All organisations employ third-party suppliers, which means supplier selection is now a key organisational capability, writes Paul Taylor MBCS, author, speaker and mentor. To effectively select the right partners, follow this ‘four lensed’ approach.

The background behind this approach is to assess suppliers’ capabilities separately through four different lenses (namely: functional, commercial, company / cultural and timeline) which are then combined to provide an overall score for each supplier.

One: Functional fit

This is confirming whether the product being assessed ‘gives you want you want’. A three step process can be followed to confirm this:

1. Create a list of core, peripheral and future requirements, with each weighted by importance.

2. Assess the product / service against this list.

This can be done in a number of ways:

  • You can ask a series of questions and ask for responses in writing.
  • You could also ask for demonstrations, although these can be staged and often do not provide any benefit. Therefore, you should request a proof-of-concept to test specific scenarios that are important.
  • You could also speak to other users of the product / service.

It is also important to ensure that the people pitching the product from the supplier are also instrumental in delivering the product or service. This will not only ensure continuity, but also that the sales team have not promised something that cannot be delivered.

3. Once the above has been completed, then you can mark the supplier against your list of weighted requirements to determine which is the best fit.

Two: Commercial fit

This is ensuring that everything that is agreed during the selection process is clearly recognised and laid out in some form of jointly agreed legal contract. The legal aspects of this area can be challenging; therefore I would recommend bringing in some expert help and advice to iron out the details. However, the following hints and tips should help:

  • While you may know exactly what product or service is required and the provider appears to be on the same page, don’t leave it to chance. The service or product - and the expectations of the specification, use of materials and timescales - must be documented in detail (say in a product or service definition document).
  • Payment terms must also be agreed and clearly documented. This should cover price/rate cards, invoice/payment frequencies and methodologies for future price increases.
  • A set of service standards need to be documented for the provision of the product or service. For example, who does what by when? These are typically recorded in a service level agreement (SLA) document.
  • This SLA should be supported by a set of key performance indicators (KPIs) to measure the supplier’s performance against the SLA. Also, it is common to have clause(s) to manage poor performance by the supplier. For example, if certain KPIs are constantly being missed, then a clause would give the supplier time to address these concerns and if the problems are still not resolved, then you have the right to refunds or to terminate the contract.
  • To mitigate against contractual disputes, a dispute remediation process should be included within the written agreement. Typically, this could involve passing any disputes to a third party to arbitrate.
  • A change request process is required to allow both parties to request changes to any part of the arrangement.
  • Some form of indemnity text around direct or indirect (or consequential) loss should be included.
  • A termination clause needs to be included to allow both parties to exit the contract. While the termination of an agreement for poor performance was discussed above, there may be the need to terminate for other reasons (such as a change of suppliers). It is important that any lead-time for termination is sufficiently long to allow both parties to implement a new arrangement. 
  • A two-way confidentiality agreement needs to be included. 
  • Protection of intellectual property needs to be defined.
  • Finally, wording around exclusivity may be required - i.e. to limit the other party from undertaking a similar arrangement with a rival organisation.

When negotiating commercial terms, it is important to ensure that both parties obtain benefit from the arrangement (i.e. a win / win). If all goodwill is extinguished during the selection phase - if costs are cut to the bone, or too much work has been agreed for the cost - then there could be problems when the contract is running live.

Three: Timeline fit

This covers when the new product or service can be delivered. Will it be a case of ‘flipping a switch’ and the new contract will take over instantaneously, or will there be a longer implementation, where a previous supplier may need to hand over?

If an implementation plan is required, then it must cover what tasks are required, dependencies, roles / responsibilities, critical dates and who pays any costs. It would also be advantageous for the supplier’s delivery team to be involved during the selection process to ensure that any plan agreed is realistic and to avoid the risk of the sales team promising something that is not plausible.

Four: Company and cultural fit

Are you happy with the organisation that is providing your product or service? Are they a good cultural fit? Do they have a sound company ethos? Do they operate in a way that works for you, both practically and ethically? In other words, would you be happy to work with this supplier for the duration of the arrangement?

When assessing a new supplier through this lens, there are a number of considerations:

  • Geography: Where is the supplier based? Could their location cause you problems?
  • Management: Who owns the company? Does this ownership cause you any issues?
  • Credibility: What is the company’s history and their future (say, five-year) plans.
  • Longevity: What are the long-term plans for the product or service?
  • Future proofing: Does the product or service have scope for growth? I.e. does it have existing functionality that you do not require now, but could be useful in the future?

To clarify expectations and ensure a good fit, it is also important to understand the organisation’s client base:

  • Relationships: How many clients do they have?
  • Current users: How many users of the proposed product / service do they have? If the number of users is low then this could be a warning sign that the product is not that good…
  • Rivals or partners: Do they have any clients that are similar to you, such as your competitors? If so, then who are they and just how similar are they to you?
  • Referees: Ask for a list of clients so you can contact them to see how good or bad the supplier is. 
  • Feedback: Ask if there is a user group because it will give you a chance to speak to more of their clients.
  • Priorities: What is the size of their other clients and how do you fit into this? For example, if the supplier has lots of big clients and you are small, then you may struggle to get your ideas taken forward. 

It is important you have a good cultural fit with the supplier. For a short contract (two years, say) this may not be a problem. But, for a long-term contract (seven years+), then it could be a torturous process.

Selecting the preferred supplier

Once the above assessment is complete, you will have all the information you need to make an informed decision about each of your potential suppliers.

If there is a clear winner, then you should proceed with them into final negotiations. However, if there are two or more suppliers who have achieved similar scores, then it may be necessary to loop back with them to see if you can obtain any concessions that would give you a clear winner.

In summary

One final point to mention is that supplier selection and assessment is a people process.

You need to ensure you are working with somebody on the supplier side who can make decisions. Otherwise, they will constantly be referring decisions to a ‘higher authority’ which is frustrating and wastes time. You will also need good people skills to understand what the suppliers’ expectations are and what they want from the arrangement. If you have different expectations of what should be delivered, this can cause frictions and result in delays.

Finally, you may also need to cope with devious tactics from the suppliers, such as playing good cop / bad cop, aggressive negotiations, delaying meetings and constantly re-opening agreed points.

If the negotiation stage with a company is already making you feel stressed or uncomfortable, then it’s a good indication that the two of you probably won’t partner well. Rather than persevering into the contract stage, it could be time to simply use your veto.