spendmatters / achilles white paper: is your supplier qualification process a competitive...

services for professional procurementwww.achilles.com

Is your supplier selection process a source of competitive disadvantage?Peter SmithManaging Editor Spend Matters UK/Europe

June 2012

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Executive summary

A Spend Matters White Paper sponsored by Achilles

Best practice in pre-qualification processes

Spend Matters is a leading procurement advisory, analyst and publishing firm, commenting on issues of importance to procurement and supply chain practitioners and solutions providers. Although we are sponsored by a number of organisations who operate in our field, we write independently based on our many years of experience as senior procurement executives, analysts and writers.

Pre-qualification. Not the most exciting topic in the world is it? And yet consider those firms who end up as our suppliers who generate reputational or operational risk; firms who get into financial trouble; who aren’t actually capable of doing what they claimed they could. Firms who maybe aren’t even allowed (in a legal or regulatory sense) to do the work we’ve employed them to do. Those firms we should have weeded out from the selection process long before we even got close to awarding them the contract.

Then, there are those potential suppliers who never made it. Those suppliers we rejected on the grounds their turnover wasn’t large enough to get over our pre-qualification hurdle, or who struggled answering our trick questions about quality certifications for instance. Perhaps in the process overlooking a supplier who actually could have come up with a stunning, innovative idea that would have provided real competitive advantage? We’ll never know.

As well as the sheer cost of the pre‑qualification process, and the time required, it can be either a positive part of the procurement process or a source of competitive disadvantage.

We describe here how pre-qualification can help – or hinder – your efforts to improve procurement process and performance as an important part of the overall procurement or sourcing process.

It does not always get the attention it deserves, yet carrying out pre-qualification processes effectively and efficiently is vital:

■ To ensuring that the organisation ends up with appropriate suppliers to deliver the goods and services required.

■ As a key element of supplier and supply chain risk management; identifying those potential suppliers who may generate inappropriate risk for the buying organisation, and eliminating them from the procurement process, is clearly of value to buyers and buying organisations.

■ As an important element of the selection process; determining a sensible number of the best suppliers to take through to the final tendering stage of the procurement process.

In this paper, we will explain the different purposes of the pre-qualification process, why it is important and how it can add value. We will look at how to construct and manage an effective pre-qualification programme, and the different stages involved in the process. We will also comment on the cost of the process, and the options, benefits and issues around using third parties to assist in the process, which can save significant time and money.

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This Spend Matters research paper considers the pre-qualification process as a key element within the procurement cycle. The paper is sponsored by Achilles, one of the world’s leading managers of supplier information, and draws on research work previously carried out by Achilles, but it is written from a wholly independent perspective.

Background and context to the pre‑qualification process

What is pre‑qualification?

The pre-qualification process is an important element in what is, in many cases, the standard procurement / tendering process, shown in Figure 1.

Most similar process maps will show the pre-qualification process as the first significant part of our engagement with suppliers who are interested in winning our business. The “pre-qualification questionnaire” or PQQ is a

key tool for pre-qualification, and PQQ is often discussed, although a pre-qualification process does not always necessarily make use of a PQQ. So we will use the term pre-qualification process through this paper unless we are talking about the specific PQQ document. We should also note that there are differences between the usual processes in the public and private sector; but the principles are consistent.

Fig.1 – A typical procurement process

Plan theprocess

Identifypotentialsuppliers

IssuePQQ’s

Receive &evaluate PQQ

responses

Chooseshortlist &

issue tender

Receive &evaluate tender

responses

Chooseprefered

supplier(s)

Finalnegotiations/contracting

AWARDCONTRACT

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What exactly do we mean by the pre‑qualification process?

Firstly, why is this process “pre”?

That suggests it must come before something, which indeed it does. It is “pre” the final stage of selecting the supplier, whether that selection is made via a formal tendering process, a less formal request for proposal, an electronic auction, or whatever route chosen to ultimately select the successful supplier(s).

What about the “qualification”?

That means ensuring that whichever supplier is ultimately selected at the end of the sourcing process is actually an appropriate organisation, capable of delivering the goods, services or works that we require. In other words, they are qualified to win our business.

