Do you have favorite vendors, ones you would gladly work with again and again? What is it that sets them apart?
Chances are it isn’t price. Yes, the best vendors provide their goods and services at reasonable prices, but the vendor relationships that stand out in my mind weren’t with the lowest bidders. There’s much more to it than that.
My team and I have thought a good deal about what makes for the best vendor relationships, and we’ve concluded that the best vendors are partners that become part of our strategy and are proud to be associated with our organization. Organizations can work enthusiastically with such strategic partners to devise innovative ways to achieve one another’s objectives. The two partners share a linked destiny.
On the other side of the coin are vendors that don’t meet expectations. Their costs exceed estimates, or their incompetence causes the project to fail. How can we ensure that we avoid such vendor relationships? I think that understanding what we want from our vendors from the outset increases the odds of obtaining outcomes that meet our expectations.
My team has come up with a list of 10 things we should want from our vendors:
Our vendors should be experts in all facets of the hardware, software, and professional services they provide. They should have knowledge of best practices within the industry, and they should be able to leverage those best practices to provide us with breakthrough strategies. They should also be able to offer proactive guidance on how to leverage technology within our industry vertical.
You get what you pay for, of course, but you also get no more than you demand. This is especially true when it comes to the quality of the goods and services we receive from our vendors. We must demand that vendors consistently provide evidence that they are providing goods and services of the quality that they promised to deliver. That will reduce the defects in the products delivered, and services will more often be completely right the first time, without delay. In turn, this helps ensure that our projects will be completed on time and within budget. We can manage our vendors’ quality through key performance indicators (KPI) and service-level agreements (SLA).
3. Innovative/Breakthrough Relationship
We met with a vendor’s representatives to discuss how we could reduce our speed to market and the amount of paper being passed between our two organizations. They suggested that we switch to a single blanket purchase order instead of using a separate one for each order. This simple change let us restructure our internal process and reduce the on-site head count by 70%, without degradation of service. What was in it for the vendor? A stronger relationship and a contract extension.
This is an example of the highest form of a relationship between a customer and vendor, where the vendor suggests innovation of process or provides leading-edge breakthrough technology that enhances the customer’s bottom line.
You cannot achieve innovative/breakthrough transformation if you don’t have a collaborative relationship where both parties trust one another. Without trust, we could not have leveraged our collective expertise to collaborate on solutions that are cheaper, better, or faster. When the leadership of both parties collaborates on issue resolution and a root-cause analysis of problems, creative, synergistic, and out-of-the-box solutions are devised.
Vendors need to be accountable for time, costs, and quality. We require of them professionalism and expertise. They must accept responsibility for all actions by their personnel. And of course, we must hold them accountable for all of their contractual and service-level commitments.
6. Continuous Improvement
A great vendor demonstrates continuous improvement in the products and services it delivers. Hardware vendors, for example, must provide state-of-the-art technological improvements from Research and Development. All suppliers must continually provide a competitive edge. Continuous improvement can be achieved through service levels. But you must ensure that the service-level improvement is providing sufficient return on investment and not increasing fees.
7. Risk Sharing
The toughest part of any vendor negotiation is determining who is going to accept what amount of risk for what price. Buyers want the vendor to take on maximum risk for as little money as possible. Vendors want to assume as little risk for as many dollars as possible. What you need is for your vendors to have some skin in the game, so that they will share in the success or failure of whatever project, service, or hardware they are providing. This can be achieved by putting fees at risk in the SLA, so that a vendor that does not achieve a certain score on a KPI or SLA must reduce its fees by a certain percentage.
No relationship can be successful without good communication. Vendors need to be proactive, communicating issues and identifying potential degradation of service levels before the situation is critical. But they also need to communicate road maps, strategic direction, issue resolution, contractual obligations, and anything that enhances the relationship. When our vendors proactively communicate, it demonstrates reliability and fosters trust.
If your vendor isn’t consistent, you can’t anticipate its actions. We want our vendors to behave in a consistent manner that is in compliance with contractual obligations. Inconsistent behaviors produce uncertainty and distrust.
10. Cost Improvement/Containment
Improving cost and preventing cost overruns are constant challenges when managing I.T. projects. We want our vendors to maintain fiduciary responsibility. All too often, I.T. vendors provide a cost estimate on a time and materials basis. This cost estimate more often than not exceeds a good-faith estimate. In the best possible vendor relationships, the vendor not only helps its client contain costs, but also finds ways to reduce costs over the period of the relationship.
Knowing what we want from our vendors from the outset of the relationship is the cornerstone of successful vendor management and relations. When you initiate a relationship with a vendor, keep these ten key points in the forefront of your discussions by establishing these expectations in your first meeting or second meeting. Establishing these expectations in the beginning of the relationship or during contract negotiations will exponentially increase the likelihood of a linked destiny relationship that will deliver high-quality results. These results will positively impact your organization’s bottom line.
Steven Jeffery is a management consultant and co-author of the book The Art of Creating a Quality RFP.