How to Choose the Right Vendors for Your Business
Now that you’ve successfully launched your small business, your next step is finding an excellent cast of trusted vendors to support you. This task involves extensive due diligence and a thorough understanding of your business needs.
In this article we'll show you how to determine those needs, perform a vendor search, request proposals, and how to evaluate vendor candidates for a good fit – beyond the price.
Determine Your Business Need
Your first task when hiring vendors is to determine your need. Do this by defining the services, materials, or products a specific vendor can fulfill, and outlining any technical or business requirements a vendor must understand.
Lastly, clearly state work product(s), timeframes, and benchmarks expected of the vendor. Here are some next steps:
- Assemble your vendor evaluation team
- Define vendor services, materials, or products
- Define technical, business, or regulatory requirements
- Define vendor work product/requirements
- Assemble a specifications document containing these requirements
- Begin your search for vendors
Perform a Vendor Search
Now that your business has a clearly defined set of vendor requirements, you can begin to look for qualified service providers. Start with a large pool of prospects, determine which ones meet all your requirements, and weed out the rest.
Send the remaining candidates a Request for Information (RFI) document outlining your needs and requirements, and evaluate the responses to further winnow down your selection to a shortlist of qualified vendors. Next steps:
- Compile a list of possible vendor candidates
- Evaluate skill sets and reputation
- Write a Request for Information letter
- Evaluate responses, create a shortlist of candidates
Send a Request for Proposals or Quotes
Your team’s specifications document becomes the template for your Request for Proposals (RFPs) or Request for Quotations (RFQs). Either approach you take, this document should outline the following:
- How the vendor should submit their proposal
- Executive summary and introduction
- Background information on your organization
- Detailed specifications of services, materials, or products
- Assumptions and constraints
- Terms and conditions
- Selection criteria
Send your RFPs or RFQs to the vendors on your short list.
Evaluate Vendor Candidates
Once you’ve received proposals or quotations from your selected pool of vendor candidates, now is when your shortlist should get shorter and a clear prospect should emerge. Here are your next steps:
- Stakeholders do a preliminary review of all received proposals
- Determine if business requirements and vendor responses align
- Assign a value of importance and performance for each requirement
- Calculate these scores for each candidate
- Select your vendor
Gain further insights into a vendor’s reputation at reliable sources like the Better Business Bureau (BBB) or Angi (formerly Angie’s List).
Negotiate Vendor Contract
You’re embarking upon a partnership with your vendor that could determine the success of your business. Before entering into negotiations, review your objectives – and your bottom line, but be fair. Here are some strategies for successful contract negotiations:
- Create a list of alternative vendors and rank them according to your value and performance scores
- Know your “must-haves” and “nice to haves”
- Define time constraints and benchmarking metrics
- Assess liabilities or other potential risks
- Define confidentiality, non-compete, dispute resolution, or changes in requirements/specifications
Lastly, it’s good to remind yourself that you’re in business, and that means making a profit. If your vendor is slow to respond or provides a shoddy work product, be sure to terminate the professional relationship and cut your losses early, e.g. hire slowly, but fire quickly.
When you do find your “dream team,” or the supplier who surpasses your expectations, be sure to cultivate and nurture that relationship – and pay their invoices on time.
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