What if some simple changes to structure and protocol could add billions to your bottom line? This is the power of effective vendor relationship management.
With the right protocol to handle vendor relationships in place, businesses can ensure that partnerships begin on the right foot and remain mutually beneficial. Particularly in the case of managing global suppliers, planning and clarity will overcome any potential linguistic or cultural obstacles.
The benefits of good vendor management include:
- Service providers are more likely to invest in new products, better technology, and better production, all of which you can pass on to your customer
- Suppliers are more willing to support you beyond the terms of their contract
- Vendors will be more open to assisting with price concessions
So what does effective vendor management look like?
At the heart of all successful business relationships, lies a clear and measurable definition of what success looks like from every angle. For management, this means low delivery costs and continuous improvement in service. For the HR professionals, they will be looking at the vendor’s impact on the workload and type of work for employees. Those employees, meanwhile, will measure success by the accuracy and timeliness of services and quality of interactions within the vendor partnership. These different angles must be recognized and addressed for the partnership to flourish.
To steer an effective long-term relationship, a vendor management team is non-negotiable. Three key roles must be met with skill and expertise. They are:
Executive steering team
Whose job it is to oversee strategy concerning vendor relationships, prioritizing in relation to the rest of the supply chain. Meeting quarterly, they should provide decision-making support as required.
Relationship management team
At this level comes the responsibility for contract management and the use of reports to assess vendor performance. Changes and additions to contractual obligations will be managed by this team, as well as the resolution of disputes. During monthly meetings, any issues to be escalated will be identified.
Service delivery team
Overseeing the day to day operations with vendors, the service delivery team will be in charge of performance management and suggesting changes in line with the results they are tracking. They will resolve operational issues as they present themselves in real-time during weekly meetings.
Providing points of contact at each level and ensuring those contacts are available and equipped to help will be crucial in building trust and team spirit. This is even more important in the case of global vendor relationships. Where language and cultural barriers may impede communication, having fixed contacts will allow for the growth of a long-term collaboration.
Onboarding a new vendor
When bringing a new vendor on board, following the below protocol will ensure a seamless transition and smooth journey to full productivity.
Before onboarding a new vendor, build a business case to understand why their service is required and what the benefits and vendor risks might be. This white paper should include a product overview detailing what the supplier offers the business.
When the need for the vendor has been confirmed, create a flowchart detailing the various stages of the onboarding process and assign a project management team to follow the steps.
Begin with an open discussion with the vendor. Efficient supplier relationship management starts here. Discuss best practices and expectations and conduct a SWOT with a particular focus on risk assessment. Layout the process that will be used for ‘gap analysis’ and define the quality assurance requirements of the relationship.
This is the stage at which you will begin drafting your service-level agreement. Begin by researching and analyzing the business needs and where the vendor fits into addressing them. Negotiate with the vendor to reach a consensus on what they can offer as part of a strategic partnership.
The SLA must set out who is involved in the partnership. It must also describe the scope of work, the services to be delivered and the time frame within which they will be delivered.
Duties and responsibilities
The document must define the duties of each party, these should be set out as KPIs with an explanation on how success will be measured. If training is required, this information should be included in the SLA. The invoicing system must be explained and agreed upon.
Tracking and reporting performance
The SLA must define the expectations on both the customer and vendor and note how they will be tracked and reported. Indicators such as availability, performance, reliability, monitoring, and measuring must be discussed and agreed upon as a means for effective ongoing supplier management.
The wording must be clear and concise in identifying all fees applicable to the vendor, when they are owed and when they might change.
Warranties and remedies
Decide upon what warranties will be put in place. For example what happens if the vendor does not provide the product or service, and what will happen if the contract is breached.
This section should cover how technical access for the provider will work in line with company policy and cybersecurity regulations. The IT department or IT leaders should be involved in discussing data security and disaster recovery.
Expectations should be clarified regarding how suppliers should handle company data. Penalties for breaches of confidentiality should be explained. Also, how data will be handled in the event of supplier termination should be determined.
Legal compliance and dispute resolution
Supply chain management should set out the legal jurisdictions under which the vendor is held. This may be different if the vendor hails from overseas. Establish which export laws they must comply with and how, in the case of non-compliance, the arbitration will be dealt with.
Penalties and Termination
Penalties and terminations must be related to the KPIs. What is the scope for imposing penalties and when will they be enforced. What stands as grounds for termination and what will the payment terms be in the case of termination.
Ensure the signatories are the appropriate level of management. Impose schedules and checklists to ensure that onboarding remains within the time frame dictated by the business needs.
Continual Support Management
Once onboard, a consistent and effective vendor management system remains abreast of the current situation, allowing for change and development as necessary.
Client Advisory Board
An effective management solution is the establishment of client advisory boards. This is a board of clients selected by the vendor to guide and support the relationship. They can offer guidance, industry trends, and insights, as well as discussion on technology, legislation, payroll, business processes. In the case where vendors are from overseas, this will help to bridge the cultural divide.
Request for Enhancement
Enhancement may be called upon to address a business or compliance issue, simplify processes or react to industry change. As with vendor onboarding, a business case should be built showing examples of why change is necessary.
It is common for vendors to have a specific format and schedule to adhere to when enacting change. Relationship managers should understand and follow this process.
Ongoing support and monitoring
Effective relationship management involves regular check-up meetings and consistent dedication to risk management. Teams should review the return on investment regularly and discuss the possibility of new products and features that may enhance the partnership.
With careful planning, project management, and regular care and attention, vendor partnerships can prove effective and fruitful for both businesses.
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