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ONLINE EXCLUSIVE: PURCHASING POWER
Buying Thermal Processing Equipment - Part 5:
Proposal Comparison and Evaluation

April 1, 2004
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In this fifth column in the "Purchasing Power" series, learn how to create an effective comparative matrix of supplier proposals, techniques for addressing specification variances, methods for integrating key business information into the evaluation process, and key qualification issues that should be confirmed at this stage.

Once you start receiving proposals for your project from potential suppliers, it's time to start sorting out the details. The proposals received will often be for differing approaches to your needs, and this can present a challenge when trying to make an apples-to-apples comparison. The following guidelines can help you evaluate the data in an objective and effective manner.

Comparative Matrix

For all process, production and business issues identified in your technical specification, you need to create a matrix that compares the following data for each supplier:
  • Critical parameters
  • Desirable, but non-critical capabilities
  • Future considerations
Critical parameters are those that will affect the overall success of your project. Do proposals adequately address each of your key needs? How do the approaches vary? Capture this information in your matrix. All proposals must at a minimum provide solutions to these requirements.

What other capabilities are available? The objective here is to identify value-added extras that may provide benefits not requested, accounting for technology and price differences. Some of these capabilities may be highly desirable. Others cannot be financially justified at present. By addressing them as non-essential, you can evaluate each on its own merits.

You should also think about the impact of changes in your business as you evaluate proposals. For example, do you believe additional capacity will be needed in a year or two? Should this project have a provision for future expansion? Perhaps you are considering the eventual addition of integrated automation. How might that impact the design of this new system? Identify aspects of the design that could be slightly altered now to avoid significant future expense.

Oranges and Bananas

Often, supplier proposals will contain variances from your technical specification. Sometimes these are simply oversights that need to be corrected. However, such variances might be due to technical or other issues that you should carefully evaluate. To aid you in this process, your matrix should contain the following information for specification variances:
  • Description of each variance
  • Reason for the variance
  • Cost impact of the variance
This simple technique will help you sort out apparently disparate information and draw the focus back to what is most important to you and your business. You can also quickly sort out unqualified suppliers that might be wasting your time.

Commercial Issues

In addition to technical specifications and price, many commercial issues can impact your decision making process. Add the following information to your comparative matrix:
  • Terms and conditions of sale
  • Shipping schedule
  • Installation, start-up and commissioning
  • Spare parts
You don't need to include all terms and conditions from all proposals, but have a member of your team review them and identify any issues that may need special attention later. Prices and payment terms should be included in your matrix, as well as shipping schedules. If installation, start-up and commissioning are included in the proposal, include the price separate from the equipment price. Ditto for spare parts. These steps will help you make a better price comparison.

Don't Settle for Skin Deep

It's common for professional friendships to have developed between team members and suppliers, including a certain amount of trust. You must be careful that this trust does not prevent you from conducting an appropriate amount of due diligence to confirm key elements of a supplier's capabilities and experience. When you have narrowed your supplier list down to perhaps two or three contenders, a more in-depth evaluation of vendor qualifications might be appropriate. This qualification could include any or all of the following:
  • Visit the supplier factory
  • Interview key supplier employees
  • Visit a similar or identical installation of the equipment under evaluation
  • Check supplier references
  • Talk to industry experts that have direct knowledge of the supplier
  • Conduct a financial and credit rating check on supplier
The nature and complexity of your project will help you determine how much and what type of verification is necessary. A summary of your findings should be included in your comparative matrix.

Supplier Intelligence

Your team members might learn things about suppliers during the course of the evaluation process. This information may be positive, negative, or neutral, but should be included in the proposal evaluation documentation. It could be very important data during the final negotiations. Encourage your team to keep notes on supplier issues they become aware of.

For example, a salesperson might indicate a major order was just received that could impact their ability to meet your delivery schedule. Or perhaps a supplier made an off-handed comment about how slow their business was.

When this kind of data is incorporated in your comparative matrix, you will be able to address each of the issues with suppliers in a way that will be both fair and reasonable. Some unpleasant surprises are preventable if the right information gets to the right people on your team. Make a point of gathering and communicating this information.

A Team Sport

The creation of your comparative matrix can be managed by a single person, but all members of your project team should participate in filling in the details and making sure all the data is correct.

Conduct an internal review of your completed matrix. All team members must approve of specifications and variances within their area of responsibility. They should review each proposal to confirm full compliance with each of your key project objectives and measures of success. All specifications should be addressed in this manner. This process helps eliminate subjective decision-making and can be used as a powerful tool in negotiating with suppliers.

Subsequent to this review, your potential supplier list can be reduced in size, and your final specification modified if needed for distribution to remaining suppliers for the best and final proposals. These proposals should be reviewed in the same manner to confirm compliance.

An Objective Comparison

Using these guidelines, you can create a comparative matrix that will enable you to objectively compare proposals from all aspects that can affect your ultimate success. The matrix is based on using data previously developed by your team that keeps the process focused on the results you need. In the next "Purchasing Power" column, we will review the supplier selection and negotiation process.

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