So the pre-qualification process is the means by which we establish that it is reasonable to allow a supplier to tender, safe in the knowledge that, it they do happen to win the tender, they should be capable of carrying out the work, In addition, we check that they are firms with whom we’d be happy to work – some may be capable, but inappropriate in other ways.

Why bother with pre‑qualification?

Within the whole sourcing process, pre-qualification is often seen as the ugly sister to the exciting, glamorous tendering phase. That final element of choosing the supplier, negotiating the contract, or running a dramatic auction or sourcing event – that all seems a lot more exciting than the process of gathering information and assessing your initial range of potential suppliers in order to select a short-list list for the final stages.

But of course a tender, and the final contract, is only as good as the suppliers who are competing for it. And if the pre- qualification process is not effective, the major risk is that you end up with a shortlist – or even a final supplier – that does not meet your needs. The wrong supplier wins the contract, because their failings were not identified through the process, or because a better supplier was eliminated or did not win the final competition.

It is clear that many of those failings could be driven by a poor pre-qualification process.

By the “wrong” supplier, we mean one who does not offer the best value for money, or has a shortfall in their capability to actually carry out the required work, or (potentially even more seriously) one who creates supplier risk such as reputational damage. Such suppliers should, we would argue, be identified and eliminated at pre-qualification stage.

Recent independent research conducted by IFF Research on behalf of Achilles found that CPOs at 71% of businesses, rising to 80% in larger businesses, considered pre-qualification very important. But there were large variations in the time taken to pre-qualify suppliers and the number of sourcing events each procurement was required to undertake. And in our experience, the cost of pre-qualification is not always well understood or analysed – that’s a subject we’ll return to later.

The tender stage is often perceived as the most important within the overall sourcing process, but if the wrong suppliers are included on the shortlist; or if the risk profile of the shortlisted suppliers is not appropriate; or if they don’t have the required experience, accreditation or capability, then the final tender might look competitive and successful, but the chances are that contract delivery will bring problems because the wrong suppliers were included in that final stage.

Why should pre‑qualification be “pre”?

Even if we accept the value of these activities, why would we carry out process before the final stage (which we’ll call the tender stage for simplicity)? Can’t we just qualify those suppliers we invite to tender at the same time we execute that stage? Well, we could. But the likelihood is that, for many contracts, we will end up with large numbers of suppliers bidding if we don’t use pre-qualification to reduce the numbers. Then many of these tendering suppliers may turn out to be unsuitable to deliver the work – they may not be qualified in some way to do our work. If we only discover that at tender stage, we run the risk of wasting their time and ours, when a pre-qualification would have quickly ruled them out of the running.



5 2. Horses for Sources. The undisputed facts about outsourcing. May 2011

Interestingly, the UK government has been encouraging a one-stage process for lower value contracts. They talk about eliminating the PQQ – but in practice, that new process combines what we might see as the regular pre-qualification element – registration and qualification questions – alongside the tender element of the process. So we would argue that the pre- qualification process has not disappeared – only the PQQ document. And often, the supplier’s tender or proposal is only considered if they “pass” the pre-qualification element contained within the single document. So arguably, this is increasing the workload for many suppliers whose full tender will not even be read.

We could even wait until we’ve chosen our preferred supplier before carrying out the pre-qualification activities. But the obvious risk then is that they then fail the qualification process – and we potentially have to start the entire process again to find an alternative supplier who is qualified!

When is pre‑qualification NOT appropriate?

However, there are certainly times when it is not appropriate to use pre-qualification processes.

If you can define very clearly what it is you want, and there is limited risk in terms of supplier failure or reputational risk issues, then a simple one-stage process can be enough. So let’s say you were buying 100 cases of Campbell’s Tomato Soup. You might, through an auction or similar, allow any supplier to simply submit their best prices. The specification and requirements are very clear, so price might be the only factor to consider.

There may still be some risk involved – what if they don’t actually deliver once you’ve ordered the soup? But the consequences of that might be limited. After all, there are plenty of other suppliers around who can quickly step in if your first choice lets you down. So you may take the risk of omitting a pre-qualification in return for the benefit of a simple tendering process.

