How to select a supplier?

Written by Arnaud Bonneville

This article provides you with a methodology to select a supplier for your project. The supplier selection is a critical task in the majority of projects. How can you be sure to make the best choice among multiple potential suppliers? This article will give you tips to select the best one.

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1. RFI, RFP, RFQ... some vocabulary

The procurement activity is a key activity in project management, for any kind of company. If you work in an SMB, you will be the key actor in the selection process, with the top management of the company who will participate to the price negotiation. If you work for a big company, your top management will assign a budget. The Purchasing Department will negotiate the best financial conditions. But for the technical aspects... you will be the one.
Therefore, the project manager should be part of the solicitation event, because he (and his team) will at least:

Define the functional / technical requirements submitted to the tenderers
Define the technical selection criteria
Read and assess the suppliers answers
Work closely with the winner's team for the implementation.

Before describing this methodology, I just want to remind you basic definitions for procurement activities.

The Request For Information (RFI) is a document sent to potential suppliers, where you present the project context, its objectives, and summarize the services / products you want to select on the market. In return, you expect from the tenderers a brief answer that shows their interest in participating to the bid, a high-level description of the service / product they will propose and the team which will work on the proposal. The RFI is sent at the beginning of the solicitation process. It's an optional document.

The Statement Of Work (SOW) contains the requirements of the service / product. It can be included in the RFP/RFQ.

The Request For Proposal (RFP) or the Request For Quotation (RFQ) is the document that you send to the tenderers that will participate to the race. It explains what kind of information the supplier should provide in its answer, in which form, gives contractual or legal prerequisites and provides the deadlines to answer. Of course it also references or includes the SOW.

Why do we have two names for the same definition? In fact, RFP and RFQ deal with the same document, but the difference is the type of request of have. When you send an RFP, you expect from the supplier a price, of course, but most of all you wait for a complete proposal, including technical description of the service / product. When you send an RFQ, you expect a price, full stop. Therefore, if you plan to buy a complex manufacturing system, you may provide an RFP. If you expect to buy 100.000 electronic components, you will issue an RFQ !

2. Prepare your solicitation event

2.1 Define your requirements

The first thing to work on is to specify... what we need to purchase. The requirements definition may be a long exercise, that's why I begin with this part. Of course, requirements won't be the same for a Service or for a Product. In most cases, you expect both products and services! That's why it's important to sit around the table and build a working group to issue a requirements document (don't specify it alone, you will not think about all aspects! Please read my article about project animation for this purpose).

What should you put in your requirements?

Functional specifications.
This is the most common exercise done when you issue a requirements document. You have to identify "features" that the Product should provide. For Services, we prefer talk about "deliverables" instead of "features". My hints about functional specifications:

Give a unique ID to each feature / deliverable
Each feature / deliverable should only describe one precise requirement (not two)
Ask the tenderers to reply to your feature / deliverable list by referencing the unique ID
If you issue a mixed Product / Service solicitation, don't forget to describe the service deliverables!

Performance / SLA information
You may request performance or SLA indicators as a part of your requirements. For instance for software selection, you may require a maximum response time, or maximum concurrent user usage, or maximum application availability. When you provide such requirements, you should define in the same time how this KPIs will be measured and what will be the penalties in case of deviation.

Designs, plans.
If you want to outsource the production of a component you have designed, you will be responsible for the performance of the product. If the supplier produces the component in accordance with the design, he can't be liable for poor performance. In some cases, it's better to remain on the specification level and put the performance targets on the supplier's side!

Schedule, timing information
Of course, you're a project manager, timing information is crucial. The Service or the Product should be delivered on time according to your master schedule. Don't forget to ask to the tenderers if the implementation of the Product / Service on their side is in line with your project schedule. If not, ask for a detailed schedule to evaluate the impact on your project.

2.2 Identify potential suppliers

This second step is necessary to identify the list of tenderers that will participate to your selection event. This is a documentation phase where you should find the best candidates for your requirements. You can be helped by several means:

Preferred suppliers referenced by your company (if such a list exists)
Internet search. This can give you a first idea about the main competitor
Research articles. If you have access to research databases like Garner Research (IT) it can provide you with useful names.
Specific catalogs and publications in your activity / branch
Forums, expos, professional events.

Once this list is identified, you have to call each of this suppliers in order to get the contact name to whom you will send your RFI/RFP documents.

2.3 Organize the solicitation event and prepare your RFP

In parallel to the potential suppliers identification, you have to work with your Purchasing / Legal departments in order to prepare the RFP. Purchasing and Legal are key for all non-technical information that needs to be provided by the tenderers:

Company description
Sales turnover and key figures
Financial solidity
Legal and contractual prerequisites
Ethic and environmental constraints...

You will also discuss with your selection team about the solicitation schedule. Oh! By the way: it's time to define your selection team! You have to ensure that all participants to the supplier selection will dedicate the necessary time to read the proposals, score them, and listen to the finalists if needed. It's important to get their commitment on the subject, otherwise you will lose time with them (and they will also lose time!). You shoudl also ensure with your management that the decision of the selection team will be accepted by the management, provided that the proposal is in line with the budget.

Coming back to the schedule, you should define the dates for the following events:

Date when the RFP will be issued
Last date when tenderers can send their questions related to the RFP
Last date when tenderers can send their proposal
Day(s) when your selection team will read and score the proposals
Date when your selection team will meet and short-list the finalists
Date(s) of the finalists presentation
Date for the final selection
Last date for contract signature.

