A quantitative decision matrix for increasing value for both buyers and sellers: THE METHODOLOGY

THE METHODOLOGY FOR CREATING A VENDOR SELECTION MATRIX

The methodology for creating a quantitative vendor selection matrix included six steps:

Step 1: Define the key criteria for selecting a vendor Step 2: Define a weighting scale to separate individual criteria importance Step 3: Define a rating scale to measure the vendors’ success per criterion Step 4: Identify the critical criteria that must meet a minimum score Step 5: Allow for criteria knowledge gaps among the voting practitioners Step 6: Fine tune criteria definitions with all voting members and vendors Step 7: Obtain buy-in from senior management

Step 1: Define the key criteria for selecting a vendor

Many segmentation efforts have failed to be implemented or to add value to the organisation in the past due to the in- actionability of the segmentation. Kotler (1994) describes the key criteria for successful segmentation as those that are:

— measurable: each segment can be clearly measured by different variables
— substantial: each segment is substantial enough to target
— accessible: each segment is accessible, reachable and serviceable
— differentiable: each segment is homogeneous within itself yet is heterogeneous enough to distinguish it from other homogeneous segments
— actionable: each segment can be profiled comprehensively enough to link marketing actions to its members.

Hence, in order to ensure that this segmentation effort was successful, the group incorporated Kotler’s key success criteria into the key criteria for the matrix.
Other key criteria were incorporated, based on the specific needs of the financial service organisation and its desire to become market driven. These were:

— vendor understanding of needs
— vendor experience
— methodology of the vendor
— project management capability of the vendor
— human and physical resources required by the vendor
— vendor’s ability to realise synergies, savings, costs, etc
— vendor’s univariate and multivariate analysis capabilities
— the chemistry the vendor will have with the organisation
— the ability of the vendor to develop contingency plans for the project
— the detail of reporting that would be received from the vendor.

In order to alleviate the confusion that comes from having too many criteria to monitor, several of these were combined as shown below:

— actionability of research/segments
— understands our needs
— experience, references, credentials, CV, etc
— sound methodology
— project management capability
— resources, can handle all three projects
— identifiability of research/segments
— differentiable, measurable, substantial segments
— synergies, savings, costs, timing
— analysis
— reporting
— contingency planning
— chemistry

A common set of definitions was then developed to ensure that all members of the segmentation and research team understood what to look for in the vendor presentations and selection process. Refer to Appendix 1 for an overview of these definitions.

Step 2: Define a weighting scale to separate individual criteria importance

One of the most important aspects of developing a quantitative decision-making matrix is ensuring that any specific criteria that hold more value to the research/ segmentation project than others are appropriately weighted in the analysis. Developing a quantified weighting scale for each criterion ensures that varying degrees of importance in criteria are appropriately weighted in the overall decision making.

Table 1 Level of weighting of individual criteria

Level of
importance

Criteria

High

Actionability of research/segments

High

Understands our needs

High

Experience, references, credentials,

CV, etc

High

Sound methodology

Medium

Resources, can handle all three

projects

Medium

Identifiability of research/segments

Medium

Differentiable, measurable, substantial

segments

Medium

Synergies, savings, costs, timing

Medium

Analysis

Medium

Chemistry

Low

Contingency planning

Low

Reporting

A simple methodology for determining the appropriate weighting for the individual criteria is first to separate them into levels of importance of high, medium and low. This can be done as shown in Table 1.

From this point, the weighting can be differentially distributed over the varying levels of importance. It is important to note that the sum of the criteria must equal 1.00. This will create a relationship between the weighting and the rating scale that will deliver a maximum potential total vendor value equal to the highest rating in the rating scale developed in Step 3.

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