Five Mistakes Companies Make in Their Vendor Selection Process

Posted by Dan Miklovic on Tue, Nov 21, 2017 @ 08:45 AM

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Request For ProposalThe last step in the LNS Digital Transformation framework is vendor selection. Frequently, manufacturers engage LNS or other research firms because they desire a selection process that is free from bias and to, ultimately, choose a provider that can actually help them achieve project objectives. Companies recognize that vendors have a natural bias to their own products while system integrators have a bias towards products with which they are familiar and for which they offer implementation services. They also recognize that their knowledge of the breadth of the potential solutions can be limited. In many cases, users simply recognize they “don't know what they don't know” when it comes to which solution providers to evaluate.

End users also often struggle with designing a vendor selection process that will help them overcome all these challenges. LNS has identified common mistakes many companies make when designing a solution selection process. Not every company makes all of these mistakes simultaneously; most only make one or two on any manufacturing software purchasing decision. But, if a company can avoid all of them, they stand a better chance of investing in a solution that will deliver the long-term benefits they seek.

What Are the Five Mistakes to Avoid?

MISTAKE #1  Too much or too little in the "Request for" documents.

Whether it is a request for proposal, information or quotation (RFP/RFI/RFQ), there is the temptation to either over- or under-specify requirements. When a company provides too little detail in the RFx they run the risk of buying a solution that fails to deliver the needed functionality. The provider meets the letter of the requirements but it turns out the capability delivered is not sufficient to actually do what is needed. The flip side is when the company provides an overly detailed specification — not just for what needs to be done but also exactly how it has to be done, and for every single element that requires customization or an exception. This most typically occurs when there is a favored supplier that graciously offers to provide a template for the RFx process and, of course, that template is designed around their solution. It can also happen when technical staff are the sole people involved in the process and they focus on the bits and bytes, not the people and process. However, when the level of detail is balanced, solution providers should be able to show how they meet your requirements, but with enough flexibility to provide some newer and innovative elements to the solution profile.

Solution Evaluation

MISTAKE #2  Not getting enough organizational participation.

Sometimes, businesses leave the specifying process to the technical staff and fail to involve a large enough cross-section of the organization. This can cause the team to miss critical usability requirements and process flow elements, and also contribute to product backlash. Involving users from multiple levels and all affected departments in the process typically results in greater buy-in to the final choice. No matter how exceptional a product is, if people don't use it — or use it begrudgingly — it will not deliver maximum (or any) value.

MISTAKE #3  Buying a "product" instead of a "solution".

This problem can manifest itself in many ways. One instance is when a company buys a solution without considering who is going to help implement it. While some software can be entirely implemented with local internal resources, most will require either corporate or external resources. Buying the greatest software in the world is great, but if you can’t get skilled implementers the actual implementation may take far longer, cost far more or deliver far less than expected. Another way this issue can manifest itself is when the company buys the perfect product, but the vendor is so small it can’t provide the proper level of support. Or, the vendor’s business may be so precarious that it might not even be in business by the time you get around to rolling out the technology to the last plant. Or, perhaps the vendor has had to sell itself to a larger firm, one that is not a traditional supplier to the business area being served, and whose technology direction is not the same as your current or future needs. No company is immune from mergers and acquisition activity, but proper due diligence can minimize the risks of disruption during project rollout. There is a lot of truth to the old adage that you should partner with suppliers, not just buy from them. Both parties prosper when there is a mutually beneficial relationship.

MISTAKE #4  Not buying on Total Cost of Ownership (TCO).

Selecting the lowest initial price is almost always a recipe for problems — and the most common mistake. The price of software represents only 15-20% of the total cost of ownership (TCO) of a solution over a five- to ten-year horizon. In addition to the cost of the software, you also need to factor in the cost of the hardware to run it (or the ongoing software-as-a-service (SaaS) subscription), as well as implementation, maintenance (if not a SaaS product), training and integration costs. Integration costs can be a real shock over the lifetime of the product because anytime you upgrade the software or any of the other applications with which it is integrated, there may well be costs associated. We often hear that products from a single-suite vendor lack the functionality or user-friendliness of best-in-class point solutions, so there is a preference for those products. But, if you look at the ongoing integration support costs, and compare those to the cost of fixing a small functional or usability issue with an integrated solution from an existing provider, many times the differences aren’t so large. Understanding TCO and making that a critical part of the purchase decision is the smart thing to do.

Solution Selection TCO Analysis

MISTAKE #5  Forgetting about the future.

Nothing lasts forever. When purchasing manufacturing applications companies sometimes focus on their immediate needs and fail to consider how their businesses might change over the next ten years. Or they select a solution that is extremely robust and functional but is built on the last decade's technology platform. Not surprisingly, mature products often have the richest features but cannot take advantage of emerging technologies like the Industrial Internet of Things (IIoT) or Cloud. Companies put themselves at a competitive disadvantage when they can't easily adopt new technology, especially in this era of Digital Transformation. They also are at risk if they buy a solution that is not scalable in the event of major expansion. Another problem might occur if the solution is too monolithic. If the company breaks apart or sells off a division and you can't carve out that division from your footprint without significantly altering the solution, re-implementation becomes an expensive proposition.

The Takeaway: Process is Key

A solid vendor selection process is as key to your Digital Transformation efforts as any other strategic decision or activity.

Software Solution Selection Handbook

Tags: Solution Selection Guide, Solution Vendor / Software Vendor