By Beth Richard, IAITAM
ITAK V8 I2
An IT vendor’s products and services are often the backbone of the organization today. A glitch in an IT vendor’s supply of product and services or a delay in product delivery can be like turning the electricity off for many organizations, preventing them from fulfilling their missions and objectives. Vendor Management is the Key Process Area (KPA) of the IT Asset Management program that ensures that the organization is getting the best value and performance from its vendors; and is the first line of defense against getting the lights turned off by a poorly managed and underperforming vendor.
The essential component to the Vendor Management processes is effective communication between vendors and the organization. Think of communication as the KPA that runs through all of the KPAs, including Vendor Management, like a ribbon holding them in balance. Any hiccup in the communication ribbon can have a direct or indirect negative impact in other areas of the ITAM program. This disruption will, in turn, undermine the goals of the organization.
The first to encounter the vendor should be the organization’s acquisition team. It is important for the individuals within the organization to immediately engage their procurement department into any discussions and communications related to vendor products and services. Procurement manages the approved IT vendor list for the organization. The list usually consists of vendors who have conducted business with the organization in the past and performed to expectations.
If a new vendor is identified, procurement requests a capabilities statement and past performance document for review. The purpose of integrating procurement into the process well ahead of the bid request is to insure that the vendor and the organization have not collaborated on the requirements or communicated sensitive information such as budgetary information of a contract before the request for proposal (RFP). Because communications are established early and controlled by the Acquisition Manager, there is a level playing field going during the bid process. During the engagement process, vendors are provided with guidelines on how to communicate through the bid process.
If the initial procurement process is by-passed, the organization risks contamination in the RFP. This contamination puts the organization at a disadvantage during negotiations and contract award. It is in the best interest of the organization to conduct contract negotiations on a level playing field and prevent vendor influences over an organization’s business needs. In situations where a vendor has influenced the organization’s needs or has been mistakenly given internal information such as contract budget information, the results are often an unfair advantage for one vendor over another. Effective Vendor Management procurement and communication policies and processes provide integrity to the RFP, vendor negotiations and award processes and will be the precedent when a vendor is awarded.
Communication and the Well-Written Contract
The level and extent of communications with vendors during the procurement stage has a dramatic impact on an organization’s bottom line in that there is a direct correlation between a well-written contract and the level of effective vendor communications. Vendor communications are directed by the clarity of the terms and conditions in the signed contract.
Beginning with the selection of a vendor, Vendor Management collaborates with their organizational peers to determine the product requirements and the extent of communications that are required for both sides. Communication requirements are subsequently documented in the Statement of Work (SOW) for the requisition. If the terms and conditions are not clear in the requisition, then the organization is exposed to a level of confusion that jeopardizes product delivery and increases the contract costs. That confusion leads to the extra costs of a change process to ensure that the organization is receiving what it has expected. This scenario is an organization’s worst nightmare and the vendor’s perfect dream.
In some cases, the vendor negotiates with discounted prices for their products and services in order to win the business. Without communication-fueled contract specificity surrounding these discounts, the organization may pay the price later. The vendor hopes that the language in the contract’s terms and conditions is loosely interpreted and that the expectations are not clearly defined. The vendor can then exceed the contracted amounts by implementing scope creep through the change process. The looser the terms are written or the terms are enforced by the organization, the more likely the contract will exceed its original cost figure. As the saying goes, “Pay me now or pay me later” applies to these instances. The organization must find funding post award to tighten up the contract language and procure the required vendor service in accordance with organizational requirements in the amended contract. This usually means “robbing Peter to pay Paul” because the organization must cut project costs in another area to complete this contract. These unforeseen circumstances lead to contract mismanagement and significant budget and time overruns.
Some organizations apply the concept of multi-awarding on their volume product and services contracts. This gives the organization leverage in vendor communications if the primary vendor realizes a competitor is waiting in the wings for the same business. In these cases, language stipulating a minimum percentage of products and services delivery is written into both contracts. This insures the communications with the vendors are clear and concise.
The Communication Lynchpin for Vendor Relationships
Time, money and energy spent cultivating a vendor relationship is not always measured directly against the bottom line but against the Vendor Management program’s customer service, reduced cost, quality, and improved vendor service that can all be measured. The intended goal of Vendor Management practices is to bring value to the organization through positive vendor – organization relationships. The foundation is effective communication. Communication is the process by which one party delivers a message, the message is received and understood by a second party and lastly, a response in the form of feedback is delivered back to the first party – and the process begins again. When the communication circle is not followed in a vendor – organization relationship, the impact is often costly, with timing mistakes due to miscommunication.