The key factor to consider here is risk. Think about the consequences if the supplier turned out not to have the capability they claim; or if they went out of business half way through the contract; or their

Directors turned out to be serial bankrupts; or they don’t have the right quality accreditations that you would have expected.

If the answer to that type of question is “that wouldn’t worry me too much”, then there may be a case for ignoring pre-qualification as an issue. Move straight to a simple tender and accept the risk.

But that simple approach is usually restricted to very low value, relatively simple or commodity based procurement exercises. In the case of most procurement activities, for most major organisations, the risk element means that we do want to know, in advance of them tendering for work, that our potential suppliers are appropriate and can meet our needs.

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The purpose of the pre‑qualification process

We outlined in the last section the context to the pre-qualification process and why it is important in general terms. In this section we will look in more detail at the objectives that we seek to achieve through pre-qualification, so we can design the process better for our specific requirement. The four purposes of pre-qualification are as follows.



Identifying potential suppliers

(search)The first element of the pre-qualification process is what we might call supplier search or discovery; it is not always seen as part of the process but there are reasons for considering it under this heading. Its importance and complexity depends heavily on the nature of the purchase: identifying potential suppliers for some rare or novel component or raw material might take a lot of time and effort, and may well be considered as a totally separate element of the overall procurement process. In other cases, it is much more part of the pre-qualification process. For instance, if an existing database of already pre-qualified suppliers is used as the population from which to select the tender list, then the pre-qualification process has in effect also defined the process for supplier search.

Gathering supplier information

(registration)Buyers need to have administrative, factual information in place about their suppliers. This is to cover the basic need to engage with them, pay them, and satisfy any regulatory demands. Increasingly though, buyers want to know more than the basic data; they’re interested in certifications or accreditations that the supplier holds; what sort of business they are (an SME, minority / woman / veteran owned) and so on. As we said above, it is possible to delay collecting this information until the tender stage, but that can make the tender stage unwieldy and time-consuming. Or you can wait until a contract has been awarded before collecting the full set of necessary information. While that has some advantages, it does require a further set of questions and responses to and from the supplier, so there is much to be said for collecting the key information once at the same time and at a stage when the supplier is keen to conform and co-operate (i.e. during the selection process).

Of course, circumstances change, and collecting information at this stage is not the end of things. It is also important to have processes in place to update information, and reflect new initiatives or requirements. But that takes us onto a different set of processes and issues.

Clearly, collection of information is also linked to the next purpose – qualification. It is pretty much impossible to qualify a supplier without gathering information about them! And as we explained earlier, the risk of not carrying out these activities early in the overall procurement process is that suppliers who are not capable end up tendering or even winning the contract before we realise they are not equipped to carry out the work.

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43Supplier capability and risk assessment

(qualification) This is the core of the pre-qualification process – determining whether the suppliers are appropriate, capable and qualified to carry out the work for which they are competing. Do they pass the ‘threshold’ of competence to carry out the work? As a fundamental principle, suppliers who are not able to carry out the work to your desired standard, or have other attributes which mean they are not firms with whom you wish to work, should be eliminated before tender stage (as we explained above).

This should be a key element of any organisation’s wider procurement and supply chain risk management approach. Ensuring that firms with whom you do business are capable, qualified, are not breaking laws or regulation - these are basic and vital considerations for an effective risk strategy.

It is sometimes tempting to take a supplier through to the tender stage, even though they may not meet your qualification threshold, because you think they may be able to put in an “interesting” or perhaps low price bid. But if they are basically not qualified to meet your required standards, then this is rarely advisable. Whilst the public sector under EU Regulations perhaps over-complicates these issues, the basic principle that they apply is sound – the pre-qualification stage establishes whether a supplier is capable of doing the work; then the tender stage establishes which supplier has the best solution or proposal to meet your particular needs.

So generally the principle should be that only truly capable suppliers make it through to tender stage, and suppliers who represent a risk – whether that is financial, operational, reputational, or policy related – should be eliminated from the process.

