Here are some ideas and tips on how CIOs can evaluate vendors before committing significant dollars. When it comes to budgeting for software platforms and tools, it involves a substantial investment and very high stakes.
Not all companies make an effort to request competing bids from vendors, after all. And enterprises must take pains to determine if they are using the most effective tools at their disposal, which is a process that will require some additional time and effort that they aren’t always ready to budget. But you’ll come to see that systematically evaluating vendors will be time well worth spending.
Experts now forecast that IT will spend on enterprise software worldwide in 2021 at least $517 billion. That represents an increase of 10.8% from last year, according to Statista, which reports that the software market has seen market revenues increase by more than 100% between 2009-2019.
Busy CIOs, CFOs, and CEOs might be inclined to put vendor evaluation on the back burner because they want to focus on other matters, such as developing new products or services. But evaluation deserves high priority, whatever size your company is.
Turbine put it into perspective, noting, “Vendor evaluation is a business term that defines the process of evaluating and approving new and old suppliers on a quantitative basis, not a qualitative basis. Every business will have a portfolio of suppliers, and it’s important to measure their performance to ensure things like contract compliance, cost reduction, risk mitigation, and continuous improvement.”
Of course, when a company increases in size or scope, more vendors will come into the mix. In addition, new employees with expanded roles will be requesting applications from new vendors, which adds to the level of complexity when you evaluate and promote relationships with them.
Benefits of Creating and Using a Vendor Evaluation System
A chief benefit of establishing a system to evaluate vendors is cost savings. Your enterprise may be throwing money out the window if you’re not paying close attention to vendor charges.
As RFP put it, “54% of businesses will renew a contract with their current supplier without requesting bids from other vendors,” citing Gartner, vice president of research Helen Huntley. Evaluating vendors means you will have a better sense of their strengths and weaknesses as you consider continuing to use their solutions.
This information will also tell you when to investigate forming a partnership with a different vendor. Regular review of the relationships you’ve forged with vendors is part of the process of controlling costs and ensuring you are investing in software tools your employees genuinely need to do their jobs effectively.
How CIOs can Evaluate Vendors – Determine Key Performance Indicators
To understand how well your vendors meet your enterprise’s evolving needs, you’ll want to establish key performance indicators. The KPIs to pay attention to include:
* Commitment to feedback and growing with your enterprise
* Delivery (on time and per specifications)
* History of complaints
* Mindset of partnership
* Operational and financial stability
* Return on Investment
You’ll ask users in your enterprise to answer how vendors are meeting the key performance indicators. This information will go into a scorecard to help you make rational decisions about vendors to analyze their history and performance.
How CIOs can Evaluate Vendors – A Performance Scorecard
Evaluating your vendors requires a set of criteria. An easy way to establish this is by creating a vendor performance scorecard. Srinivasan Sarangapani, a Demand Planner and Inventory Analyst for GE Aircraft Engines noted that “the evaluation and selection of suppliers, structuring the supplier base is an important task in any organization. It assumes utmost importance in the current scenario of global purchasing.”
Sarangapani says that enterprises create a supplier evaluation framework to create a basis to consider and rank current and potential suppliers. It gives your team a unified procedure to follow when looking at different vendors, with insight into these suppliers’ knowledge and capabilities. Eventually, the data you collect can serve as the basis to create a supplier reward program.
It is essential to develop a scorecard that streamlines vendor evaluation. Enterprises can then use the card to make comparisons of vendors each year.
A vendor that you rated a ten at customer service one year but goes down to a 5 rating the next year would prompt you and your associates to consider working with a different vendor.
And for a vendor that was performing poorly during the previous evaluation, if the scorecard now shows it has made the needed improvements, you can feel more confident about continuing with the relationship.
However, you’ll want to prioritize keeping this scorecard information in digital format. Suppose your enterprise is still relying on paper forms inside binders or using spreadsheets to track vendor information. In that case, you’ll want to move to a central repository of information on vendors. A cloud solution may be ideal, especially if your organization has multiple physical locations with its own servers.
Recommendations and Reviews of Vendors
Remember to look for comprehensive information from trusted sources to verify the recommendations and reviews of vendors you consider working with.
Information Week reminds us that “during the RFP (request for proposal) process, it is critical to assure that the vendors you are considering are compliant with your industry standards and that they support the levels of security and governance that you expect.”
The report suggests that if you doubt vendors, it would be prudent to hire an outside firm to audit them on your behalf. You’ll be assured of a more objective review on which to base your final decisions.
CIOs and other tech executives can use software review sites such as G2Crowd and TrustRadius to find professional insight into vendors from analysts devoted to reviewing and rating these software tools.
It’s also prudent to ask your colleagues in other companies (that you’re not competing with) for referrals to services vendors. Finally, you can contract with buying services for larger projects that will manage your enterprise’s entire life cycle.
The Best Vendors For Your Organization
Sourcing the best/most appropriate vendors for your enterprise will undoubtedly take time and effort that you might prefer to deploy elsewhere. However, establishing criteria for what you expect of current vendors and new ones under consideration will enable you to see where you might be wasting money on ineffective vendor relationships. With a new commitment to evaluate vendors systematically, such as based on a scorecard, you can achieve a better return on investment.