In my company, vendor selection is heavily weighted toward the cost/quotation provided, with less emphasis on other critical factors like quality, communication, and management skills. While cost is always an important consideration, I believe that an overemphasis on price could lead to challenges with long-term vendor relationships, delivery timelines, and overall product/service quality.
What strategies or frameworks can I use to help my leadership understand the importance of considering additional criteria such as vendor reliability, quality of service, and their ability to manage projects effectively? How can I build a business case that emphasizes the long-term value and risk mitigation these factors bring, even if their initial quotes are higher?
I’d love to hear your experiences on this! Thanks in advance.
This question invites experiences and solutions while emphasizing the long-term business impact. It can generate a mix of practical tips and strategic approaches for you to bring to your boss.
You'll need to find a way to capture the cost of poor quality and/or the cost of stakeholder dissatisfaction/reputational damage associated with going with a low cost supplier. When those costs are added into the equation, your decision makers will have a better understanding of the impacts of going with the cheapest provider.
You could also represent such analysis in the form of a decision tree with probabilities tied to defective work when going with a higher quality vs. a lower quality supplier.
Kiron
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1 reply by Ronnie yap
Oct 22, 2024 4:45 AM
Ronnie yap
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I will try doing that. Time to dig out all those past records *sleeves up*, thank you
Project & PMO Manager | Research & Enterprise Mentor| GFB HoldingSouth America, Brazil
To help your leadership understand the importance of considering additional criteria beyond cost in vendor selection, you can employ a strategy that focuses on mapping customer personas and their needs.
1) Start by identifying the most common customer profiles and understanding their pains and desires. This will help you highlight the desired benefits that come from reliable and high-quality vendors, such as improved customer satisfaction and loyalty.
2) By aligning these benefits with your company's capacity to deliver functionalities, you can demonstrate how choosing vendors based on quality and reliability can enhance the overall value proposition to your customers.
3) Next, evaluate the internal costs associated with delivering these functionalities and the potential impact on customer satisfaction and value generation.
5) By doing so, you can build a business case that emphasizes the long-term value and risk mitigation these factors bring.
This approach allows you to present a more comprehensive view of the vendor selection process, showcasing how investing in quality and reliability can lead to better outcomes, even if the initial quotes are higher. Highlighting case studies or examples where focusing on quality over cost has led to successful long-term partnerships can further strengthen your argument.
6) Finally, formulate an offer price based on the potential satisfaction and value generated for your customers. This involves demonstrating how a focus on vendor reliability, quality of service, and effective project management contributes to delivering superior value to your customers.
By presenting these insights, you can help your leadership see the bigger picture and understand that while cost is important, the long-term benefits of quality and reliability can lead to greater business success and customer satisfaction. Sharing experiences and solutions from other organizations that have successfully implemented similar strategies can provide additional support for your case. Saving Changes...
I would like to recommend an old-fashioned weighted criteria approach for evaluation and prioritization. This is what we do in portfolio management and decision analyses and so far it is working quite well because everyone can see and understand the criteria that lead to the choices and priorities.
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1 reply by Ronnie yap
Oct 22, 2024 4:37 AM
Ronnie yap
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We are actually practicing it; however, the cost weightage is about 60%, and when the only vendor (the bad one) throws in a very cheap price, no matter how well the other vendors quote, they will not be selected because the other criteria add up to only 40%.
Saving Changes...
Sergio Luis ConteHelping to create solutions for everyone| Worldwide based OrganizationsBuenos Aires, Argentina
Lost because lack of quality. BUT you have to stay clear about two things: 1-the step in the organizational life cycle your organization is today. 2-the definition of quality for your organization. Saving Changes...
I agree with your question regarding sometimes companies prioritize cost over other important factors in the vendor selection process. In the organization that I worked, we had a system where we used data based mainly on quality rating for the projects delivered, schedule adherence and cost to rank the suppliers. This helped us to select the vendor according to the project we wanted them to handle.
