Sourcing and Procurement
Understanding and Managing IT Vendor Relationships: Do they Matter?
We hear about Vendor Management in sourcing and procurement organizations often, but how frequently do we talk about Vendor Relationship Management? Are both the same, or different?
Although, the terms vendor management and vendor relationship management are used interchangeably, they define different areas of vendor association. In general, vendor management refers to more forceful, controlling, and bureaucratic processes. The focus is usually on preventive measures, such as identifying and mitigating vendor risks, due diligence on vendors, and white / blacklisting them. While these processes are painfully manual, there are also several software products in the market that can do the same job with better efficiency. In the IT category, research and advisory company Gartner recognizes Process Unity, SAI Global, NAVEX, and OneTrust to be among the leaders in the space.
Vendor relationship management, on the other hand, is more about adding that human touch to the process by understanding, developing, and working in collaboration with suppliers; rather than just monitoring them on an ongoing basis, only to hold them liable when problems arise. Supplier relationship management holds even more relevance in current times, when the COVID-19 pandemic has significantly impacted businesses. It has now become all the more important to nurture supplier relationships, hold them close, especially the ones that are critical for business continuity. The unprecedented situation beckons empathy, encouragement, and mutual support, to be able to thrive despite the unrest.
Key Steps for Vendor Relationship Management-
- Analyse vendor ecosystem: While the crisis will not continue forever, it will be critical to assess its impact on your business not only in the immediate future, but also over the next 24-36 months. The emerging requirements in this dynamic scenario urge us to focus on developing and supporting partners towards building a stronger network for the future.
- Listen to your vendor: Often, people managing vendor relationships for organizations secretly loathe suppliers and ignore their unsolicited emails and calls. However, if you have a solid rapport with agreed mutual expectations, it is possible to create a healthier and more productive relationship, which is focused on specific organizational needs. This may also be helpful if the vendor has an offering that the IT stakeholders like, but are unaware of. It will be a “feather in your cap” if you can work with the vendor to develop a business case and an implementation plan concentrating on lowering the total cost of ownership (TCO).
- Create win-win situations: Vendors are in the business to fulfil their commercial and other objectives. While earning revenue with a decent profit margin can be the prime objective, they can also be influenced by other factors to establish a good relationship. For example, agreeing to be a reference customer may be something more valuable to the vendor than having a higher margin on the services they provide.
- Maintain transparency: Having an open conversation with your suppliers (under NDA if required) can provide multiple benefits. For example, if you are currently prioritizing a Cloud-first strategy, the vendors might be able to help you in recommending the best technical solutions and services.
- Encourage critical and strategic suppliers to assist in strategy building: This can be a useful approach, especially for your IT category. You can share the technology roadmap with the vendors and get their resources to help you fine-tune your strategies. We have mostly seen this in the Telecom and Cloud computing areas. However, if you plan to take the requirements out to the vendor, having specifications developed by one particular provider can make it difficult to discover comparable solutions. To undergo a competitive bid, you may want to enlist an impartial third-party consulting service, to help stakeholders develop their requirements
- Get to know your vendors’ business: Although, this exercise is mostly ignored, having resourceful insights about your vendors’ business can offer multiple benefits. Therefore, when developing a relationship with the vendor, use the opportunity to understand how they manage their cost pressures, know more about their technology strategy and investment plan, and also gather knowledge about their potential competitors.
- Be clear on performance measurement: Discrepancies often escalate when both parties do not agree on a common method to evaluate vendor’s performance. Therefore, clearly indicating the key performance indicators (KPIs) and service level agreements (SLAs) in a written contract can be one of the first resolutions in this regard. Wherever possible, seek agreement on the definitions as well. For example, whilst the terms ‘up-time or availability’ of hosted applications may be widely understood in the industry, there can be grey areas between the definitions of ‘response and resolution’.
- Initiate partnerships for the long term: Vendors always seek a continuous revenue stream. Since, this may not always be possible, building a partnership approach with your key suppliers can yield more benefits. For example, at a very simple level, give priority to the suppliers in your preferred suppliers list (PSL) when new opportunities arise.
- Build trust: Although, one of the most difficult objectives to achieve, once established, trust can help in resolving disputes seamlessly and effectively. It will also drive the vendor to proactively highlight hidden issues. You will want your trusted vendors to bring the hidden / rising concern to you before they get escalated.
By implementing a few initiatives as above, we have seen great improvement in vendor relations across multiple organizations. Over time, these measures will automatically integrate with the organizational culture and no additional effort may be needed to maintain a healthy relationship with the vendors.