Choosing suppliers to tender

(selection)The final purpose of the pre-qualification process is one that often causes confusion or anger amongst the supplier community. They often assume that every supplier who is “qualified” (as in point 3 above) should, and will, go through to compete at the tender stage. And often that is true. If only a small number of suppliers are qualified; or if there is going to be a tender that is relatively simple and low-effort, then it may well be possible to take through all the qualified suppliers.

But if you are a major organisation looking for a supplier of printed brochures, or office furniture, or scaffolding services, there may be dozens or even hundreds of potential suppliers who could meet your needs and are “qualified” in that sense to compete and win your business. It is simply not feasible or cost effective for buyers or suppliers to run anything other than very basic tender processes involving large numbers of bidders. So numbers need to be reduced at the pre-qualification stage through a selection process.

Even if the number of qualified bidders is not that large, it may still need to be reduced further. If you are running a complex outsourcing project, there may only be ten potential qualified suppliers; but the complexity of the final selection process could suggest that even that number is unmanageably large to handle through the tender stage. So that ten may need to be cut to four or five.

In these cases, the pre-qualification process also needs to contain an effective element of selection – whittling down the number of suppliers and identifying, as far possible, those who are likely to be the serious competitors at tender stage, and ultimately, the best suppliers.

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Running a pre‑qualification process

Planning the process

Once we have a good understanding of what we are trying to achieve – for instance, do we need to include an element of “selection” in the process – we can move on to the actual execution of the pre-qualification process.

Aside from the technical aspects of pre-qualification, the project management requirements must not be under-estimated. We’ve seen a pre-qualification process fail because suppliers who expressed interest in a tender didn’t receive a PQQ as they should have because of simple administrative error. The process then had to be aborted and re-started later. So like all parts of the procurement process, this needs to be run in an organised and professional manner, using project management disciplines.

At this point, another key decision presents itself. Should the buyer start the process with a blank sheet of paper; or make use of an existing internal pre-qualified list or database; or use an external provider who can offer a similar service? We will look at the external option in the next section, although we will touch on some of the issues as we describe the core process here. But our basic assumption in this section will be that the buyer is running a pre-qualification process from scratch.

How then can we design the pre-qualification process to meet our objectives in an efficient and effective manner? Here is the process flow that we would typically recommend.

Fig. 2 Running the pre-qualification process

Identifypotentialsuppliers

Issue PQQto interested

supliers

Gatherinformation

Verifyinformation

Qualificationand RiskAnalysis

Selection oftender list

Communicateto suppliers

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Identifying potential providers

As we explained earlier, this stage may or may not be considered as part of the pre-qualification process. If a third party is used, then they may well have a large number of suppliers and the buyer may feel this is enough of a population to work with. Some private sector firms may hold lists of suitable potential suppliers, or carry out research to identify them. In the public sector, there will often be a need for some sort of open advertising or publication of opportunities.

There are numerous other ways in which potential suppliers can be sought. Advertising through old or new media routes; using organisations own websites; trade bodies or other business associations; all of these and more can be used. The scale of the search should be proportionate to the size, risk and criticality of the contract opportunity.

A small contract for a repetitive low risk service may not require any new search at all – the buyer may feel that a tender between “the usual suspects” is good enough to get a reasonable competition and a decent result. But a high value, high risk contract deserves some effort to be put into identifying a range of potential suppliers who can then go through the pre-qualification process.

Once the potential suppliers have been identified – often through those firms submitting an expression of interest – then a pre-qualification questionnaire is generally issued to them for completion. Their responses will form the basis of our supplier information gathering, qualification and selection for tendering.

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Gathering information Most pre-qualification processes will require potential suppliers to provide information about themselves, usually by responding – electronically or in hard copy – to a pre-qualification questionnaire. That information may cover administrative, technical, regulatory, capacity or capability details.

The information should be relevant and in most cases will support the qualification and selection processes, so the requests made of the supplier should relate clearly to how you intend to qualify and select suppliers.

Key pointers: ■ Avoid double-entry of data where possible –

if the supplier can submit information directly and electronically into your systems, or in a manner that it can be imported easily, then that improves efficiency

■ That is especially useful if the information can be easily updated, and even more so if it can be re-used across a wider user base

■ Make sure the information you ask for is relevant to your needs, particularly your qualification and selection process

■ Be clear and unambiguous in your requests, particularly where you ask for capability or capacity related information

VerificationVerification of PQQ information (checking that what the supplier declares and describes on their PQQ is accurate) can be considered as a separate process to the basic collection of the required information. It is critical to the achievement of the pre-qualification objectives; if we cannot be sure that the information provided by a supplier is accurate or truthful, then how can we make an appropriate supplier qualification or selection decision?

