In one of our previous “Insights” we covered the Outsourcing of the finance function. In that Insight we briefly covered vendor selection, this Insight goes into more depth on the Vendor Selection Process.
Like any project undertaken within a business, a structured process should be followed to identify and select an outsource partner. This process starts with defining wants and requirements and ends with negotiating terms and signing the agreement between your company and theirs, prior to the 3rd party commencing their assigned activities.
In our previous Insight the Company had taken the strategic decision to outsource the finance function. By the time of looking to identify and select an outsourced provider the company will have drawn up a list of specific requirements. These requirements will state the scope of work, timelines, quality standards to be achieved and other specific requirements that may vary from one outsourced function or department to another.
Armed with this internally agreed upon list of requirements, it’s time to carry out the necessary market research. Through a combination of internet research, word of mouth, referrals from industry peers, your own networks or consultants with whom the company works an initial Long List can be drawn up. Detailed Research into each one of the 3rd parties included in the “long list” will highlight any reasons why any of the ~”potential vendors” should not be considered further. Reasons for not considering further may be to do with their:
- Technical Expertise and capability.
- Past delivery and track record.
- Financial stability
- Cultural and Strategic fit with your own organisation.
The “Long List” will therefore become a “shorter list” from which the next stage of the selection process should be carried out. Initial contact is to be made with the “short list”. Once you have spoken with each of the parties on the list and determined their interest in undertaking the required list of duties, a Request for Proposal (“RFP”) is issued to those that are interested in taking the selection process further.
Following review of the RFPs received, further companies may be eliminated from the process resulting in a “shorter list” to hold “interview meetings” with. These meetings give your company and the potential outsourced providers the chance to determine whether working with each other would work. In these meetings discussions around Data security, confidentiality, support structure, communication, delivery mechanisms, each parties expectations and the like need to be had with each “potential delivery partner”.
Prior to making the final decision and putting pen to paper, references should be taken from current and past clients. If after references are taken there is more than one “potential contender” for the work, then an internal meeting should be held to determine the “best fit” for the organisation.
Now is the time to negotiate terms and finalise the agreement with the “best fit” outsource partner. Within the agreement / addendums to the agreement as a minimum should be included:
- What is to be delivered and the timelines for delivery,
- The quality that is to be achieved,
- How delivery and expectations will be monitored and measured,
- Service Level Agreements are to be detailed
- KPISs to achieved,
- The cost for delivery for the “agreed upon tasks and activities”, along with any additional charges for additional work undertaken as required.
If your company does not have a governance framework established at this time, then one should be established to monitor the vendor’s performance and ensure adherence to the agreement.
A Transition plan will now need to be developed and put into force that ensures the smooth transition of tasks, duties and responsibilities from the internal team to the outsourced partner.
Following the above steps, will aid in the successful selection of a vendor that not only meets your technical, financial, security, requirements but also aligns with your strategic goals and organisational culture.