Some of these dates have to be included in the RFP in order to explain the schedule to the tenderers. If you wish to organize a presentation for the finalists, you should warn them on the presentation date as soon as possible in order for them to arrange their appointments consequently.

2.4. Define your selection criteria and your scoring grid (RFP mainly)

Last topic before entering the real selection process, you have to define the criteria that will be used to evaluate the suppliers answers. Of course this applies more to the RFPs because price is not the only factor.
Note: you may also define criteria for RFQs if you wish to take into account non financial aspects like Quality, Environment, Delivery times, etc.

The criteria you will select should not be too numerous. Remind that each member of the selection team will have to score all criteria for all tenderers... With 5 people in the team, 6 suppliers and 20 criteria, you already have to manage 600 marks!

My recommendation in this area is to proceed in two steps.

1. Compliance to technical requirements

First, assess the technical answer in order to see if the proposal is compliant to your requirements. For this purpose, prepare a weighted table to see if the supplier answers the requirements. The table below illustrates such table. For the weights, you have to agree on them with your selection team: mandatory / important / nice to have requirements. For the associated weight scale, don't go too far. I use a scale from 1 (nice to have) to 3 (mandatory).
Then, each selection team member will have to score each requirements. For the scoring scale, don't go too far again. I use a scale from 0 (requirement not met) to 3 (requirement fully met).
By applying these two scales, the resulting points will be noted from 0 to maximum 9.

2. Selection criteria definition

Once you have defined your detailed scoring grid for each of your requirements, calculate a average note by grouping requirements by category, and report these notes in the main scoring grid (see table below). Divide these scores by the maximum score for each category and multiply them by 3 to have the same scale than the other criteria.

Then, add all other criteria you can to take into consideration, like the price, the legal prerequisites, the supplier's solidity... These criteria have also to be answered on a scale from 0 (worst score) to 3 (best score).

The second table will then present, for each tenderer, a grid with criteria, rated from 0 to 3.

3. The selection process

3.1 Send the RFP

You're now ready to launch your RFP. After having sent the RFP to the tenderers, you may receive questions from them. Depending on the organization you have put in place for the selection process, you will issue answers during the period where they prepare their proposals.

For transparency purposes, I advise you to consolidate all questions and answers in one single document, and send this document to all tenderers, in order to keep a strict equity between them.

3.2 Read & score the answers

Now the deadline is met, you have received the suppliers' proposals. It's now time for you and your team to work!.

Here are some hints to read and score the answers:

Read one answer and immediately put the scores related to this answer in your scoring grid
After having read and noted two proposals, review the scores put for each supplier and compare them. If these two suppliers have the same kind of answer, the score should be the same.
Finally when all proposals are scored, make a full horizontal review of the score to see if you have been fair with every tenderer.

This job has to be done individually by each selection team member, so warn them before to take into account the necessary time to read and score the answers!

3.2 Put results in common and reevaluate the bids

Each team member will then send their scoring grid to you, you will be in charge of consolidating the results.

Here, your skills in Excel will be necessary in order to correctly compile the results and provide a full scoring table (3-dimensional : team member / supplier / score). If you are not an Excel "black belt", here are some hints to organize your consolidation sheet.

The following table has to be repeated for each tenderer. Paste all scores provided by each team member (noted here from T1 to T5), and with a formula, calculate the minimum score, the maximum score and the average score.

Criteria	#	Weight	T1	T2	T3	T4	T5	MIN	AVG	MAX	Action
Data mode	1	3	6	6	3	6	6	3	5.4	6
Access mode	2	3	9	9	9	0	6	0	6.6	9	Check limit scores

You could take the average score "as is", but if the standard deviation is too high between the score, it means that your team does not agree on the criteria (see the second line of the table).

Depending on the number of scores you have to compare, you can chose between several options to identify atypic scores.

If the worst and the best score have been given (my example)
If the score of one team members is too far from the average score (>4 for instance)
if the deviation from the mean is higher than the standard deviation

In any case, whatever selection method you chose, you have to ask to the corresponding team members who put atypic scores to justify them, eventually they will review them and therefore you will reach a consensus among your selection team.

3.3. Short-list the finalists

At the end of the exercise, you are able, with the scoring grid shown above, to draw comparison graphs to evaluate the best answer. I personally use the radar graph, which is very expressive: the more surface you get in your radar, the better the proposal is.

All this stuff should help to to decide which tenderers will be finalists and will have the chance to compete for the final selection.

4. The final selection

For the final selection, you have to give the team's preference to the management. Normally it will be the supplier with the "best radar". But it may also be the less expensive one. It will depend on your company's strategy. But at the end of the day, the management will make the decision. The best to do is to give them the right arguments to select the best proposal.

5. Conclusion

I have used the following methodology for three past projects. I must say that it leads to good conclusions and normally, at the end of the process, the best supplier should be easily found by reading the scoring results. Anyway, I also faced political issues... in my previous project, we lost plenty of time (about six months) to fully apply this methodology, but the name of the finalist has been finally imposed by the management, although this supplier was not in the short list!

As a conclusion, I would say therefore that the methodology described herein is really useful to justify your supplier choice, but before spending time on it, you should first assess if there are political factors that could influence the selection. In the latter case, go back to your management and ask them to make the choice directly! You will save time and money for your project !

6. Useful links

As a complement to this article, we advise you to visit and use www.supplierselect.com. This website will enable you to manage your RFPs online. Try it now !

Arnaud Bonneville, PMP

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