What are the best practices for vendor management?
There are many best practices for vendor management. The selection and application of these will depend on vendors’ categories, your organization’s vendor-management skills, your IT landscape, the available budget and the benefit of applying each practice to your organization. It is important your vendor-management activities always achieve the correct balance between cost and effort of application versus the expected benefits. You must also consider vendors’ likely attitude to being managed. Some vendors, especially large ones and those providing commodity services, will prefer to manage their deliveries and may resent any attempts by you to apply vendor-management techniques once contracts have been awarded. Where this is the case for any categories of vendors, it is important to establish if it is worth attempting to impose vendor management on them. If you are receiving good services and good quality products from a vendor, then that may be sufficient to achieve your goals, and any additional vendor-management activities might not add any value.
Relationship management design
For vendor categories where you want to retain the vendor, it is important you design how you plan to add relationship management to your vendor-management approach. Developing relationships with these key vendors starts well before you start to manage them, it starts the first time you engage with vendors. This is likely to be during the early steps of vendor management, during the preparatory work for vendor selection. Consider how you want vendors to perceive you. If you want to be seen as having a mutually beneficial vendor-management approach, then from the initial meeting with any vendor you should focus on communicating this message clearly. If during your first meeting, the vendor recognizes you have an attitude of being in charge, then that could be the vendor’s perception for a considerable period of time and the vendor may prove difficult to manage. Vendors who want to work as a partner with their customers may even sever their relationship after the first vendor-management engagement if they think working with you will be challenging.
Design the vendor selection process
The vendor-management process begins by selecting the right vendors for the right reasons. The vendor-selection process can be both complicated and emotional if you haven’t decided how to approach and manage it from the start. You should have resources available, and with the appropriate skills, to analyze your IT and business requirements, agree on the selection criteria, search for prospective products and vendors, lead the team to select the best vendors for your needs and design a usable contract, and then successfully negotiate the contract with the vendor and possibly its legal team while simultaneously ensuring you don’t compromise your goals. If you proceed with selecting vendors without any preparation, then it is unlikely you will achieve the optimal result from vendor management, and you may be in breach of any procurement laws in your country, especially if you are in the public sector or regulated industry. The vendor selection part of your vendor-management approach must allow sufficient time to execute each step, reviewing progress as you proceed and continually checking alignment with your goals and IT landscape. Trying to select vendors quickly just to satisfy a deadline usually results in failure. If your vendor-management approach requires the use of tenders for vendors to bid for work, then setting unrealistic timescales for vendors’ responses will limit your selection as vendors decide not to bid. Vendors need sufficient time to understand your requirements for both the products and services they will provide and your proposed vendor-management approach, establish if they are able to fulfill them and then create an understandable tender. If time pressures compromise any of these, then the important vendor-selection step in vendor management is unlikely to give you the best outcome.
Evaluating potential vendors
During the design phase of vendor management, you should agree on the criteria to assess one potential vendor against another. Once you start to look at individual vendors, be careful to concentrate on how well the vendors match your selection criteria and don't allow vendors’ sales talk to sideline you. Many vendors will do and say almost anything to win your business. This may include putting their “experts" in front of you, who may try and sell you products, features, and services you don’t actually need. Focus your evaluation on your requirements and probe vendors to affirm the requirements can be fulfilled. Stay in charge of the evaluation activities of vendor management, don’t let vendors drive the pace or the agenda. It is a good idea to use a multi-stage evaluation process in vendor management. While this may seem to require more time to execute, it is more likely to ensure your vendor-management approach selects the best vendors for you. The first stage is to submit a high-level set of requirements to potential vendors and ask them to respond. These should contain key differentiators that will help you eliminate early vendors that are unlikely to be appropriate. Examples are price, IT standards, security requirements and willingness to work with your vendor-management approach.
Retain flexibility
Some vendors may want an exclusive relationship or one that restricts your opportunities to work with other competing vendors. This will limit your vendor-management options and should be avoided, regardless of how attractive vendors try to make it. Vendors can seem competent and willing to co-operate during the early stages of the vendor-management selection process but could change the delivery quality and challenge your vendor management once they have made their planned profit. The risk of this happening is higher in long-term outsourced and managed-service contracts. Short-term contracts with renewal options should be preferred over long-term contracts, as these facilitate vendor replacement and changes to your vendor-management approach. You should always be open to making contract changes at vendors’ requests, provided the overall benefits to you outweighs any downsides. Accepting a change can benefit your vendor management during the long run, as it shows good faith on your part and your willingness to understand vendors’ positions and working towards a vendor-management approach that is mutually beneficial to both parties.
Continual performance monitoring
Do not assume that once the contract has been awarded your vendor relationships will proceed according to plan and contracts will be executed exactly as specified. Your vendor-management approach must include continual monitoring of vendors’ performance and service level achievement from day one. The monitoring of vendors should include verification that all of your requirements are being fulfilled, but, in particular, those most critical to your business. These will depend on the specific products and services vendors are providing, but typical examples are time to deliver products, service quality, and service availability. Your vendor-management approach should also include the continuous monitoring of the achievement of the terms and conditions on which you’ve agreed. An obvious requirement is your payments to vendors, according to the remittance schedule in the contract, but some contracts will also include other requirements you, as the customer, is expected to honor. If your vendor-management system doesn’t also pay attention to these requirements, then your vendor relationships could be adversely affected. A best-practice vendor-management approach is to use “balanced scorecards” to evaluate vendor performance. These are where softer aspects of performance, such as willingness to co-operate, are evaluated in addition to more tangible measures, such as service-level achievement. Using a balanced set of evaluations in vendor management provides a much better view of how vendors are performing and support improved relationships.
Continual two-way communication
Active and effective two-way communication is the key to success in all steps of vendor management. You should not assume vendors intimately know your IT operating model or can read your mind. Using carefully designed, established and maintained lines of communication between you, as the customer, and your vendors as a fundamental part of vendor management will help to avoid misunderstandings, maintain positive relationships and support the proactive resolution of issues before they become problems. Every vendor is different, however. You should take the time to understand how they would like communications to work. A good approach in vendor management is to use a combination of face-to-face communications, verbal communications and email. You should always check all communicated messages have been received and understood, especially if a vendor is from a different culture or country. Without this confirmation, vendor management will be more challenging.