Verification is in most cases carried out by the buying organisation, although it can be outsourced, and a risk and cost based approach is advisable. PQQ information provided by a bidder for a low value, low risk contract may be

taken on trust; for a multi-million value contract more checking and verification is likely and is recommended. Self-verification is almost always part of the package; it is rare for the buyer to check every detailed provided as part of the pre-qualification. But there are obvious risks, so for higher value contracts and critical areas of questioning, some independence in the process is advisable.

That verification may be carried out through paper based means – for instance, checking a firm’s financial position through use of Dun & Bradstreet or similar services. But it may involve actual inspections, visits, or testing of samples. For instance, a major food company may inspect, assess and accredit the facilities of key raw material suppliers (dairies or processing plants) before that supplier is even allowed to tender for actual business. Or specialist firms (including Achilles) can carry out tasks such as professional on-site validation, auditing of management systems, and legislative compliance.

Key pointers: ■ Verification should be proportionate to

the overall risk in the contract and the significance of the area being verified

■ Think about the balance between self-verification and buyer or third party checks

■ Verification can take place at a later stage (post PQQ) – or can be outsourced either directly to external service providers or through the use of third party platforms and databases.

Verification may also be carried out by a third party accreditor (TPA) or similar organisation. Registration and usually qualification type data is in such cases collected by the TPA and may be verified in some manner. Where a portal or platform is used, verification may take place when a supplier first registers, when they specifically express interest in a contract, or not at all.

It can also be delayed until later in the process – you may choose to carry out a supplier visit only once they have reached the final tender shortlist for instance. That can reduce the workload at PQQ

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stage but of course runs the risk that they then prove to be unsuitable, which may cause other issues to your process if it is only discovered at that late stage.

Qualification and risk analysisQualification is essentially a “yes / no” decision, or (for most pre-qualifications), a series of yes / no decisions. For example:

■ Does the bidder have enough capacity to do our work?

■ Do they know how to do our work – can they provide their capability?

■ Are they honest people to deal with – what is the track record of their management / owners?

■ Do they have the correct regulatory or professional approvals and qualifications?

■ Are their finances sound, both historically and looking into the future?

While responses can be marked (as in the “selection” section below), it is often more relevant to take a simple binary decision in terms of the supplier’s answer to that type of question. We qualify them or disqualify them directly based on their answers. If the answer to any of the above example questions is “no” for instance, we may decide that is enough to disqualify the supplier from any further consideration.

A common criticism of buyers is that they exclude bidders too readily on factors such as the turnover of the bidding firm. There is a point of course at which an organisation is just “too small” to carry out a particular contract, but often the limits used are arbitrary and unnecessary and reduce the potential pool of capable suppliers. For instance, a capacity issue based on the size of a manufacturing facility, which is costly and time-consuming to overcome, is very different to capacity in the professional services field, where more consultants or software developers can be added easily to a firm’s capacity if they win a large contract. Again, considering risk is the key factor here.

There are parallels in most of the other yes / no qualification areas. Caution, common sense, and proportionality must be applied or you will find

that potentially very strong suppliers have been eliminated before they get a chance to bid for the work.

Key pointers: ■ When using a “yes / no” process, don’t

exclude suppliers too readily

■ Make sure you are using appropriate criteria based on the specific contract - excluding a bidder on your legal services tender because they don’t have the best health and safety certification is probably not sensible or appropriate. But excluding them for lack of professional insurance would be justified

■ Take a risk-based approach to the qualification process and focus on those areas that are critical to delivery of the contract

Selection In many cases, the buyer will find that more potential suppliers pass the threshold and qualify than they wish to tender for the contract. (Our advice in most cases is that, for a single contract, no more than 6-8 bidders should be asked to tender.) This leads to a manageable tender process for the buyer and avoids excessive and unreasonable effort from the supply market. Indeed, if you ask a large number of firms to tender, some will refuse based on their assessment of their likely chance of winning set against the workload. The buyer may well therefore need to apply selection processes at this stage.

