SOURCE SELECTION AND

VENDOR DEVELOPMENT

GROUP-2

AP19439-ARPAN AGRAWAL
AP19440-DIVANSHU BHARGAVA
AP19441-PRADEEP YELINEEDI
AP19442-DIVAY CHAUHAN
AP19443-DEEP SHAH
AP19444-SABISETTI PRASAD
SOURCE SELECTION
 Source selection is a set of attributes desired
by the buyer which a seller is required to
meet or exceed to be selected for a contract.

 Project management, source selection criteria

are often included as part of the procurement
documents.
 5 Successive Stages of Source
Selection

 1. Searching
 2. Selection
 3. Negotiations
 4. Trial order
 5. Rating
Searching

 The search is on to find out the most suitable

supplier.
 This process begins with the finalization of

specifications in consultation with technical

departments. 

 Trade Journals, newspaper advertisements and

other sources of information. 
 The routine sales-calls by suppliers’

representations are a very important source of

information.
Selection
 Specific information on the supplier’s
financial strength, quality, facilities,
efficiency, industrial relations, technical
excellence and position in industry have to be
collected.
 Meeting between the buyers and the

supplier’s representative brings to know each

other more intimately.
Negotiation
 Negotiation starts after the completion of
screening and selection of the suppliers. 

 The negotiations ensure correct and cordial

relations between the buyer and the supplier
and this is very essential for mutual
cooperation.
Trial order

 Through negotiations when both the parties

— the buyer and the vendor — come to
mutual understanding, trial orders are placed.

 This is done with a view to test the vendor’s

capability in meeting the buyer’s needs.
Rating
 Continuous rating an important function of
the materials management.

 There are different rating systems.

Computed on a periodic basis, vendor rating
enables the buyers to compare the vendors

 Thus proceeds the process of source

selection.
SOURCE SELECTION CRITERIA
 The Procurement Management section of
PMBOK identifies source selection criteria as
an output of the process where procurement
planning is performed. 

 The project manager and project team must

make decisions around what criteria will be
considered when  selecting a vendor to
perform some of the project work.
Fourteen possible selection
criteria
 Understanding the need
How well does the seller’s proposal address the
procurement statement of work?
 Life-cycle cost 

selected seller produce the lowest total cost of

ownership (purchase cost plus operating cost)?
 Risk 

How much risk is embedded in the statement of work,

how much risk will be assigned to be selected seller
and how does the seller mitigate risk?
 Management approach 

Does the seller have, or can the seller be reasonably

expected to develop, management processes and
procedures to ensure a successful project?
Fourteen possible selection criteria
 Technical approach 
Do the seller’s proposed technical
methodologies, techniques, solutions, and
services meet the procurement documents
requirements
 Financial capacity 
 Production capacity 
 Business size and type 
 Past performance 
 References 
 Intellectual Property rights 
 Proprietary rights 
SOURCE SELECTION RATING
VENDOR DEVELOPMENT

 Vendor development is the techniques of

strategic sourcing, which improves the value
we receive from suppliers.
 Vendor Development can be defined as any
activity that a Buying Firm undertakes to
improve a Supplier's performance and
capabilities to meet the Buying Firms' supply
needs.
The vendor rating is usually done considering the
actual performance of the vendor with respect to:

 (i) Price - ratio of price accepted to the lowest

price offered/estimated price.
 (ii) Quantity- ratio of quantity accepted and
quantity supplied.
 (iii) Delivery - ratio of time actually taken and time
promised. Vendor development strategies
constitute an important component in achieving
this flexibility.
 Establishment and growth of an organization, also
requires the development of a well established
customer and vendor relationships.
 Each company is striving to develop and maintain a
database of customers that displays characteristics
such as satisfaction and loyalty, all within the
efforts of ensuring repeat business from the
customer, referrals, and organizational recognition.
 By harnessing the Vendor development techniques
companies can develop local small scale companies,
local producers in line of their business for getting
the material locally and small scale producer.
 Identify critical commodities

Identify vendors for critical commodity

Formation of internal team

Meeting with top-management

Identify opportunities for development

Define feasibility and viability

Joint agreement of project

Monitoring progress of project

Follow-up and modification

 IDENTIFY CRITICAL COMMODITIES FOR
DEVELOPMENT:

 This is a portfolio analysis which states that

not all organisation required to go for vendor
development which are already using
sourcing facilities from word-class vendors or
the outsourcing ratio is very small to total
cost or total sales so that investment in
vendor is neither strategically nor financially
justifiable.
 IDENTIFY VENDORS FOR CRITICAL COMMODITY
DEVELOPMENT:
 After identifying commodities for
development next step is to identify group of
vendors of that particular critical commodity
needed to be developed. A very well-known
approach is parcto-analysis of existing Vendor
performance.
 Vendors who are failing to meet minimum
performance objectives related to the
quality-areas, delivery, cycle time, late-
delivery time, total cost, service, safety or
the climate and environment are targeted for
analysis and appropriate development.
 FORMATION OF INTERNAL TEAM:

 Before approaching vendors and asking for

improvements, it is important to develop
internal cross-functional team for the
initiative. Team members come from
different departments like design,
engineering, quality control.
 MEETING WITH TOP-MANAGEMENT OF VENDOR:
 After identifying the suitable vendor for
development and establishing a team, a team
should approach the top management of vendor and
establish key area decision related to strategic
alignment, measurement and professionalism.
 Strategic alignment not only means an internal
business and technology alignment, but it should
also focus on customer requirement. Vendor
measurement includes a total cost focus, credibility
and technical function. Professionalism involves
setting a positive relationship, faster
communication, trust development, provide
expertise whenever required.
IDENTIFY OPPORTUNITIES FOR DEVELOPMENT:
 At meetings with top management of vendor
executive should identify area for
improvement. Such areas are formed on the
basis of customer’s expectations needs.
DEFINE FEASIBILITY AND VIABILITY:

 After identifying the key areas for

development opportunities should be
evaluated in terms of feasibility and viability
and it should include resources and time-
requirements for carrying out the project
and potential outcomes of this investment.
JOINT AGREEMENT OF PROJECT:

 Once a potential improvement project is

selected, both buyer and vendor must reach
an agreement related to the specific
measures that will indicate success. These
measures may include percentage of quality
improvement, percentage of cost saving
shared, percentage of delivery or cycle time
improvement, technology availability and
system implementation stage. Once an
agreement is reached, the project is rolled
out hopefully according to schedule.
 MONITORING PROGRESS OF PROJECT:
 Once a vendor development project has been
initiated, progress must be monitored and
tracked over time. This can be achieved by
creating different monitoring means, process
and standards for objectives, updating
progress and in turn creating new or revised
objectives based on progress till date.
FOLLOW-UP AND MODIFICATION:

 By continuing the step (viii) we have

required continuous follow-up and
accordingly it may require modification in
the original plan, additional resources,
information or priorities depending upon the
current situation at that time.
 References
• https://ptacalaska.org/procurement-tools/und
erstanding-source-selection-important/
• https://project-management-knowledge.com/
definitions/s/source-selection-criteria/
• http://www.engineeringenotes.com/supply-ch
ain-management/process-of-vendor-develop
ment-9-steps-management/15180
• https://satyamventure.com/solutions/enginee
ring-support-services/vendor-development-an
d-sourcing/
• http://projectmanagementhacks.com/6-steps-
Thank You