendor Selection Process

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The proposal evaluation for the vendor selection process for smaller projects and commodities will be relatively straight forward. For bigger projects, complex parts or multifaceted services, evaluating proposals and coming to a consensus will be more involved. The main objective of this phase is to minimize human emotion and political positioning in order to arrive at a decision that is in the best interest of the company.

Be thorough in your investigation, seek input from all stakeholders and use the following methodology to lead the team to a unified vendor selection decision.

1. Preliminary Review of All Vendor Proposals

Before the vendor selection team starts its evaluation and selection process, all proposals must be reviewed for completeness and clarity. Any obvious omissions and ambiguities should be clarified by the submitting vendor. This will insure that the evaluation and selection process, once begun, will be through and efficient.

2. Record Business Requirements and Vendor Requirements

On a spreadsheet list the business requirements and then the vendor requirements that were compiled in the first step, Analyze Business Requirements. A through and detailed listing of all requirements is essential in order to arrive at a fair and equitable decision.

3. Assign Importance Value for Each Requirement

For each of the requirements assign an "Importance Value" using a scale from one to ten; where 1 is extremely unimportant and 10 is extremely important.

If the vendor selection team cannot agree upon an importance value, then accumulate everyone's individual value and calculate an "average" across all members. If a team member feels they are not qualified to render an opinion on a certain requirement, they may abstain from submitting a value. Use the average score of all submitted values from the team as the Importance Value for that requirement.

If a requirement is dichotomous to the point where you would want to eliminate the vendor immediately if they cannot meet the requirement, then mark that requirement as "Pass/Fail." For example, if your insurance carrier requires all external contractors that perform work in secured areas to be "bonded and insured," then any vendor who does not meet this requirement will be immediately eliminated from further consideration.

4. Assign a Performance Value for Each Requirement

This step may be the longest and most drawn out process of the entire vendor selection process. The team will need to assign a "performance value" that they believe that each vendor performs on each of the requirements. For larger projects you may have to give each team member time to evaluate each proposal in order to arrive at a performance score for each objective.

Once again, if the team cannot agree upon a performance value, then accumulate everyone's individual value and calculate an "average" across all members. If a team member feels they are not qualified to render an opinion on a certain requirement, they may abstain from submitting a value. Use the average score of all submitted values from the team as the performance value for that requirement for that individual vendor.

If a requirement is indicated to be "Pass/Fail" and the team agrees that the individual vendor has not met the requirement, that vendor can be immediately removed from further consideration.

5. Calculate a Total Performance Score

Now that you have an "importance value" for each requirement and a "performance score" for each vendor on each requirement, you can calculate a Total Performance Score for each vendor. Calculate the Total Performance score by multiplying the individual Importance Value by the vendor's Performance Value. Total the sum of all an individual vendor's Performance Score to arrive at a Total Performance Score for the vendor.

6. Select a the Winning Vendor

The total performance score is not meant to be an absolute value of determination of a vendor's proposal. It is to be used as a guide to highlight differences between vendors and spark meaningful discussion between team members.

Proposals that fell orders-of-magnitude below the front runners can be eliminated if the team agrees.

Next Step: Contract Negotiation