Selection can be made based on the suppliers’ responses to two types of question. There are those where the answer can lead to the disqualification of the supplier, along the lines previously described. That is obviously a simple form of assessment and selection (or de-selection to be accurate). Then there are questions which can be marked with some degree of differentiation rather than simply on a yes / no basis. These are often key to effective selection. Often, many suppliers will “pass” based on the basic yes / no questions, which leave these scored questions as the key to choosing your shortlist for tender purposes. It is therefore important to select

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these questions carefully. The focus should be on elements of the contract that are the most important or differentiate clearly between suppliers.

There are many different marking schemes. A simple one uses a 0-5 scale. A response that “fully meets all our requirements in this area” scores five, a “no response” scores zero. Marks can then be summed across the questions to arrive at the ranked list of potential suppliers. The top 3, 6, 8, or whatever number required, are then taken through to tender stage.

One common mistake here is to simply use size and experience as the selection factors. If the selection consists solely of questions such as “how many consultants do you have”? Or “what is your total annual manufacturing capacity”, you will simply end up selecting the largest players amongst the bidding population. So look for questions that get at the real capability you are seeking. Asking for examples, or case studies is often a good way of achieving this.

In the public sector in many countries, there are particular regulations around how pre-qualification and indeed procurement processes in general should be handled. That also includes issues such as how much information you should provide to bidders in terms of your evaluation process. We don’t have space here to feature that level of detail, but do ensure that your pre-qualification process is in line with any regulations or guidance under which you are operating, and of course your own internal procurement policies and process.

Key pointers: ■ Use a small number of well-thought out

questions for selection purposes

■ Ensure the questions really address the most important issues and capabilities that will determine the ultimate success of the supplier and contract

■ Don’t ask questions that simply reward size or current market share

■ Be fair and transparent in how you assess and mark the responses, and retain an audit trail of that process

Finally, it is good practice to communicate the results of the pre-qualification process, not only (obviously) to those suppliers who have been successful, but also to those who have not. That will help them understand better why they weren’t successful, which will either make them better bidders next time, or indeed help them understand why perhaps they should not have bid at all, which saves all parties time and money in the long term.

Costs of pre‑qualification and using third parties The cost of pre‑qualification It is unusual for buyers to identify clearly the cost of different elements of the procurement process, including any pre-qualification stage. That cost will largely involve internal time and resources; and of course there is a cost for the market or supply side as well.

But in our experience, procurement professionals and others involved with the process often under-estimate the complexity, the importance and the cost of the pre-qualification process. The recent research undertaken by Achilles highlighted that 71% of businesses rated the pre-qualifying of suppliers as “very important”, and for larger businesses, with turnovers above £1 billion, that figure grows to 88%. Yet in our experience, very few would be able to tell you the cost of running pre‑qualification, how much resource goes into it, and what the implications are of the time required to run such processes.

So the costs, resource and time implications can be significant. Designing the pre-qualification process; then getting approval or buy-in from the key internal stakeholders; the process of inviting or selecting the potential bidders; communication with the market; all these take time and effort.

Then once pre-qualification responses are received back from potential bidders, the process of assessing, verifying and marking can be extremely time-consuming. It is not unusual for a major procurement to receive several hundred responses, and each might be dozens of pages in length. A recent UK public sector tender has

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seen its process slip by several months from the published timetable – over 800 PQQ responses were received, and the procurement team was not geared up to handle such a number in the time originally allowed.

Given this, it is important to ensure your pre-qualification process is appropriate to the size and risk for the contract in question. We mentioned earlier that there may be some occasions where it is not necessary at all, but even if you decide it will add value, that doesn’t mean the pre-qualification process should be the same no matter what you are buying and for every procurement exercise. If the contract is low risk, a few basic questions for qualification may be enough, with a handful of selection questions requiring a short response from the supplier to enable a tender list to be selected.

