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Vendor Management 101: An Executive Guide to Vendor Management

Vendor Management 101: An Executive Guide to Vendor Management

The combination of innovative IT and a cooperative orientation toward vendors leads directly to better vendor performance and firm profitability.

Beyond details about pricing, delivery dates and such, what can I put into my contracts to help foster good buyer-vendor relationships?

There’s an old saw in business that if you find yourself consulting the terms of your contract, your relationship with the contracting party is likely already shot. Certainly it’s not a good sign when you start sending e-mails that begin: “You know, according to page three of our agreement. . .” But a carefully constructed contract actually can help sow the seeds of collegiality — or, at the very least, forestall the nuclear option of lawsuits and expensive litigation.

As a first antidote to the inevitable tensions that arise in working relationships, contracts should always require face-to-face meetings, still an important ingredient in most business dealings. Fact is, it’s a lot easier to be belligerent and unreasonable by e-mail or phone than it is when hashing through things across a conference table.

Next, contracts should contain clear dispute escalation paths, including use of alternative dispute resolution, or ADR. Compared to the courts, ADR is generally cheaper, less confrontational and significantly faster. This last point is perhaps the most important since the longer conflicts go unresolved, the more they start to fester.

Then there are the basics. The group negotiating the contract should include at least a few people from the company who have the need for the vendor’s services in the first place. And throughout negotiations, the emphasis should be on reasonable expectations and flexibility. This means accepting the likelihood of at least a few snafus with some grace and good humour.

“An outsourcing partnership based on unrealistic delivery terms for a price that leaves little profit for the supplier is almost destined to fail,” writes Mark Amsden, a partner and national head of the IT Disputes Group at U.K. law firm Addleshaw Goddard, in the Jan. 5 issue of Public Finance. “Combined with the fact that no outsourcing project is cut and dried at the requirements stage — and will almost certainly involve change of some sort — conflict will almost inevitably arise.”

I need to cut the cord with a vendor. What should I do?

The best way to answer this one is to mention a few things that you probably shouldn’t do.

First, don’t act in haste and fire a vendor in a fit of pique. Instead, do your best over a series of weeks or months to clearly communicate your expectations, why they are not being met and what you intend to do about. (Namely, that you plan to show the doofus the door.) Ideally, many of these expectations should be spelled out in the up-front contract. But if they’re not and you start to suspect things are going permanently south, start creating a paper trail now. Having documentation can help you respond to the howls of protest that might eventually come from your vendor or his lawyer when you finally terminate the relationship.

Second, if the vendor is responsible for creating or maintaining any business-critical data or services, don’t fire her before you’re sure that your own employees have documentation or at least some serviceable knowledge of the vendor’s work. Even under the best of circumstances, it’s often tough for techies to deal with opaque work of unseen colleagues. Software developers, for example, often lament the prospect of dealing with OPC, or other people’s code. Though it’s sometimes easier to start from scratch rather than trying to pick up where the defrocked predecessor left oft, this option is almost always more expensive for the buyer footing the bill.

And finally, try not to be too public in voicing your displeasure and shopping around for a replacement vendor. Stories abound of vendors who, upon getting wind that they’re about to be fired, savage IT systems or important personnel with retaliatory activities.

One of the worst reported examples comes from a small biotech company based in the Rocky Mountain region of the US. When the company’s onsite contractor realised that he was about to be canned, he surreptitiously wrote code so that he was blind copied on his employer’s e-mail traffic. This trove of correspondence included clear evidence that the company’s lead scientist was having an extramarital affair.

“On the day the consultant was to be fired, he zipped up 500 racy e-mails and, using another executive’s account, forwarded them to the scientist’s wife,” new writes Dan Tynan of InfoWorld.

I’m not sure whether the Nobel Prize-winning Coase accounts for such subterfuge in his famous theory. One thing, however, is clear: Even though prices have plunged, the decision to send work to outside contractors and vendors can still come with the occasional hidden costs.

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