Maintaining a positive, mutually beneficial vendor – organization relationship takes time and effort from both parties. The organization must establish a communication process and establish communications from both sides in order to maintain vendor compliance to the contract. In the relationship, the vendor must also be responsive to the needs of the organization and be willing to quickly resolve issues. This can be achieved by the contract terms and evaluated under the Vendor Manager’s vendor performance review. Under effective Vendor Management, both parties mutually benefit from maintaining a solid relationship.
Processes Instrumental to Vendor Communication
To ensure effective communication post award with vendors, the organization needs processes and procedures to designate what the roles and responsibilities are for each entity and assign those roles and responsibilities to individuals within the entities. The acquisition team has the initial responsibility to manage the vendor and to identify secondary contacts within the organization that can replace the primary contact when they are unavailable. If the Vendor Manager is not on the acquisition team, then the Vendor Manager becomes the vendor’s first point of contact within the organization and the internal organizational contact for when issues arise with the vendor’s performance. Vendors are required to provide points of contacts on the vendor’s side and to update and confirm those contacts on a periodic basis. Once the point of contact roles are designated, communication should be a simple process based on the relationship established in the pre-proposal period.
Communications range from the most interpersonal personal face-to face meetings to the less interpersonal email. The level of service being provided by the vendor often determines the how, when, and regularity of communications. For high end, large volume procurements, a quarterly review with the vendor is required to ensure that the vendor is delivering quality products and services on time and within budget.
Vendor Manager Requirements
During the engagement process, the Acquisitions Manager is responsible for establishing a good professional working relationship with the vendor and establishing communication guidelines. To establish the longer-term relationship, the Vendor Manager must know; the vendor’s products and services, the terms and conditions of the contract and what the organization requires. The Vendor Manager must also be intimate with the value the vendor is expected to add to the organization.
The Vendor Manager must manage:
· Terms and conditions of the contract
· Performance of the contract
· The relationship with the vendor
Even if clear communication channels are established and delivering value, they cannot prevent every issue that may arise during a vendor – organization relationship. However, communication channels allow the Vendor Manager to be proactive in preventing potential issues and to quickly resolve issues as they arise. To build that collaboration, the vendor must know the needs, goals and expectations of the organization and be willing to maintain effective communication with the organization. With the communication process in place and the shared knowledge between them, the Vendor Manager can communicate honestly, openly and productively with the vendor over time.
Tools for Vendor Communication
There are tools like a Vendor Management System (VMS) on the market today that can be used to assist with managing vendors. Some systems can even produce useful data to analyze vendor risk and performance. Enterprise resource planning (ERP) systems can also be useful tools when automating approvals and purchases with vendors as well as tracking purchase orders by linking purchasing with supply chains. Organizations can hire outside consultants that have an intimate knowledge of a particular vendor to assist them with improving their strategic vendor relationships.
Although tools like the VMS or ERP systems or using the services a consultant can provide assistance with managing vendors, the tools do not create the processes for effective communication. Tools do not form solid relationships with the organization’s vendors. Interpersonal skills are needed to build and maintain relationships. Even when using tools, miscommunication can be the culprit behind issues with vendors. The commitment necessary to improve Vendor Management is to establish its importance within the organization and to place the right individuals in the Vendor Management roles.
What it Takes to be a Vendor Manager
The skills required to be a good Vendor Manager are best explained by a list of expectations. Vendor Managers must be able to:
· Effectively communicate
· Remain professional and courteous
· Communicate the good and the bad
· Identify problems
· Monitor the resolution of issues
· Resolve issues quickly
· Know when and how to escalate issues internally and externally
· Be available
· Document thoroughly to avoid miscommunication
· Follow up on verbal conversations with written emails
· Expect to encounter issues without over reacting, jumping to conclusions or blaming the vendor directly
· State problems directly to the vendor in a professional manner
· Know the organization’s needs and communicate those needs to the vendor
· Seek out information about the vendor’s organization
Vendor training and education is another way to familiarize vendors with the organization and its communication policies and processes. The education and training is sometimes called vendor orientation. This is an excellent opportunity to familiarize the vendor with the internal policies and processes, vision and goals, and vendor expectations and consequences of not meeting expectations.