At the other extreme, selecting a contractor to carry out critical and high risk work – perhaps a sensitive construction or maintenance project of an intrinsically high risk nature - requires a detailed approach to pre-qualification, with carefully thought out questions, potentially some independent verification and a strong selection element, in order to ensure you choose a supplier who really can carry out the work properly and offer goods value for money.

There is often a balance with time here. Urgent procurement requirements, almost by definition, are often high risk. In an emergency situation, it is quite likely that a supplier will be carrying out sensitive or high risk work for you. So there may be a temptation to cut corners – but that of course can lead to even bigger problems if the supplier turns out to be inappropriate or incapable of meeting your needs!

Third‑party providers – an option worth considering?

The cost of the process, and the time required to run proper pre-qualification is one reason for the growth of third party services in this field. There are obvious economies of scale in a single organisation carrying out some combination of registration, verification, qualification and selection, then making the results of that work available to

multiple users. A buyer may then directly access, for instance, a pre-qualified list of potential suppliers for a particular industry who have a defined capability, with appropriate certification if required, a healthy financial situation, no nasty surprises in terms of legal or regulatory issues, and listed by country or region. And that can be done very quickly.

Please find three firms (to whom I can then issue a tender), fully qualified and certified to carry out underwater oil-rig maintenance work off the coast of the Philippines, with at least three years’ experience, a stable financial position and strong environmental awareness and policies in place

It’s easy to see how much time and effort a buyer might have to exert in order to answer that question. But if it came from an internal senior stakeholder, who is in a situation of some urgency, the buyer may not have the luxury of time.

However, an existing database, with verified and accurate information, provided by a third party who specialises in this sort of work, could provide an answer instantly. And that can be achieved without any compromise on the risk element of the process. Indeed, a reputable third party is likely to put more effort into the verification element of the process than individual buyers generally have the time or resource to do.

Some organisations operate what we might call a “hybrid” model for pre-qualification. That means they use third parties for some categories of spend, but not for others, where they may run their own processes. Or the buyer may use an external database to arrive at a long-list of suppliers, but then issue some selection type questions (as we described earlier) to these firms in order to reduce the field further to a suitable number for the tender.

So in the case above, if the database turned up twelve firms who met the requirement in terms of oil-rig work, rather than three, a short questionnaire with three or four questions, perhaps looking in more detail at some specific aspects of their experience, might enable the buyer to quickly choose three or four to take part in the final tender.

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Third-party providers can therefore offer a way of reducing cost, shortening timescales and increasing the efficiency of the pre-qualification process, in some cases by working across industry sectors and collaborative user groups. They can also offer a strong risk management focus. They are unlikely to meet your needs for every

procurement or pre-qualification exercise that is necessary; but in the appropriate circumstances, they are an option worth serious consideration.

Here is a decision chart that can help determine the appropriate route to take if you are considering using a third party database, platform or similar pre-qualified supplier population.

Fig.3 – Using a third-party pre-qualification database

Run pre-qualprocess

Run simflifiedPQQ /

selectionprocess

ISSUETENDER

Choosetender list

Choosetender list

Doesthird-party

database covermy needs?

Doesqualified listof suppliersneed furtherselection?

Advertise forpotentialsuppliers

Yes

Yes

No

No

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Critical success factors for the PQ processIn this section, we will briefly discuss some of the over-arching success factors for an effective pre-qualification, including issues that don’t fit neatly into our previous headings.

■ Appropriate processes and minimising the burden on suppliers – we touched on this issue earlier, but it is important to consider suppliers and their view of the pre-qualification process. If suppliers perceive the process is onerous relative to their likely outcome, then they may choose to withdraw, weakening the market. This can be another benefit of the outsourced or collaborative pan-sector model. While in some cases there may be a cost to the supplier, they will save through not having to submit information, often duplicated, time after time, for multiple tenders and buyers.

■ The importance of ensuring a competitive market – of course, much of the benefit of a well-run and sensible pre-qualification process will be wasted if you don’t start with a strong range of potential suppliers. Going back to the same group of regular suppliers, tender after tender, may bring some benefits of familiarity, but may mean you miss interesting new market entrants. So whether you run the process internally or use a third party, make sure you start with a competitive field of potential bidders, and consider wider advertising if you are worried this is not the case.