As for convincing the company or the board, sometimes as a project manager we need to present facts to the board and obviously with quantifiable results. Because I believe since the PM deals with suppliers on a daily basis, they would be able to highlight a few crucial things to the board which can have a positive impact on supplier relationships in the long run.
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2 replies by Bisharah Saeed and Ronnie yap
Oct 22, 2024 4:43 AM
Ronnie yap
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Yes, that’s quite exhausting for us as PMs and executives. Frankly, in the end, the cheap vendor is still able to deliver with proper quality. However, it is very exhausting for us to manage the cheap vendor due to issues such as poor communication in English, poor data and document management, and a high risk of schedule delays. As a result, the PM has to put in more effort to control them. It seems the organization you’re working with is quite well-organized and systematically data-driven, whereas my company is not as organized. In that case, I often feel quite passive.
Oct 22, 2024 6:30 AM
Bisharah Saeed
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Yes you are right! I understand the situation. It wasnt easy in the beginning but the goal was a long term solution so in that aspect it worked. However, if the organisation is still in the initial stages, then that approach is a little challenging to implement.
I would like to recommend an old-fashioned weighted criteria approach for evaluation and prioritization. This is what we do in portfolio management and decision analyses and so far it is working quite well because everyone can see and understand the criteria that lead to the choices and priorities.
We are actually practicing it; however, the cost weightage is about 60%, and when the only vendor (the bad one) throws in a very cheap price, no matter how well the other vendors quote, they will not be selected because the other criteria add up to only 40%.
I agree with your question regarding sometimes companies prioritize cost over other important factors in the vendor selection process. In the organization that I worked, we had a system where we used data based mainly on quality rating for the projects delivered, schedule adherence and cost to rank the suppliers. This helped us to select the vendor according to the project we wanted them to handle.
As for convincing the company or the board, sometimes as a project manager we need to present facts to the board and obviously with quantifiable results. Because I believe since the PM deals with suppliers on a daily basis, they would be able to highlight a few crucial things to the board which can have a positive impact on supplier relationships in the long run.
Yes, that’s quite exhausting for us as PMs and executives. Frankly, in the end, the cheap vendor is still able to deliver with proper quality. However, it is very exhausting for us to manage the cheap vendor due to issues such as poor communication in English, poor data and document management, and a high risk of schedule delays. As a result, the PM has to put in more effort to control them. It seems the organization you’re working with is quite well-organized and systematically data-driven, whereas my company is not as organized. In that case, I often feel quite passive.
You'll need to find a way to capture the cost of poor quality and/or the cost of stakeholder dissatisfaction/reputational damage associated with going with a low cost supplier. When those costs are added into the equation, your decision makers will have a better understanding of the impacts of going with the cheapest provider.
You could also represent such analysis in the form of a decision tree with probabilities tied to defective work when going with a higher quality vs. a lower quality supplier.
Kiron
I will try doing that. Time to dig out all those past records *sleeves up*, thank you
I agree with your question regarding sometimes companies prioritize cost over other important factors in the vendor selection process. In the organization that I worked, we had a system where we used data based mainly on quality rating for the projects delivered, schedule adherence and cost to rank the suppliers. This helped us to select the vendor according to the project we wanted them to handle.
As for convincing the company or the board, sometimes as a project manager we need to present facts to the board and obviously with quantifiable results. Because I believe since the PM deals with suppliers on a daily basis, they would be able to highlight a few crucial things to the board which can have a positive impact on supplier relationships in the long run.
Yes you are right! I understand the situation. It wasnt easy in the beginning but the goal was a long term solution so in that aspect it worked. However, if the organisation is still in the initial stages, then that approach is a little challenging to implement.
...
1 reply by Ronnie yap
Oct 22, 2024 11:59 AM
Ronnie yap
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My company isn’t really in the initial stage; it’s one of the pioneers that grew alongside the country. Let me try to focus on long-term value over short-term benefits, as others have suggested. Thanks man
Consider a balanced approach to vendor selection that prioritizes quality, communication, and reliability alongside cost. Following below strategies might be useful
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