Vendor Analysis – Picking The Best Vendor
Vendor analysis is the assessment of current or prospective suppliers with respect to their:
- Financial strength.
- Vendor’s business model.
- Capacity to supply the appropriate products and services.
- Capabilities – what it can and cannot do or provide.
- Turnover and profit levels.
- Markups, price list and discounts.
- Reliability and quality.
- Reputation.
- Payment terms.
- Deliveries.
- Ability to implement a solution if services are being purchased.
- Availability of experienced staff.
It is undertaken when a company is consolidating its existing suppliers, choosing new vendors or analyzing the capabilities of the current suppliers.
It may also be undertaken when a company is searching amongst potentials suppliers of a possible solution to a business problem that it has. For example, the company may be seeking to consolidate its accounting, inventory and purchasing systems using one software system.
The company would first undertake a vendor analysis to ascertain as to which large companies provide Enterprise resource planning (ERP) software.
The resulting report would look at the appropriate companies and also analyze the functions and benefits of each ERP package. This would allow the company to ascertain a shortlist of appropriate vendors with whom to discuss their requirements.
Some companies purchase from a large number of suppliers and they need to undertake a series of periodic vendor analysis. They seek to understand which of their suppliers are contributing the most to their profit and conversely which are costing more to manage than they are contributing. This vendor analysis thus becomes a cost benefit analysis.
Thus the performance of the vendor coupled with their direct and indirect benefits is compared to the physical cost of doing business with them. These costs would include such matters as:
- Overpricing.
- Difficult delivery times that require extra staffing to manage.
- Early requests for invoice payment.
- Unreliability and frequent short and damaged deliveries.
The company would also take the opportunity to review the financial stability of the vendor as problems often mean an unprofitable company.
In the current financial environment it is imperative to cut costs wherever possible and a vendor analysis which includes a review of the reliability, stability of a vendor as well as the costs of doing business is a suitable way to minimize purchasing costs.
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