Why is Vendor Selection Complex?
Vendor Selection is the action phase in an organisation for its Procurement Process. Up until this point, the inbound logistics team along with the planning department have strategically built the necessary requirements from scratch. All the blocks are in place internally to make sure that the external function of Vendor Selection touchpoint goes smoothly. It is essential to keep in check relevance with the competition and overall market. With the usherance of digital reform, organisations feel the need to procure IT services, software technologies and resource allocators for their expanding enterprises. This depends greatly on vendors, as their selection ideally should lead to cost-effectiveness.
Why is Vendor Selection Complex?
Vendor Selection is a complex way of filtering out candidates and picking the best, like an interview for a job application. The reason Vendor Selection is a tedious process is because interest is shown by both parties but there are intangible parameters which cannot be measured.
For example: If a person craves a burger, there are several options, but the reason why he picks Mcdonalds over the rest to fulfill his need may depend on his biases towards the McDonalds variants as against competitor offerings.
Unconscious: He might have heard or seen Mcdonalds and their burgers recently through somebody or from the media.
Conscious: He is a McDonalds loyalist and only eats from Mcdonalds, he consciously eliminates BurgerKing and others.
Hence, Vendor Selection works with this regard of unconscious and sometimes conscious biases.
With the above example, we can better understand the difficult concept of a natural phenomenon called Bias. The Vendor Selection process is hindered by biases that may or may not be intentionally played upon yet they always have an occurrence. Organisations need to make sure such biases do not come in way of the selection criteria.
Some of the biases in Vendor Selection processes are:
1. Anchor Vendor Bias
This bias manifests itself in the vendor selection process when a certain vendor gets favored by all decision-makers on the panel. The Vendor meets their expectations and becomes the Anchor Vendor. The evaluation team will “anchor” on that vendor selection and reject other alternatives, even if they are better.
2. Vendor Familiarity Bias
This bias is the tendency to express a preference for a vendor simply because team members have been exposed to the vendor before. This can be related to a high level of familiarity with a specific vendor over a period of time.
3. Cost Treatment Bias
In the event of absent mindedness and lack of clarity, it is easy to default in looking at personal biases instead of the best fit. The vendors cost and expense might overpower the capability and credibility of vendor suppliers in the selection process. This is an unfortunate bias which may be detrimental towards procurement management.
4. Status Quo Bias
This bias is the tendency to uphold the status quo in the market industry of the vendor. If the Vendor is not in par with the organizational hierarchy then it won’t be selected.
This bias is opposite to cost treatment as it tends to favor only well-known vendors for selection.
For example: Similar to a Starbucks effect, it places undue preference for Coffee, as an example to be the best in cafes regardless of whether the other cafes are just as good and reasonably priced.
5. No-Risk Bias
Companies often opt for a traditional vendor over new age vendors with superior capabilities. Rather than selecting a vendor with a skillset matching today’s robust systems, organizations stick to their rudimentary services provided by previous vendors with the intention of averting some risk.
Repercussions of Vendor Selection Biases in Procurement process
Biases disturb the natural connection of workflow and creates a gap in unison within the Procurement System.
- The organisation might suffer myopic sightedness while being biased. It could make the Procurement Process a liability.
- Stakeholders such as employees, executives, stockholders and all people related to the organisation will have to face the consequences resulting from poor vendor selection.
- Internal department of the organisation might also fall prey to substandard services of underperforming vendors selected due to bias.
- The organisation might be subjected to fraudulent practices. This can cause bad publicity and drastically lower company value.
- Biases in vendor selection might also be harmful for consumers. Final result may not be what the consumer was expecting. They might not be fulfilled with the organisation’s end product, due to negligence in vendor selection.
Owing to biases in vendor selection, the Supporting functions like allocation of resources, internal inventories and post selection activities might be affected due to immense load of unequal proportions on some departments than others.
We can eliminate these discrepancies by trying out demos by vendors first, having a straightforward scoring system for functional capabilities, making selection fair, providing standard guidance and aligning vendor proposals with the organisation’s goals and values.