Step Four of the buying process: supplier evaluation and selection

3 years ago

After you have designed the ideal state of your future processes, it’s time to decide what you are looking for in a potential supplier. You must also prioritize the criteria that matter most. After comparing the offerings, you can finally select your preferred supplier.

A: Determine the selection criteria

What you should be looking for in a potential supplier? In B2B buying, there are three types of criteria to evaluate a vendor’s offering by: organizational, technical and commercial.

There are three general ‘Level-1’ criteria levels for choosing a supplier, each with their own ‘Level-2’ sub-criteria:

organizational: this concerns the competence of the vendor. Consider the company’s image, helpdesk, and quality of local support offered, including availability of spare parts, technicians and service team.
technical: the criteria for selecting the system itself, based on how well the software supports your future process, system performance and accuracy, reliability, user-friendliness, footprint, safety and design
commercial: for example, the system and installation prices, payment conditions and delivery time.

B: Prioritize the criteria

Prioritize the selection criteria that are important for your business with a simple ‘weighting’ method.

Once you’ve established the criteria, prioritize them with a numerical value that we call a ‘weighting’.

Ask yourself: how important are Level-1 criteria? Give each criterion a percentage value so that, when they are all combined, the total is 100. Next, apply a percentage value to each three sets of Level-2 sub-criteria. Again, the values of all subset criteria must add up to 100.

Now, multiply the Level 1 values by the Level 2 values. This gives you the ‘calculated weight’ for each sub-criterion, telling you how important it is to the whole project.

Example of a Calculated Weight:
You apply a 30% weighting to Commercial criteria. You are most concerned about financial outlay of the investment, so allocate a 40% weighting of all commercial sub-criteria to the system price. As a result, this represents 12% of all considerations.

C: Evaluate the suppliers and select the preferred supplier

Compare the offerings with a scoring system.

Now you are going to score the performance on the criteria of each supplier.

There may be over 30 organizational, commercial and technical sub-criteria to evaluate. Give a score out of ten for each, and multiply this by the calculated weight, to give you the weighted Score.

Example of a Weighted Score:
You award 8 out of 10 for the supplier’s system price. Based on the weightings in step B, the supplier gets a weighted score of (8 x 12%) which is 0.96.

Add up all the weighted scores. Now, you arrive at an overall score between 1 to 10 for the supplier’s offering. Repeat the evaluation for each supplier in the same way and compare results. The Evaluation Team compares overall results for each proposed solution and makes its recommendation to the Selection Board.

Now you have a preferred supplier in mind, you can proceed with the contracting step as described in the summarized blog.

To help you with the selection process, we’ve devised an evaluation template (in Excel) with a list of criteria. Contact us and we’ll send you the template, free of charge!