6 Essential Steps for Managing Vendors

Gartner once predicted that in the future, an IT career will not be about technology but rather managing a range of service providers.

Several years down the track and that’s exactly what is happening, and the shift will most certainly
continue. More and more, IT professionals must be efficient and effective in managing third-party
service providers.

The model for successfully managing vendor partnerships consists of 6 steps.

Step 1: Process evaluation

A good vendor relationship starts well before you ever sign a contract with a vendor.

The first step is to make sure you understand the business process that you are considering outsourcing.
A close look at business processes today will very often reveal cross-departmental processes that are fragmented, unmeasured, unmanaged, and disconnected.

There is absolutely no use in outsourcing these. To profit and receive the benefits of outsourcing, you need a true understanding of your processes, their outputs, and their end-to-end costs. This will then allow you to develop meaningful and appropriate performance metrics.

This is the critical ingredient that will allow you to establish a shared understanding with your vendor about performance and management expectations.

Step 2: Insource versus outsource

Once you understand the processes, you can now objectively evaluate which ones are candidates for outsourcing. Some considerations to keep in mind when making this decision are to evaluate whether a process is core to a competitive strategy or non-core.

Keep in mind, however, that this can become very subjective. A stronger approach is to focus on areas in which you developed the most specialised skills and to keep those in-house, paying particular attention to the industry in which you are operating. No matter which criteria you use, never make the decision to outsource lightly because once it is done, it can be a very time-consuming and costly endeavour to bring something back in-house.

Step 3: Vendor selection

The days of selecting vendors on cost alone are over. There are several other considerations. One that is often overlooked is the cultural fit between the organisations.

Some items to keep in mind when evaluating cultural compatibility include time orientation, organisation structure, decision-making processes, rate of change, and the age of the workforce.

Key questions to ask when selecting your vendor include:

• Does the provider have experience with the work you want it to do?
• Have its staff worked in an environment similar to yours?
• Is it financially stable?
• Does it have standardised processes?
• Can it provide economies of scale
• Has it been sued by previous clients?

You and your team should also meet with the vendor’s representatives, the people you will be interacting with, on a regular basis. Don’t just speak with the vendor’s salespeople. Get the process owners involved early.

Step 4: Contract development and negotiations

A team mentality must be brought to the contract development and negotiations phase. In too many companies, outsourcing contracts are left to purchasing, legal, and senior executives and then thrown to the managers and staff who will be working with the vendor on a day-to-day basis.

Operational staff and process owners should be involved early – not after the contract is signed. These employees will provide valuable input into items such as measuring performance and ensuring nothing is overlooked or omitted that is critical from an operational perspective.

When creating the contract, make sure there are clearly outlined roles for the vendor and your staff, flexibility to renegotiate under certain conditions, and control over the workforce.

Step 5: Managing the working relationship

The contract is now signed and it is time to build a collaborative partnership with the vendor.

Do this by communicating with the vendor about company goals and process strategy – do not keep vendors in the dark. Create structures for the supplier to interact directly with internal clients, motivate the vendor by promoting with rewards and incentives, and make sure you have gained commitment from your internal staff.

The job of managing vendors never ends. It is an ongoing process that includes monitoring the process, tracking the metrics, capturing results, measuring performance and measuring feedback.

It is comparable to the performance management process of working with your staff. You’ll want to select a governance model to ensure all these processes are carried out. The three most commonly used are process owner, single point of contact, and a vendor management office.

Step 6: Evaluating the results

With all the information you gather, you will be able to evaluate on a regular basis whether you should continue outsourcing a relationship to a vendor.

The decision to change vendors, or even bring a function or process back in-house is a costly one and not to be taken lightly. The continuous evaluation of results will allow you maximize the return on investment from your vendor partnerships.

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