Offshore Vendor Selection and Sourcing

Once you have decided to outsource to a third party, the next big step is selecting a vendor. Selecting the right vendor for a long-term relationship is a critical task. A well-organized vendor selection process can take anywhere from six months to a year.

When companies start the selection process, one aspect they do not consider is the expense, which can range upward of 2% in addition to the annual cost of the deal. For example, if your contract is estimated at $10 million, selecting a vendor could add expenses of $200,000. Associated costs include analysis and documentation of requirements, creation and dissemination of RFPs, evaluation of the RFP responses, contract negotiations, and the development of service level agreements. In addition, project leaders, staff, outside consultants, and legal fees must be paid.

Offshore vendor selection is a complex, multistep process that involves the following:

• Define detailed business requirements
• Define business/delivery model
• Develop RFI, RFP documentation
• Evaluate and select vendors
• Conduct due diligence including management interviews and site visits
• Finalize operating model
• Create governance structure
• Negotiate contract and service level agreements

Vendor selection is complicated further by the fact that there are different vendors for different processes. According to our estimates, there are more than 2,000 offshore vendors in software development alone. That's an awful lot of vendors to sort through. To help you navigate the decision process, we've created a constantly evolving vendor database.

For additional information on vendor selection and the vendor selection methodology, please see chapter 10 of Offshore Outsourcing: Business Models, ROI and Best Practices.

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