Description of Vendor Analysis: A major component of vendor analysis is the development of an overall rating system to compare different suppliers, creating a consistent scorecard to compare vendor’s offerings. Vendor analysis is the process that helps to choose the right suppliers. This is important because unreliable suppliers can have a devastating impact on a business’s success.
The first task in vendor analysis is to determine your company's purchasing needs. The vendor analysis bears in mind customers’ needs in terms of quality, cost and delivery speed. For example, if customers put a premium on quality, the quality of a vendor's products and services will be more important than other selection criteria.
After determining purchasing needs the analyst searches for vendors that can supply the required items. Industry associations, professional publications and other companies can be a source of information about potential vendors.
In some cases, a formal 'Request for Information (RFI)' may be conducted.
Develop Selection Criteria
At first glance, many vendors may appear to offer acceptable products and services. However, they may differ in terms of how well they meet detailed purchasing needs of the company. Competitive pricing is important, but it is not the only selection criterion. After-sales services, vendor capabilities in terms of personnel and facilities and quality assurance certification are some of the other selection criteria. Reviewing a list of vendor’s references that the analyst can validate is also a key factor in the selection criteria.
For example, new vendor selection might be recommended based on a combination of factors. In addition to competitive pricing, the vendor should have an acceptable and reliable delivery time frame; have quality assurance certification, such as ISO 9001; and provide verifiable references. Moreover, after selection, ongoing performance monitoring also helps contracting decisions. For instance, on-time delivery must be 100 percent or defective items must be less than 5 percent. The analyst may even offer disqualification criteria. For example, vendors not responding to corrective action requests or lagging on delivery time frames could be recommended for disqualification.
The vendor analysis ranks vendors according to the developed set of criteria and compiles an executive report. This information forms the basis for purchasing and outsourcing decisions by managers.