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Strategic Sourcing

How to succeed in your relationships with vendors

08/30/2023

by Luba Laney

Most companies use vendors at some point, especially during times of expansion when existing processes, technology, and employees are unable to support growing demand. Vendors can save the day by providing specific skills or resources. On the flip side, relationships with vendors can quickly become less productive when there are misaligned expectations, quality standards, and communication practices. In other words, a successful vendor relationship comes from effective vendor management.

Pitfalls of poor vendor management

When demand exceeds what a company’s internal resources can handle, it’s time to bring in outside partners. However, those partners come at a cost. There are expected costs, like paying for labor and materials, and unexpected costs, like paying internal resources to oversee the vendors and their work. Strong vendor management can mitigate these unexpected costs.

For example, undefined internal standards about the quality of a deliverable can lead to multiple rounds of rework or, worse, an unusable product. In addition to the financial cost, this type of back-and-forth can lead to missed deadlines, change orders, and overall frustration for internal and external resources. Establishing those quality standards from the outset of the project can prevent this scenario.

Set relationships with vendors up for success from the beginning 

A successful vendor relationship starts with the procurement team responsible for identifying the company’s needs. This team should have a realistic look at the business challenges facing all levels of the organization so they can bring in the right number of resources with the right type of expertise.

Once the procurement team has identified the resources, contracting can begin. This phase is an excellent opportunity to set expectations between parties. Some items to address during the contracting phase might include:

• Setting quality standards and methods for status tracking, reporting, and communication
• Aligning expectations for on-site versus remote work
• Defining and documenting essential milestones and key outputs
• Establishing support plans during unexpected or critical circumstances, including the defined Service Level Agreement (SLA)

Maintain healthy relationship management practices 

Once a contract is established, the work is ready to begin… right? “Yes, and…” is the correct answer here! There are a few other best practices to adopt in order to be efficient and effective in utilizing external contract labor.

1. Define when and under what circumstances contractors will be utilized. Okay, technically, this should have been done before an outsourcer is even identified, but it’s worth repeating. Will the contractors be responsible for all elements of a project, or are they responsible for specific tasks or milestones? Will contractors be involved in unexpected emergency situations?

2. Ensure a contractor-specific onboarding process is identified and adopted. Are there security access levels needed for key systems or physical spaces? Who will be the key point of contact for the contractors? What existing documentation needs to be shared? In order to save time and enable your vendors to start doing the work they were hired to, answer as many of these questions as you can upfront.

3. Use your existing organizational structure to define processes for overseeing vendor delivery. Some organizations have vendors as a part of their operating models. Some have a robust Project Management Office. Other vendor-dependent projects are more closely tied to a function within the company, and vendor management tasks fall to the employees in that function. Regardless of the approach, it’s important to streamline the number of internal resources overseeing contracted labor.

Some questions to ask when determining the most effective vendor management structure include:

• Who or what group within my organization is best suited to oversee vendors with respect to bandwidth and skillset?
• What skills are required to oversee vendors?
• Do we have the available resource(s) and bandwidth, or do we need to re-shuffle roles and responsibilities first?
• How will we set expectations for appropriate vendor management, and how will we account for vendor management activities in our employees’ performance reports?

4. Use technology appropriately. Some tools automate or help manage work output, KPIs of projects, internal and external labor, and overall budget tracking. Other tools can streamline onboarding procedures and monitor vendors’ progress. Take time to explore the suite of project management tools available to ensure your technology systems are supporting the approach to vendor management.

5. Track lessons learned and create cross-communication channels. Continuous improvement is critical to strengthening the efficiency and efficacy of a successful vendor relationship, and it starts with consciously paying attention to what is working and what needs adjustment. Ensuring that people across the organization can document these successes and challenges, and learn from them, will save time and resources in the long run.

6. Allow for the contractors to own their work and hold them accountable when they don’t. Your vendors are here to do a specific job. Giving them autonomy to do that job — and own the wins and pitfalls that come along with it — is important. When things don’t go according to plan, note how your vendors take accountability and the steps they take to make it right. If a vendor owns an error and offers a swift solution, it can ultimately become an opportunity to build trust.

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Managing vendors is never as simple as signing a contract. If you want to learn more about the steps you can take to establish, course correct, or enhance your current approach to vendor management, fill out the form below to connect with one of our consultants.

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