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Supplying Principles and Practices > USPS Supplying Practices Process Step 2: Evaluate Sources > Conduct Supplier Capability (Technical and Financial) Analysis
Conduct Supplier Capability (Technical and
Financial) Analysis
Selection of the right suppliers is critical to the Postal Service's success. The
right suppliers augment the Postal Service's ability to deliver high-quality and
innovative service to its customers and to reduce operational risks. Analysis
of supplier capability is conducted before contract award to determine the
supplier's performance ability throughout the life of the contract. Financial
capability analysis aids in determining the supplier's ability to remain
financially solvent, and technical capability analysis helps determine whether
the supplier has the technical ability and capacity to perform the work.
Financial capability is essential for suppliers to assure continuity of supply
and reliability of product quality. It is difficult for a:
• Financially weak supplier to maintain quality
• Supplier who does not have sufficient working capital to settle an
expensive claim
• Financially unsound supplier to work overtime to meet a promised
delivery date
Technical analysis confirms the reasonableness of the type and amount of
resources proposed by the supplier. This analysis covers the proposed types
and quantities of materials, labor, processes, special tooling, facilities, the
reasonableness of scrap and spoilage, and other factors set forth in the
proposal.
Supplier capability is evaluated to determine a supplier's ability to perform
upon award of a contract. It should be used as a snapshot of the quality and
reliability of that performance. Certain key areas must be considered when
determining a supplier's capability. To be deemed capable, the supplier must:
• Have, or have the ability to obtain, as needed, adequate
resources to perform the work (e.g., technical, financial)
• Be able to meet the required or proposed delivery schedule,
considering all existing commitments, including awards pending
• Have a sound record of integrity and business ethics
• Have a good quality control program that complies with RFP
requirements
• Have the necessary organization, experience, accounting and
operational controls, technical skills, and production and property
controls
• Have, or have the ability to obtain, the necessary production,
construction, and technical equipment and facilities
• Be otherwise qualified and eligible to receive an award under
applicable laws and regulations
Technical analysis is performed on the following relevant areas:
• Business process changes
• Application development
• Software and systems engineering
• Development and maintenance
• Information technology (IT) service management
• Infrastructure design and planning
• Infrastructure and technology deployment
• Infrastructure management
• Operations management
• Technical support
Analysis can be performed on the following information and items so that an
estimate of present supplier capacity can be known:
• A review of financial statements and credit ratings
• Copies of balance sheets and income statements
• Levels of turnover
• Liquidity measures, ratios
• Profitability measures, ratios
• Measures of long-term financial strength
• Leverage ratio
Certain business information must be obtained to determine that a potential
supplier is capable. Sources of such information include:
• The Postal Service list of debarred and suspended suppliers and
the General Services Administration's (GSA's) consolidated list of
suppliers debarred, suspended, or declared ineligible (additional
instruction can be found in Title 39 Code of Federal Regulations
(CFR) 601.106.D)
• Records and experience data, including the knowledge of other
Contracting Officers, purchasing specialists, and audit personnel
• The supplier's proposal information, business profile, financial
data, information on production equipment, production data,
questionnaire replies, and personnel information
• Subcontractors, customers, financial institutions, and government
agencies that have done business with the supplier
• Business and trade associations
For high dollar, highly complex, or sensitive purchases, a review of the
supplier core process may be required. The review of core processes entails
the thorough evaluation of a potential supplier's customer service
infrastructure, transportation operations, logistics network, and inventory
planning capabilities. A positive evaluation of these core processes will help
to increase the overall evaluation of a proposal and make the potential
supplier's offer more competitive. The Contracting Officer and/or Client will
conduct the evaluation of core process descriptions and will determine how
compatible the supplier's are with those of the Postal Service. In doing so,
high-quality customer satisfaction, shorter lead times, and the use of more
effective technological aids are all promoted. Market research and
benchmarking analysis are used when evaluating core processes because
they provide successful performance models for comparison. Additional
information can be found in the Conduct Market Research and Benchmarking
Analysis topic of the Decide on Make vs. Buy task of Process Step 1: Identify
Needs.
For projects that are complex, high in dollar value, critical, or have high
switching costs, site visits may be conducted to validate and supplement
information provided by potential suppliers in proposals in response to RFPs.
These visits enable face-to-face interaction and:
• Validate information already acquired
• Offer a first-hand view of the supplier's facilities, operations, and
personnel
• Clarify points in supplier's offers or proposals
• Provide a better insight into the supplier's proposals and its
capacity and capability to deliver (can include an in-depth
demonstration of the supplier's proposed solution and
presentations by the supplier's project team)
• Advance negotiations with supplier
• Ensure that both sides of the supply relationship have the same
understanding and definition of various performance metrics,
such as "on-time delivery" and "quality."
