In today’s interconnected business world, no organization can function effectively on its own. As individuals are part of a larger community, companies rely heavily on vendors and suppliers. Managing these relationships efficiently is crucial for any IT leader, yet it’s often filled with challenges and misunderstandings. Poor vendor management can consume much of your time, leading to unproductive conversations and missed opportunities. In this guide, we’ll explore how to manage vendors strategically, ensuring these relationships enhance your organization’s success.

The Challenges of Vendor Management

Mismanaged vendor relationships can lead to several significant issues:

• Bypassing IT: Vendors might bypass the IT department and negotiate directly with business units, initiating IT projects without your oversight.
• Budget Overruns: Vendors focusing on short-term gains may overspend and fail to complete projects within the allocated budget.
• Missed Technology Updates: You might miss out on the latest technological advancements if vendors don’t keep you informed.
• Unproductive Sales Pitches: Vendors might arrange meetings without a clear agenda, wasting your time and failing to address your needs.
• Poor Maintenance and Support: Vendors may not adequately fulfill their responsibilities for system maintenance, leading to operational issues.

The Benefits of Effective Vendor Management

When vendor relationships are managed well, the benefits are substantial:

• Clear Understanding of Expectations: Vendors are fully aware of your expectations and work diligently to meet them.
• Defined Performance Agreements: Well-defined agreements lead to better service delivery.
• Harmonious Relationships: Vendor relationships are balanced and mutually beneficial, based on a deep understanding of each other’s needs.
• Efficient Use of Time: Good management practices free you from unnecessary interactions, allowing you to focus on more strategic tasks.

How to Manage Vendor Relationships Effectively

Effective vendor management revolves around four key components:

1. Establishing Comprehensive Principles for Vendor Selection and Management
2. Following a Realistic and Proper Selection Process
3. Limiting the Number of Vendors to a Manageable Level
4. Setting Up Service Level Agreements (SLAs) with Vendors

1. Establishing Comprehensive Principles for Vendor Selection

Creating principles for vendor management might seem unfamiliar, but it’s highly effective. These principles should be part of your broader strategy. Key areas to consider include:

• Price, Quality, and Service Delivery: Define the importance of these factors in selecting vendors.
• Vendor Selection Strategy: Do you have a strategy for choosing top vendors, and what criteria do you use?
• Organizational Interaction: Are vendors referred to specific parts of the organization, or do they interact with all levels?
• Vendor Removal: Establish clear criteria for removing vendors from your preferred list.

Brendan Trezise’s experience at Colonial Services highlights the importance of these principles. He realized that the lack of a structured approach led to employees being overwhelmed by vendor promotions, distracting them from their tasks. By evaluating each vendor based on the nature of their relationship with the company, he identified 500 IT vendors but determined that only 20 were key suppliers, with 6 being strategic partners. This allowed for a more focused and efficient management approach.

2. Selecting Vendors Carefully

Vendor selection should be deliberate and goal-oriented. Consider the following steps:

• Define Selection Criteria: These criteria should cover technical, business, and organizational factors.
• Agree on Criteria with Business Partners: Ensure alignment with your business colleagues on the selection criteria.
• Rank the Criteria: Use a ranking system to weigh the importance of each criterion.
• Evaluate Vendors: Score vendors against your criteria based on their responses to RFIs and RFPs.

This structured method helps ensure that you select vendors who meet your organization’s needs. However, be cautious of selecting vendors solely based on the strength of their sales representatives. It’s important to evaluate both the quality of the vendor’s products and their ability to maintain a strong working relationship.

3. Limiting the Number of Vendors

If you’ve set your principles correctly and followed a structured selection process, you’ll likely end up with a manageable number of vendors. However, keep in mind:

• Too Many Vendors: Managing too many vendors can consume a significant amount of your time.
• Standardization Issues: If vendors don’t adhere to industry standards, you’ll face difficulties in selection and management.
• Resource Strain: With multiple vendors, you might not have enough resources to manage their products effectively.

By limiting the number of vendors, you can enjoy several benefits, such as:

• Negotiating Better SLAs: With fewer vendors, you have more leverage to negotiate favorable SLAs.
• Effective Oversight: It’s easier to monitor performance and maintain quality control.
• Focused Time: You can spend more time on strategic activities rather than managing vendor relationships.

4. Setting Up Service Level Agreements (SLAs)

Vendors might not always be enthusiastic about SLAs, but they are essential for managing performance and outcomes. SLAs ensure that you’re not constantly worrying about delivery and can focus on customer satisfaction instead. Key elements to include in SLAs are:

• Sales Timing and Objectives: Clarify the timing and goals of vendor sales activities.
• Technology Information: Ensure vendors keep you updated on technological developments.
• Employee Stability: You don’t want a new sales representative every six months.
• Support and Maintenance: Define expectations for ongoing support and maintenance services.
• Pricing and Change Notices: Agree on pricing and how changes will be communicated.
• Performance-Based Rewards and Penalties: Tie incentives and penalties to vendor performance.

SLA agreements should also cover aspects like consistency in staffing (ensuring you don’t have to deal with a new representative every few months) and clearly defined timelines and goals for sales activities. This structured approach to managing vendors ensures that you spend less time on the logistical headaches of vendor relationships and more time focusing on strategic goals.

Conclusion

Following these guidelines will lead to more stable and productive relationships with your vendors. If you don’t take a strategic approach, you’ll likely spend most of your time wrestling with vendors rather than managing them effectively. As the number of vendors grows, so too will their resistance to SLAs — but don’t back down. Make it clear that SLAs are a non-negotiable part of doing business with your organization.

A good IT manager also keeps key vendors informed about future business and IT strategies. If vendors don’t know your direction, they can’t align their resources and skills with your plans.

Checklist

• Have you established principles for vendor management?
• Have these principles been accepted by other managers?
• Have you informed your staff about these principles and their implications?
• Are your vendors aware of these principles?
• Have you created an organized, defensible method for selecting vendors?
• Does your process include technical, business, and organizational criteria?
• Have you informed unsuccessful vendors why they weren’t selected?
• Have you agreed on the service levels that vendors should provide?
• Do your SLAs include customer satisfaction as well as output criteria?
• Do you have simple processes in place to implement these SLAs and monitor vendor performance?