Step One - Finding the Perfect Match
Carefully selecting the right vendor or service provider is only the first step in effective outsourcing. You spent hours searching and performing the necessary due diligence for the perfect provider and have moved forward with your outsourced business relationship. The contract is signed so now what?
Step Two - Critical Relationship Success Factors
It’s time to build a collaborative vendor partnership. This step is just as important as finding and hiring the right vendor and can significantly impact both the perceived value of the relationship and the outcome. Being systematic in how you manage your outsourced vendor partner will help you avoid a dysfunctional relationship that can negatively impact your business.
11 Best Practices for Effective Vendor Management
1. Vendor Management Best Practice: Communication
Communication is key. Clearly establish and communicate the goals and objectives of your project or business relationship. Share information to stay on the same page.
2. Vendor Management Best Practice: Strategic Plan
Have a strategic vision and plan for your project or relationship - whether it’s for short, project based work or ongoing services and support. Define your desired outcomes and goals and ensure alignment with the service provider.
3. Vendor Management Best Practice: Due Diligence
Due diligence is a must. Select the right vendor through research and references to understand their strengths and weaknesses. Do not skimp on this first step. Although this can be a resource-consuming process, it will save you in the long run from potential costly mistakes and awkward vendor relationships.
4. Vendor Management Best Practice: Area of Expertise
Look for a firm that understands your industry or line of business. They will have a good track record working with similar companies and have references. Do not expect the vendor to be knowledgeable of new or emerging technologies or even trends in your specific industry if this is not their area of expertise.
5. Vendor Management Best Practice: Get it in Writing
Insist on a contract that includes all the expectations of the relationship, especially the financial aspect. Do not rely on a simple handshake. Make sure you have expectations, costs, billing and service level agreements in writing.
6. Vendor Management Best Practice: Buy-in All Around
Keep open communication with all affected individuals or groups. Make sure you have buy-in and support where needed.
7. Vendor Management Best Practice: Inspect What You Expect
If working on a project, make sure there is documentation, progress tracking and regular reporting. Stay involved and engaged, but don’t micro manage. Hold accountable to the agreed upon work while promoting collaboration. Set key performance indicators (KPIs) for your project. Determine the minimal reporting you expect; weekly, monthly or other.
8. Vendor Management Best Practice: No Question is a Dumb Question
Ask questions and don’t be afraid to speak your mind. They may be the technical expert, but you know your business better than anyone else. Your input is one of the most valuable resources.
9. Vendor Management Best Practice: Service Level Matters
Share your expectations regarding service level and responsiveness. This should be in the contract so you know what to expect throughout the life of the contract. Service levels should be measurable and reasonable for both parties. You may even want to include service level penalties as part of the contract.
10. Vendor Management Best Practice: Issue Resolution
Challenges will pop-up. Discuss performance results and issues. Although complaints can be early warning signs, find ways to solve problems quickly. Allow the provider to fix small problems before they become larger problems. Focus on issue resolution while being highly aware of any deteriorating trends in performance.
11. Vendor Management Best Practice: Balance Value with Cost, Quality
Resist the urge to go with the cheapest vendor. Price isn’t always the best indicator of quality. What matters most is the service provider matches your business needs. Strike a balance between value, cost and quality.
Vendor Management Best Practice Summary: A mutually strong relationship will depend on effective communication that builds trust from the beginning.
Overall, ensuring a mutually strong relationship with your contracted service provider involves communication and attention. In fact, researchers have found that end-users who expressed satisfaction with outsourcing reported having excellent communication with their vendors. Poor communication can lead to conflict and cause the relationship to turn adversarial quickly. To head off conflict, focus on developing trust from the beginning of the relationship using these 11 best vendor management practices.