By Tiran Gunarathna, Senior IT Category Lead, Infosys Business Process Management; and
SriKrishna Koneru, AVP – Strategic Business Practice Head, Sourcing and Procurement, Infosys Business Process Management
We often hear about vendor management in sourcing and procurement organisations, but how frequently do we talk about vendor relationship management? Are they the same or are they different?
Although the terms vendor management and vendor relationship management are used interchangeably, they define different areas of vendor association:
In general, vendor management refers to more forceful, controlling and bureaucratic processes. The focus is, usually, on preventative measures, such as identifying and mitigating vendor risks, due diligence on vendors and white-/black-listing them. While these processes are painfully manual, there are several software products in the market that can do the same job with better efficiency. In the information technology (IT) category, research and advisory company Gartner recognises Process Unity, SAI Global, NAVEX and OneTrust to be among the leaders in this space.
Vendor relationship management, on the other hand, is more about adding that human touch to the process by understanding, developing and working in collaboration with suppliers; rather than just monitoring them on an ongoing basis, only to hold them liable when problems arise. Supplier relationship management holds even more relevance in current times with the COVID-19 pandemic significantly influencing businesses. It has now become all the more important to nurture supplier relationships and hold them close, especially the ones that are critical for business continuity. The unprecedented situation beckons empathy, encouragement and mutual support to be able to thrive despite the unrest.
Below are recommendations to help manage vendor relationships better:
1. Analyse vendor eco-systems
While the crisis will not continue forever, it will be critical to assess its influence on your business, not only in the immediate future, but also over the next 24 to 36 months. The emerging requirements in this dynamic scenario urge us to focus on developing and supporting partners towards building a stronger network for the future.
2. Listen to your vendors
Often people managing vendor relationships for organisations secretly loathe suppliers and ignore their unsolicited emails and calls. However, if you have a solid rapport with agreed mutual expectations, it is possible to create a healthier and more productive relationship, which is focussed on specific organisational needs. This may also be helpful if a vendor has an offering that the IT stakeholders like, but are unaware of. It will be a feather in your cap if you can work with a vendor to develop a business case and an implementation plan concentrating on lowering the total cost of ownership (TCO).
3. Create win-win situations
Vendors are in the business of fulfilling their commercial and other objectives. While earning revenue with a decent profit margin can be the primary objective, they can also be influenced by other factors to establish a good relationship. For example, agreeing to be a reference customer may be something more valuable to a vendor than having a higher margin on the services that they provide.
4. Maintain transparency
Having an open conversation with your suppliers can provide multiple benefits. For example, if you are currently prioritising a cloud-first strategy, vendors might be able to help you in recommending the best technical solutions and services.
5. Encourage critical and strategic suppliers to assist with strategy building
This can be a useful approach, especially for your IT category. You can share the technology roadmap with vendors and get their resources to help you fine-tune your strategies. This has been mostly seen in the telecommunications and cloud computing areas. However, if you plan to take the requirements out to a vendor, having specifications developed by one particular provider can make it difficult to discover comparable solutions. To undergo a competitive bid, you may want to enlist an impartial third-party consulting service to help stakeholders develop their requirements.
6. Get to know your vendors’ businesses
Although this exercise is mostly ignored, having resourceful insights about your vendors’ businesses can offer multiple benefits. Therefore, when developing a relationship with a vendor, use the opportunity to understand how they manage cost pressures, know more about their technology strategy and investment plan, and also gather knowledge about their potential competitors.
7. Be clear on performance measurement
Discrepancies often escalate when both parties do not agree on a common method to evaluate vendor performance. Therefore, clearly indicating the key performance indicators (KPIs) and service level agreements (SLAs) in a written contract can be one of the first resolutions in this regard. Wherever possible, seek agreement on the definitions as well. For example, whilst the terms up-time and availability of hosted applications may be widely understood in the industry, there can be grey areas between the definitions of response and resolution.
8. Initiate long-term partnerships
Vendors always seek a continuous revenue stream. Since this may not always be possible, building a partnership approach with key suppliers can yield more benefits. For example, at a very simple level, give priority to the suppliers in your preferred supplier list (PSL) when new opportunities arise.
9. Build trust
Although one of the most difficult objectives to achieve, once established, trust can help to resolve disputes seamlessly and effectively. It will also drive a vendor to pro-actively highlight hidden issues. You will want your trusted vendors to bring hidden/rising concerns to you before they get escalated.
By implementing a few initiatives (as above), great improvement can be seen in vendor relations across multiple organisations. Over time, these measures will automatically integrate with organisational culture and no additional effort may be needed to maintain a healthy relationship with vendors.