Last edited 12 Feb 2021

Automated vendor selection in the construction industry



[edit] Introduction

In the United States, facility managers and purchasing professionals have used a product and service procurement method based on a quality-timeliness-cost strategy. This “Iron Triangle” of procurement was based on three factors - high quality, prompt delivery and low cost.

However, it was frequently difficult for vendors to execute all three parts of the triangle adequately. For instance, they have been able to deliver something of good (quality) and quickly (prompt delivery), but it may have come at a higher premium.

For purchasing professionals, achieving successful results through the “Iron Triangleprocurement approach was often a lengthy process. It might have meant using one vendor after another on different projects in an attempt to accomplish certain results. In the end, the customers may have eventually discovered that the results they wanted were not realistic.

[edit] An alternative to the Iron Triangle

Automated vendor selection (AVS) is a different approach to procurement that American decision makers have been adopting as an alternative to the Iron Triangle. It uses technology to connect vendor sourcing and selection, and ties together project management and communications functions amongst team members to create a more cohesive process.

At an early point in the procurement process, customers create a database of pre-defined criteria that can be fed into a software programme. In organisations where there are several people involved in procurement decision making, an automated vendor selection process can incorporate requirement criteria from everyone at the same time.

The software makes it possible to automate the vendor evaluation stage. Decision makers are only presented with potential candidates capable of fully delivering the service that has been requested.

An automated vendor selection approach allows decision makers to create equal comparisons between potential vendors - there are no ‘gut instincts’ or ‘special favourites’ or negative bias behind decision making practices. Technology can prioritise criteria based on tangible details, so if one factor is more important, it can be weighted accordingly and taken into consideration. For instance, if speed is the priority, then that will be part of how the algorithm evaluates the data.

Once the potential vendors have been identified (based on the results of the computer generated data), evaluations can use cloud-based technology (or other e-procurement methods) to provide members of the team with virtual assessment options.

[edit] Technology and procurement risk

The determination of potential risk should be part of any vendor selection process. Is there risk based on reputation? Is there financial risk? Is there a security risk? Software can help speed up these risk analyses, making businesses safer and vendor relationships smoother. An automated procurement process should take into consideration due diligence regarding security and other potentially problematic issues. This can help to circumvent and even avoid potential risks.

[edit] Vendor strategies

From the perspective of vendors, three things are predetermined through the automated vendor selection process:

  1. They will only be competing against other vendors that have matched the criteria in the client’s database.
  2. The same level of quality and delivery expectations will be specified for all vendors.
  3. The most attractive price will be rewarded with the project (if all other factors are the same).

[edit] Automated payment technology

Procure to pay software starts with the purchase aspect of the procurement process and finishes with payments being issued to the vendor.

Procure to pay software is similar to source to pay software (or S2P software). However, source to pay software tends to deal with big data and digital networks to provide an integrated procurement evaluation strategy. Consequently, source to pay software may include tasks associated with automated vendor selection, while procure to pay software may not.

These software tools are designed to automate the entire procurement process all the way through to payment. They can be beneficial in organisations that seek to integrate purchasing departments and financial or accounts payable departments using a centralised software approach.

Procure to pay software typically covers the following processes:

Procure to pay software creates transparent transactions from start to finish.

[edit] Related articles on Designing Buildings Wiki

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