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times in his or her career, whereas his or her counterparts on the vendor side
are generally senior-level sales professionals who close multiple deals each
year. This puts the vendor manager at a distinct disadvantage to the vendor,
from an experience standpoint alone.
Compounding the issue is the fact that once a vendor selection is com-
plete, it is generally difficult to undo. If it turns out that better, more appro-
priate vendors are available, often the sunk cost and previously committed
contractual obligations prevent their being engaged. Thus, the opportunity to
replace a vendor may appear only once every few years, at best. This means
that vendor selection can be a one-way street with very few turning off
points and that vendor selection and management are a critical part of the
successful vendor manager ™s toolkit.
Vendor managers should have a good plan for the activities associated
with vendor selection, including:

• How to plan and execute a reasonably rigorous vendor selection process
• An approach for generating target vendor lists for a given product or
• How to issue an effective request for proposal (RFP)
• An understanding of the work required to complete due diligence on
vendors and their products and services
• How to produce meaningful feedback from vendor reference checks
• Vendor negotiation techniques that ensure best pricing and service

Overview of Methodology
Exhibit 16.6 shows an overview of the vendor selection methodology cov-
ered in this section. The methodology is intended to provide a reasonably de-
tailed approach to the vendor selection process that will be applicable to
most vendors required for a small-to-medium size professional services firm.
The process begins with the definition of scope for the product (or ser-
vice) being acquired and proceeds through the identification of a team to
support the selection process, the identification of potential vendors, the is-
suance of an RFP, the selection of vendor finalists, due diligence on the fi-
nalists, and final vendor pricing negotiations. Each of these steps is further
detailed in the following section with a diagram highlighting the subtasks,
required information, and outcome for each subtask.
Of critical importance throughout the selection process is to ensure that
at all times the effort is being managed, organized, and driven by the vendor
manager in charge. Top vendor sales professionals did not reach that status
through passivity. Vendors are well practiced at the art of seducing the hap-
less vendor manager and will take on as much of the work and own or drive
408 The Back Office: Efficient Firm Operations

• Define business rationale for product or service
• Determine clear scope of business activity to be supported
Define vendor scope • Establish vendor evaluation team
• Inventory and priortize business requirements
• Generate preliminary cost/benefit model

• Identify data sources for vendor list
• Build inventory of potential vendors
• Determine primary and secondary screening criteria
Primary vendor screening • Build screening evaluation framework
• Gather screening data for vendors
• Determine vendor approach options based on vendor data
• Produce 2“8 finalist vendors for RFP issue

• Build evaluation criteria
• Create vendor introduction and RFP documents
• Issue RFP to interested vendors
Request-for-proposals • Conduct bidders conference
• Refine RFP and vendor list based on vendor input
• Assess RFP responses
• Select 2“4 finalists for vendor due diligence

• Update evaluation framework
• Conduct service or product due-diligence
• Conduct vendor demonstration or in-office visit, if
Vendor due diligence appropriate
• Conduct company due diligence and reference checking
information, if necessary

• Negotiate pricing with vendors
Final vendor negotiation • Negotiate terms and conditions, and contractural language

Exhibit 16.6 Vendor Selection Methodology Overview

as much of the effort as the manager lets them to remain in control of the
process. A good way to ensure that the vendor manager remains in charge is
the implementation of a code of ethics for purchasing. The topic is covered
at the end of this chapter.
Second, the selection team is responsible for organizing a large amount of
information being gathered from a variety of disparate sources. Keeping
clear documentation on the raw data, analysis, and outcome of each step
covered in this chapter helps explain to outside observers how the decision
was reached, serves as organizational memory, and, most importantly, en-
sures that no steps are skipped and that the analysis is completed in a rea-
sonably thorough fashion.
The third key to success is the analysis done by the team in preparation for
the vendor sales call. This step should be completed before the first vendor is
contacted. Vendors long ago perfected the courtship required to manage
Purchasing, Procurement, Vendor, and Asset Management

clients through the sales process, and if vendor managers have not done their
homework in the form of the upfront analysis and scope work, they will be at
the mercy of a sales process they neither control nor fully understand. The
necessary objective analysis becomes lost in the feel-good haze of endless
vendor dinner outings, rounds of golf, and vendor-led conference calls and
visits. The result is, at best, a distorted, suboptimal outcome. We have ob-
served dozens of vendor selections and have rarely seen success emerge from
a vendor-driven process.