■ Ensuring fairness and transparency – there are two key reasons why pre-qualification processes should be fair and as transparent as possible. Firstly, in order to avoid any hint of fraud or corruption, whether that is driven by internal or external forces. An open and transparent process, with objective selection criteria, is a strong bulwark against biased or fraudulent supplier selection. Secondly, if we expect suppliers to compete actively to help us achieve competitive markets, they need to see that they have a genuine chance of winning business; a fair process is part of that. Making the methodology by which you will qualify, verify and select suppliers as transparent and efficient as possible therefore encourages suppliers. Buyers will often now publish in some detail those processes, so suppliers can see exactly how they will be judged. That is, in our view, to be recommended.

Conclusions So, finally, let’s sum up what we’ve described in this paper.

We have explained why the pre-qualification process is important, and why it is likely to be an important element of the procurement process for most – but not all – of our procurement requirements. Pre‑qualification has four key purposes, identifying suppliers, registration, qualification and selection – and it is important to understand these, and which you want to focus on, when you’re designing your pre‑qualification process.

The various steps in the process can then be structured to meet those needs. At all times, bear in mind the risk element of the process; when it comes to issues such as how much verification you want to carry out, that should be directly proportionate to the inherent risk in the contract in question.

The cost of the process, including the time taken and resource required, should also be considered and again should be proportionate to the risk. Third party providers, who can take advantage of economies of scale and expertise to offer a collaborative service to multiple buying organisations, are increasingly important in this field. They can help accelerate the process, lower the cost and potentially even reduce supplier risk. It may not be a suitable option for every spend category, and buyers may still need to run some selection elements of the process, but it is an option worth considering, particularly for unique or sector specific supply needs.

Finally, remember the supplier’s viewpoint in this. Processes that are proportionate, well-structured, fair and transparent help them, and that will, in the long run, lead to stronger supplier relationships, more dynamic supply markets and better suppliers willing to bid for your work.

Peter Smith

June 2012

Achilles Group Limited30 Park Gate, Milton Park, Abingdon, Oxon, OX14 4SH, UKT: +44 (0)1235 820813 F: +44 (0)1235 821093 E: [email protected] W: www.achilles.com001-07/2012

About AchillesAchilles offers a pre-qualification and supplier information management solution to provide businesses with one source of accurate, up-to-date and validated supplier information. The solution encompasses everything from finding and selecting potential suppliers, through to pre-qualifying, evaluating and monitoring performance. Each of these is an important step towards the continuous management of risk throughout the supply chain.

Thousands of buyers use Achilles every day to gain visibility of their suppliers, and with operations in 26 countries and 20 years’ experience, they can do so with confidence whilst unlocking tangible benefits of cost reduction, increased process efficiency and risk reduction.

About the Author ‑ Peter SmithManaging Director, Spend Matters UK/Europe

Peter has 25 years’ experience in procurement and supply chain as a manager, procurement director, consultant, analyst and writer. He edits Spend Matters UK/Europe, and with Jason Busch, the founder of Spend Matters in the US, has developed it into a leading web-based resource for procurement and industry professionals. Peter is also Managing Director of Procurement Excellence Ltd, a leading specialist consulting firm, and is recognised as one of the UK’s leading experts in public and private sector procurement performance improvement. Peter has an MA in Mathematics from Cambridge University, is a Fellow and was 2003 President of the Chartered Institute of Purchasing and Supply, and his first (co-authored) book, “Buying Professional Services”, was published by the Economist Books in June 2010*. Before moving into consultancy, he was Procurement Director for the NatWest Group, the Department of Social Security (the DSS), and the Dun & Bradstreet Corporation, and held senior positions in the Mars Group.

Spend Matters is thankful for the support of Achilles, our sponsor for this paper. Spend Matters sponsors have no additional opportunity to influence the content or research of Spend Matters material or products relative to other software or services providers.

Further information on this topic and others can be found at the website www.spendmatters.co.uk, or we can be contacted at [email protected]. Reproduction of this publication in any form without prior written permission is forbidden.

*Buying Professional Services (Czerniawska and Smith, Economist Books, 2010).

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