Vendor management is key to running any size business. However in the past this function is typically found in enterprise size organisations.
In 2016, the fast pace of adopting digital related technologies has impacted the medium business sector. Reliance on technology providers has increased across the board, but the early adopters of the emerging digital world is being led by medium sized businesses. Increases in vendor engagement is adding additional operational management challenges and risks. The truth is, your actual business risk is increasing and is now spread across many 3rd party providers. Do you know who your 3rd parties are? and the third parties of your contracted 3rd parties? You may well need too for legal and regulatory compliance.
So with this trend, I thought to write an article sharing a few best practices for vendor management. A key point is that you need to select the right vendors and then focus on building the relationships. The lack of supplier relationship management skills in your business can negatively impact your business in the long term.
Below are 4 mandatory activities for vendor management and ongoing vendor relationship management.
Don’t rush in when selecting a vendor.
You don’t want to rush into signing up a vendor that potentially is a poor fit and won’t work well with all your business stakeholders and requirements. Do your vendor market research, engage benchmarking organisations and technology research companies for the latest insights into vendor offerings and products. Importantly make sure you find one that pairs well with your business and not just the IT function. Market intelligence is an ongoing process and not only when your about to buy a software service. This takes the unnecessary heat out of rushed transactions. It stress tests your IT strategy and offers the opportunity to address change.
First compose a list of several possible vendors and request pricing quotes, a business proposal, and any other information you’d like from each one. Evaluate each vendor’s proposal, not focusing solely on price. Consider whether you have to sign up to their contract terms, and if yes, are these negotiable? Review their assumptions and requirements to see if they are in sync with your business requirements, and then begin negotiating a contract. You should get to the last step only if you have narrowed down your choices to one or two possibilities and have understood the terms and obligations on your business should you execute the terms they have provided. Think about how your business and the vendor will collaborate for a short period of time, as well as how the long-term relationship will prosper for mutual benefit. If its not mutual, it will not survive long term!
Finally, you must know exactly what you’re paying for. Don’t fall for persuasive salespeople who just want to close the deal in a purely one sided transaction.
Understand ALL the terms and OBLIGATIONS of the contract.
I have come across increasing vendors demanding an exclusive or restricted relationship, limiting your options to contract with other vendors which they see as thier competitors. Make sure the contract doesn’t limit negotiations with future potential customers or other vendors. It’s common for a vendor to convince you into a long-term contract, dangling an extra % discount. Best practice is to negotiate for a short-term contract with a renewal option, so you have the option to change providers if you’re unhappy. At all times attempt to negotiate a termination for convenience clause. Make sure you stand up for what you want and need from a vendor, however avoid going overboard with your demands. Take this route, the vendor will protect their margin and you’ll get the B team and B level service. Show vendors you’re willing to collaborate with them and be flexible to ensure your both continually calibrating the service and/or product to meet you changing business needs. This approach will earn their trust and build a solid long term relationship with them. Isn’t that what you want?
It’s a 2 way street! Work to meet the vendor’s requirements.
Vendors need to run their own business as well as meet the requirement of yours. If the vendor is not satisfied with the relationship, it can take its services and to other customers. These other customers are more than likely your competitors! Think about that for a minute!
You must “structure the deal in a way that ensures mutual success” and let the vendor know when it is doing a great job. Make sure this is reported in vendor governance minutes. Recognition is very important. It is just part of everyday relationships hence why would this be any different? Remember, you both have to fulfill the terms of your contract and feel that you’re getting the most from the relationship. It is best you are both the same page. Hence ultimately you can work together to support your businesses growth via positive testimonials.