Define Vendor Scope
The vendor manager should first seek to clearly understand the full range of
business activities to be supported by the service or product in question. The
process for the vendor selection f lows entirely from this scope, making this a
critical step in the overall analysis. The efforts during this step provide div-
idends later as the vendor due diligence is executed. The evaluation team
will be able to ask clear, concise questions of the vendors and communicate
the priorities for the firm appropriately.
The scope definition can also be achieved by defining what is not in scope.
For example, the scope might be defined as “all purchasing activities, not in-
cluding receiving, payables, and forecasting” or “all purchasing of products, not
including office supplies.” The scope definition should also draw clear distinc-
tions between business processes or systems that are replaced or supported and
affected but not changed as part of the selected vendor service or product.
In every case, a detailed document that defines the specific scope under
consideration is the first step in the vendor selection process. The document
should define the scope in as detailed a manner as necessary, with appropri-
ate illustrative charts and diagrams.
The final scoping step is to get sign-off from firm senior management.
Any final ambiguities or inconsistencies in the scoping will be clarified under
their scrutiny. Getting final scope sign-off may take several iterations of pre-
sentations and questions and answers.

Establish Evaluation Team
After the scope has been defined, the next task is to establish an evaluation
team to provide expertise and effort to complete the selection process. The
scope definition helps identify the individuals required for a successful
The team should include members from functions or departments who
will use the vendor product or service. This ensures that the expertise and
the business unit- or business function-specific knowledge is incorporated
into the evaluation process from the start. Further, early participation from
end users of the product or service facilitates the most rapid acceptance of
410 The Back Office: Efficient Firm Operations

the vendor selection outcome. Finally, these participants tend to catch po-
tential issues that may be missed by the vendor manager or that the vendor
manager is unaware of.
The overall team size varies by company size, scope of business functions
under consideration, and the importance of the decision being made. A small
vendor selection team might consist of the vendor manager and a representa-
tive from the business unit or function affected, along with ad-hoc participa-
tion from other firm staff and professionals. A large-scale selection team
assessing, for example, a new system implementation for a large organization
might contain 5 to 10 full-time team members and as many as a dozen part-
time members.
The most effective way of building team membership is through nomina-
tions from firm senior management. The list of potential team members
should be interviewed by the vendor manager to determine if they have the
requisite skills, knowledge, interest, and ability. Achieving the right skill
mix, participation level, and environment for the team will have a strong im-
pact on the overall effectiveness and results of the selection process. Even
small-scope vendor selection efforts are large undertakings and require con-
siderable sustained effort on the part of the team.

Inventory and Prioritize Business Requirements
One of the toughest realities of vendor selection is that the only way to truly
understand whether the vendor product or service is a good match (and
where its weak points are) is to first understand the in-scope business re-
quirements at a painstaking level of detail. Unfortunately, the work of docu-
menting scope and business requirements is difficult and tedious. However,
it is an absolute prerequisite of a successful vendor selection, and it forms the
bedrock foundation of a successful process. Without understanding the
scope of services to be provided or required product functions, the team
cannot possibly judge the level of vendor fit, what the shortcomings are, how
they are dealt with, or the costs and benefits of the selection. A superficial,
weak understanding of business requirements and scope is a primary reason
for the failure of vendor selection initiatives.
Because starting the “courtship” process with vendors is infinitely more
enjoyable than nonstop internal team meetings where requirements are
white-boarded at excruciating levels of detail, this step is also the most com-
monly skipped. The smart vendor manager waits until the proper amount of
homework has been done before making the first vendor contact.

Preliminary Vendor Screening
The goal of the vendor-screening step is to rapidly build a comprehensive list
of potential vendors. These vendors form the pool from which the final
Purchasing, Procurement, Vendor, and Asset Management

choice is selected. A successful preliminary screening lets the team cursorily
review a comprehensive set of vendors to ensure all options have been con-
sidered but then rapidly narrow the list down to a handful of vendors for fur-
ther due diligence. Exhibit 16.7 shows an overview of this process, from data
gathering through due-diligence vendor selection.
The first step of the vendor screening is to identify a full set of potential
vendors. The approach for this step is to conduct a sweep of the marketplace
for vendors whose service or product offering fits in the scope defined in the
previous step. If the scoping step was completed well, the vendor market-
place should be relatively easy to identify.
The team should employ a variety of sources for its vendor search:

• Consultants: Large-scale consulting firms often have entire practice
areas specializing in the selection of the service or product in question;
in these cases, they are often willing to provide free, upfront advice in
exchange for an opportunity to be involved in the bidding for later work.

Vendor list
screening criteria
data sources

• Vendor size
• Product or service scope
• Geographic presence
• Industry focus

Master vendor
inventory and
Peer Screen
selection List of
companies for
criteria vendors for
• Vendor size
and due
• Industry focus
• Geographic



Exhibit 16.7 Vendor Screening Process Overview
412 The Back Office: Efficient Firm Operations

• Industry publications: There are usually several credible, indepen-
dent publications focused on the marketplace that can provide vendor
• Industry trade shows: Many of the larger players in a particular field
have a presence at professional services firm industry-specific trade
• Peer companies: Managers from firms in the same industry are an often-
overlooked source of information, and they can be particularly valuable
for their objectivity. Developing peer relationships with similar profes-
sional services firms can provide insight into their decision-making
processes and rationale as well as give a jump-start on vendor data gath-


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