8 Tips for CxOs on Vendor Selection

The vendor selection process can be difficult and tedious but when done well, companies will reap the rewards of that collaboration for years to come. In fact, companies that prioritize vendor relationships and focus on a collaborative approach see a 110% increase in revenue and a 31% increase in profitability, according to a study by the Harvard Business Review. 

This highlights the positive impact of selecting the right solution provider, making it a major responsibility for decision-makers within an organization.  

Here are 8 tips for CxOs when it comes to vendor selection: 

1. Create a Requirement List 

The start of every vendor selection process begins with knowing what you need. Once you’ve considered the specific requirements of a product/service that your organization needs as well as factors such as cost-effectiveness, innovation, scalability, long-term value, deliverability, etc., make sure to turn that into an easily accessible guide.  

When vetting potential solution experts, a requirement guide will help steer you in the right direction to find the right potential vendors. Finding the right fit can be tedious, costly, and time-consuming, so having a clear list of requirements can be invaluable throughout the process. 

DO: Involve relevant stakeholders and team members within your organization to come up with this prioritized requirement list. The people who will use the product/service are in the best position to outline exactly what is needed from a vendor.  

2. Conduct Thorough Due Diligence 

Conduct thorough research to identify potential solution providers whose offerings align with your organization’s requirements. Use online searches, industry directories, trade shows, referrals, and industry networks to scan for potential partners. Leverage your network and industry knowledge to seek recommendations from peers. From there, narrow down a shortlist of reputable vendors with a proven track record.  

A great way to get a feel of a vendor’s capabilities is to refer to testimonials and case studies from their other clients. From there, you can also ask for references and gather feedback on their performance, reliability, after-sales services, and more. 

You must go beyond-surface level evaluation. Look into technical capabilities, financial stability, track record, and compliance considerations as well. Thorough due diligence will help mitigate risks and lead you to a reliable and trustworthy vendor.  

DO: Determine your key decision factors – what will drive your purchasing decision: pricing model, specific features/functionality, customer experience. Alongside a requirement guide, these key decision factors will provide clarity throughout the selection process.  

3. Demo the Product/Service  

Move beyond brochures and slideshows, which offer a stylized overview of a product/service. Make sure to request a demo from a potential vendor as it is a chance for you to learn specific information, check out any weaknesses or incompatibilities with your organization as well as get a better feel for its strengths.  

A demo should include a walkthrough of how your individual requirements are met, showcase the ease of use from search features to compliance, and include security overviews such as disaster recovery plans, internal audit measures, and more.  

A Harvard Business Review study found that 75% of B2B buyers make purchasing decisions before even contacting a vendor, relying instead on peer reviews, online research, and other sources.  

Don’t underestimate the value of a demo.  

DO: Conduct thorough due diligence, which means asking clear and relevant questions during a demo to help you best understand the solutions being offered. 

4. Build Long-Term Partnerships  

The value of establishing and nurturing a relationship with potential vendors cannot be overstated. Take time to meet with representatives from different solution providers and engage in open communication. A professional relationship built on trust and mutual understanding will form a solid foundation for a successful vendor-client partnership, which is key – treat the relationship more as a partnership rather than a one-time transaction. 

Consider a vendor’s ability to adapt to your organization’s evolving needs, their commitment to customer service, and their ability and willingness to collaborate and communicate, and whether their values align with yours. Nurturing a reliable and responsive relationship can lead you to a solution expert that will become a valuable strategic partner for your organization in the long run.  

60% of procurement executives say that strategic partnerships with vendors drive innovation, according to a study by Accenture. 

DO: Take time to network with vendors at industry events where you can have a relaxed conversation about the latest trends and challenges that isn’t necessarily set up as a sales pitch but more of an exploration and peer discussion. 

5. Create a Cross-Functional Team for Vendor Selection 

According to RFP360, lack of clear communication is a major frustration of vendors and can affect the quality of proposals you receive and the likelihood of securing a decent solution provider in general. A successful vendor selection process relies on a smooth communication channel with potential partners from the start and maintaining an open and transparent conversation throughout the process. This will help you better understand their capabilities, allow both parties to address any concerns, and lay the groundwork for a successful collaboration.  

A great way to ensure that things run smoothly on your side is to put together a cross-functional team for each vendor selection process. This allows the collation of diverse perspectives and insights about what is required from a vendor and the solutions they offer. The team will benefit from representatives of different relevant departments – like procurement, IT, legal, and operations – to ensure a comprehensive evaluation and onboarding.  

DO: Appoint a project lead who can address any issues that crop up and move the selection process forward by assigning tasks/responsibilities. More thoughtful consideration means better-informed decision-making, so having a project lead will ensure smooth communication with potential vendors who will appreciate having a dedicated person and team to work with within your organization. 

6. Streamline Selection Process 

The process of selecting a vendor has a lot of moving parts, which can be inefficient and result in costly errors, lost time, and missed opportunities. Streamlining this process will be valuable to you as the client and make it easier for the solution provider – which ultimately leads to a better working relationship.  

Come up with a standard operating procedure for vendor selection that gives everyone involved a comprehensive overview of the progress and tasks that need action. You may even consider electronic invoicing and vendor onboarding.  

DO: Run an analysis of your current process to identify gaps and fill them. Create a comprehensive framework or guide that covers everything from discounts to payment timelines, rejection criteria, approval processes and more.  

7. Strategically Negotiate Contract Terms 

During this critical part of the vendor selection process, be strategic. Consider factors such as pricing, payment terms, warranties, service level agreements (SLAs), and intellectual property rights. Make a list of these factors and any other relevant questions to bring up during negotiations so you don’t miss anything. It bears repeating that you will want to negotiate favorable terms and a fair and comprehensive contract that protects the organization rights and interests. 

DO: Review the contract thoroughly and running it by your legal and compliance department before signing.  

8. Document Everything 

Make sure to keep meticulous documentation throughout the process from evaluation to findings and decision-making. This is important for several reasons: 

• Transparency: Documenting the process allows for transparency and ensuring accountability. This builds trust with stakeholders and ensures that the decision process is fair and open.  
• Risk management: Documentation will serve to mitigate risk by providing a clear record of selection criteria and vendor evaluation results.  
• Improvement: By keeping comprehensive records, you can build upon them to continuously improve your processes by identifying trends and gaps.  
• Knowledge transfer: This documentation can serve as a key reference point for future vendor selection, ensuring consistency in the organization’s procurement practices.  

DO: Appoint a person in-charge of ensuring that the entire process is properly documented and archived for future.