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The Key to Successfully Managing Your Vendors

It's nearly impossible to run a business without outsourcing some functions to a vendor. A vendor can provide internal services like computer support, network management, bookkeeping, or janitorial services. Or, they may serve as a partner for delivering solutions to your clients. This is a very effective way to operate, but the process of selecting, managing, and terminating vendors is essential to your success.

Selecting a Vendor
The process of selecting a vendor shouldn't be taken lightly, as your good name and image are at stake. There are three primary steps to follow:

Define Your Requirements
Figure out exactly what you want before you look for it. Create a list of things that are important to you, and remember that each of the requirements has a price tag. Categorize everything into either a "must have" or "nice to have" bucket. Depending on your budget, you may need to forgo some items.

Evaluate Vendors
Use your list as the criteria to be used when evaluating vendors. Create a score sheet that includes key items, and give vendors points for each. By establishing this process up front, you can remain focused on the goal and not be moved by emotion or old-fashioned salesmanship.

Identify three to five vendors for consideration. Find them in the phone book, on the Internet, via colleague referrals, or through the Chamber of Commerce. Contact each vendor and schedule a meeting to discuss your needs. While waiting on proposals, further evaluate them. Plan a visit to their location if possible, check the vendor-provided references, and call other customers identified on the vendor's website.

Select and Negotiate
After you receive proposals, conduct the evaluation using the score sheet you created. Notify the selected vendor in writing, and schedule a meeting to negotiate final terms and conditions. Provide a contract that includes start and end dates, payment terms, legal details, and an exit strategy (terms for termination).

Managing a Vendor
Vendor relationships require constant focus and attention, and success is the responsibility of both client and vendor. Never delegate anything to a vendor without your oversight -- if you allow vendors to make decisions on your behalf, don't be surprised when the decisions are in their best interest, not yours!

Define Roles
Do not assume that the vendor clearly understands their role. Document it and communicate to everyone in writing. Update roles as required and review them periodically to ensure that the definitions are still accurate.

Be Accountable
Make it your responsibility to clearly articulate your expectations and to understand what the vendor is proposing to you. Appoint one person in your organization to manage the vendor. If expectations change, communicate the change in writing to your provider.

Measure Performance
Use the requirements, original proposal, and contract to monitor performance. Successful relationships require commitment, effective communication, and a common goal. If the vendor is not committed to helping you achieve your objectives, the relationship will fail. Similarly, if you don't effectively communicate with your vendor, they can't meet your expectations.

Terminating a Vendor
If the vendor isn't meeting your expectations, it may be time to consider ending the relationship. Step back, identify the lessons learned, and re-evaluate your requirements. Then begin the process of selecting another vendor that will be committed to helping you achieve your goals.

Review the Contract
It's imperative that you have a full understanding of what is required contractually of each party. Review the contract for the following:

  • Defined reasons for termination
  • Notification period
  • Vendor obligation to participate in transition
  • Information, data, or intellectual property ownership

Identify a Replacement
Use the selection process for identifying prospective vendors, but be discreet in how you handle replacing the vendor: The last thing you want is the current vendor hearing that they're on the way out the door! If this happens, you open yourself up to such risks as legal action, malicious behavior, and premature termination.

Create a Transition Plan
It's best to create a transition plan where both the outgoing and incoming vendor work together. You should conduct frequent meetings with the team to address issues, and to make sure that assigned tasks are being completed.

Notify the Current Vendor
After the transition plan has been created, schedule a meeting with the current vendor. This should be done in person, without the new vendor present. Advise the vendor that you've decided to terminate their contract. This shouldn't be a surprise to them if you've been managing them effectively. Share the transition plan with them and relay your expectations for their participation.

Implement the Transition Plan
The transition plan should be managed by the new vendor. Identify someone in your organization to serve as the liaison to the current vendor, and advise both vendors that you expect them to work together professionally during this time. If there are conflicts, they should be reported to you so that you can address them.

Expect the Unexpected
Prudent planning demands that you consider worst-case scenarios. The vendor could potentially be angry, sabotage your systems, or threaten legal action. By planning, reviewing your contract, and securing legal counsel, you'll be prepared for whatever may arise. Although you might like to think that vendors will conduct themselves in a professional manner, that's not always the case. Know this:

  • Businesses live and die by their references. If they conduct themselves professionally, it's possible they might go out on a positive note.
  • Holding final payment as a condition of participation in the transition plan is the ultimate leverage. Should the need arise, remind the vendor of these leverage points.

After the Dust Settles
After the transition, you'll return to "managing" your new vendor. By committing to being responsible for the active management of a vendor, you can build a long-term relationship with positive results. If you don't have the time or the skills needed to effectively manage these processes, consider contracting with an unbiased consultant who can perform this service for you.

Text by Carole Hussey