Whether you are selecting a new vendor, managing existing vendors or preparing to go-to-market, instilling a culture of good vendor management can help build your organization’s resilience. This is fundamental to any corporate strategy.
There are good reasons to believe that successful vendor management is everyone’s responsibility; the client, the vendor and other key stakeholders are all responsible in making the supply chain work. Vendor management is like a game where each player has a role to play. All stakeholders participate and are influenced by the outcome.
It’s common to hear about a vendor failing to deliver critical services. As-a-result, it’s good practice to have policies and frameworks in place that prevent vendor failure from happening. It is also essential to have a backup plan ready for any eventuality. Understanding the challenges surrounding vendor management can be difficult. However, there are several best practices that can be followed in order to gain a more favorable outcome with the vendors that your businesses depend on, especially those whose performance has a direct impact on your business, budget, reputation and revenue.
The Vendor’s Role
Large-scale top-tier vendors (which are those vendors that a company depends on to function) spend huge amounts of money to compete, sell their services and win new business with the intention of growth in revenue. These vendors never intend to perform poorly and lose the contract they struggled so hard for. However, when a vendor does fail, it puts their reputation, revenue and potential for repeat business as stake. And as that vendor’s client, your business also suffers as it loses its full ability to deliver its products or services.
In this case, could improper vendor management be at play? I believe yes, but don’t take my word for it. Let’s explore together!
Vendor management can be influenced by so many factors, making it impossible to generalize and say that what worked well in one situation will also work well in another, no matter how similar the situations are. The failure of vendor management and the inability of a vendor to deliver as promised can be boiled down to the following few facts:
A) The requirements (what the company requests of the vendor) are not clear
B) The vendor did not understand the requirements properly
C) Service-level penalties were inadequate
D) All of the above
More often than not, the answer is D.
Often, top-tier vendors flex all of their corporate muscle to win a contract. After successful contract signing, vendors hand it to their delivery team, which then has to struggle on its own and, perhaps in some cases, fight internally to get the relevant (count and skill) resources assigned.
So, how can vendor management play a role in helping the vendor’s delivery team get what they need from their internal organization?
Here is a comprehensive framework of some practical steps that lead to successful vendor management:
1. Clarify the Roles and Responsibilities of All Stakeholders: Lay out your company’s requirements as clearly as possible. This cannot be left to the vendor to figure out. It is essential for your organization to be aware of what is required. Only then can the vendor do their job and help you meet your internal goals.
2. Playback Requirements: Let the vendor play your requirements back to you to ensure both parties agree. Make sure they actually got it.
3. Service Levels: These should be practical (i.e. use and align them with market trends), thereby ensuring the vendor agrees to deliver according to your terms and is capable of doing so.
4. Encourage the Vendor to Improve Performance (Earn-Back Penalties): Clarify what will happen if the vendor is unable to deliver and build adequate penalties. However, encourage the vendor to fix the problem by giving them the opportunity to earn back the penalties.
5. Termination: Make the termination so painful (costly) for the vendor that the vendor flexes all its muscle to fix the problem and avoid termination. Contracts must contain a termination costs schedule and clearly defined vendor responsibilities in case termination does occur.
6. Document what you do and do what you document: While this is a good business practice on its own, it’s essential when it comes to vendor management of top tier-one vendors, as this leads to continuous improvement rather than finger pointing in the long run.
7. Go-to-Market with Vendor: Take the relationship with your vendor to the next level of maturity. Enable your vendors to sell for you. The majority of top-tier vendors have a global presence. Make good use of it by training your vendors and certifying them to sell on your behalf to their existing and prospective clients. By partnering with your company, top-tier vendors can potentially offer a suite of tools and services that they wouldn’t be able to without the partnership. In turn, your company gains more business.
8. Vendor Compliance: Conduct ongoing assessments on your top vendors’ privacy, business continuity, information security, disaster recovery processes and the practices and controls around these functions. A good practice is to conduct such assessments at least annually. Look at Service Organization Control (SOC) reports to identify any red flags and ensure that your organization as the client is doing its part by providing what is required to enable the supplier to deliver to you.
9. Ongoing Monitoring: Solicit internal regular feedback about vendor performance from your business units that are using the vendor’s services. For critical tier-one vendors, conduct performance reviews on a monthly basis. It’s prudent to organize quarterly or biannual Executive Business Reviews to keep the vendor’s senior management engaged, which in turn helps out the vendor’s delivery team.
10. Establish Vendors of Record: Pre-negotiate and sign master agreements with key vendors to pave the way and make it easier for future statements of work. Develop category plans so that all procurement functions, such as purchasing, strategic sourcing and vendor management, are aligned under the correct vendor (tier one, two or three) depending on circumstance.
11. Volume Discounts: Give repeat and additional business to your existing well-performing vendors. Doing so will result in faster delivery to your business units. Additionally, ask vendors for volume discounts for your organization in return for your business.
12. Backup Plan: In case the primary vendor fails to deliver, it’s good practice to maintain your own business continuity. Have a plan to bring services back in-house or have a list of a few vendors with similar capabilities.
If revenue growth is important to your organization, then satisfied customers are essential. Your vendors are on that critical path within the supply chain leading up to your customer. This makes successful vendor management every stakeholder's responsibility.
About the Author:
Usman Masrur is a seasoned independent consultant with more than 17 years of experience within healthcare and corporate financial sectors. His past assignments involved working with Ministry of Health agencies and programs, such as Healthcare Wait Times, Cancer Care Ontario, Ontario Renal Network, Long-Term Care, and with top corporate financial institutions, such as the Royal Bank of Canada (global head office), global delivery at financial technology firm D+H (corporate head office), RSA Insurance, Finastra, Trust Investment Bank and Citibank.
Usman obtained his MBA in 2001 from the University of Scranton, Pennsylvania. He also obtained his B.Sc. with honors in Economics. He uses a consultative approach to advise clients on complex business process outsourcing, establishing overseas call centers as well as category and vendor management. Additionally, he provides advice on best practices for the development of requests for proposals (RFPs).
Furthermore, he guides organizations on how to engage their vendors to go-to-market for them to help increase sales and revenue. He believes that the current economy is the best environment in which to explore a go-to-market campaign.
Sign up to our newsletter
Company Reports to the Rescue: Four Uses for Supplier Data in Procurement
Company-specific reports, also called supplier profiles or vendor assessments, contain valuable supplier information that supports vendor management and guides decision making.
Foresight is 20/20: 5 Strategies Procurement Departments Should Consider in 2020
Shifting headwinds across the global economy have thrust procurement professionals into unexplored and uncertain territory. Heading into 2020, it is more important than ever to stay up to date with the latest trends across the procurement industry.
ProcurementIQ: More Than Just Research Reports
Using market intelligence in the sourcing process can save you significant time and money by providing reliable, consistent and unbiased information at your fingertips. But, not every market intelligence product is created equal...