• Provide a great forum to discuss product specifications in depth
• Allow the Postal Service to assess supplier's dependability and
total health
It is imperative that individuals involved in these visits do not divulge any
supplier's proprietary business or trade secrets.
The Contracting Officer will perform reference checks on supplier
qualifications cited in a proposal submission when it is determined necessary
by the Contracting Officer to validate supplier past performance. Also, the
Contracting Officer may choose to perform reference checks on specific
resumes submitted for a role or a responsibility outlined in the proposal when
that role, and the relevant skills and experience needed for that role, is
considered key to the successful performance of the contract. However, for
other non-key personnel resumes, it is expected that the supplier will have
conducted the appropriate reference checks.
RFP language will include instructions for the provision of the supplier's
previous project experience qualification, which should include the name and
contact information of the associated contract holder. Reference checks
should be conducted for those proposals being considered if the Postal
Service does not have previous experience with the particular supplier or if
additional information regarding the success and/or details of the project are
of interest.
Similarly, the RFP will instruct the potential supplier to include resumes of
those employees it plans to staff on the project, if awarded. Additional
information may be requested from the supplier if resumes do not include
sufficient information. If there is not language in the RFP enforcing the
guarantee of participation of all candidates proposed for a project, then
resumes may also be solicited upon contract award if a candidate is replaced
or added.
Reference checks performed during the Perform Preaward Activities task of
Process Step 2: Evaluate Sources will provide additional familiarity with the
supplier's work history. Additional clearances/background checks may be
required for some product or service providers. See the Supply Chain
Security general practice for more information.
Performing a reference check involves:
• Reviewing supplier performance with other/previous partners
• Control of internal and external supplier audit history
The first step of a reference check for a selected supplier is for the
Contracting Officer to contact parties who hold/have held contracts with the
supplier. Information generated from these parties will allow the Postal
Service to better determine the performance to be expected from selected
suppliers and thus judge the overall merit of a selected supplier. It is also
important that the Postal Service learn about a supplier's organizational
culture so that the two will be compatible. Strategic alliances can be formed
only when the Postal Service and a selected supplier complement each
other, not just by deciding to do business together.
The last step in checking a supplier's references is to examine the supplier's
internal and external audits. Internal audits provide essential information
regarding supplier methodology, which allows the Contracting Officer, guided
by the financial expertise provided by the Pricing Analyst, to determine the
financial stability of the supplier and to ensure that the supplier can fulfill the
Postal Service's requirements in the case of an awarded contract. External
audits provide essential objective information regarding the legal and
strategic legitimacy of supplier processes, staff, technology, facilities, and
finances. A supplier must be free of "going concern" problems to be
considered for a contract award.
A preaward survey provides sufficient knowledge of the supplier to make a
decision to include or exclude the supplier from further consideration. If the
required information and discussions do not provide an adequate basis for
determining capability, the Proposal Evaluation Team may conduct a
preaward survey with the suppliers. The extent of the survey must be
consistent with the dollar value, complexity, or sensitivity of the purchase and
may include any of the following:
• Data on hand or from other government or commercial sources
• Examination of financial statements and records
• On-site assessment of plant, facilities, workforce, subcontractors,
and other resources to be used in contract performance
The scoring of the survey can range from adjective ratings to numerical
systems and will depend on the situation. Results of the preaward survey
must be in writing and included with the capability determination.
The supplier capability analysis will typically consist of investigating the
supplier's proposal. The Proposal Evaluation Team members will perform the
analysis in their respective areas. Facility visits may also need to be
conducted to analyze the supplier. In performing the analysis, each
evaluation factor and associated weighting factor will receive a score, which
is how the most suitable supplier will be chosen.
Subcontracting takes place when a supplier contracts out the performance of
a part of its business to another, referred to as a "subcontractor." The
subcontractor then uses its own employees and/or resources to undertake
that portion of the business or project that the Supplier has contracted to it.
As such, the subcontractor is a person or company that does part of a job
that another supplier is responsible for.
The Purchase/SCM Team may require the Supplier to notify the Postal
Service of its intent to subcontract. The notification should be in writing and
provide the Purchase/SCM Team reasons for subcontracting, the desired
effective date, and the identity and qualifications of the proposed
subcontractor(s). The Purchase/SCM Team will review the notification and
determine whether further examination of the subcontractor(s) is required.
Generally, suppliers are responsible for determining the capability of their
subcontractors and are required to provide evidence of a subcontractor's
capability. In some cases however, the Purchase/SCM Team may decide to
assess subcontractors for acceptability. In such cases, the subcontractor
capability may be determined using the same criteria used to determine
primary supplier capability. Subcontractors must meet the same responsibility
and qualification requirements as the Supplier.
Conduct Market Research and Benchmarking Analysis topic, Decide on
Make vs. Buy task, Process Step 1: Identify Needs
Perform Switching-Cost Analysis topic, Develop Sourcing Strategy task,
Process Step 2: Evaluate Sources
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