Managing Vendor Relationships - The good, bad and the ugly

If we had to summarize vendor management and boil it down from the many descriptions available, we'd use one word: Relationship.

Why Vendor Relationships Matter

Relationships:

• Are the glue behind the contract and the behind the scenes negotiations.
• Make the difference when you need to call a vendor at midnight because of a system crash.
• Matter when you need to speak to your account manager because of a glaring mistake has been identified and needs rectifying.
• Are important when negotiating price points.
• Matter when communicating corporate culture and setting expectations.

Successful relationships are usually based on mutual respect, are fair and profitable for both parties, will mature and flourish based on mutual success.

When the relationship matures and becomes a well-oiled machine, the partnership has the potential to become unstoppable. Healthy margins, improved service levels, product development ideas all become attainable goals.

When Good Third Party Relationships Turn Bad

This shouldn’t happen too often, but ongoing monitoring and a good vendor manager are key to pinpointing a souring relationship. We’re venturing into cause and effect in the vendor management space, and a good vendor manager spots and handles negative situations that will determine if relationships can be saved or should ultimately be terminated.

Key Advice

• Don’t rattle the Sabre - there is no quicker way to lose the respect and understanding of a vendor by empty threats. If anything, this behavior should be monitored and nixed if you have a leader threatening to cancel or reduce volume business because of a failing SLA. The old adage about catching more flies with honey stands true. Granted, this doesn’t mean that you should ignore contractual language regarding SLA performance, but to constantly berate a vendor will ultimately backfire on you.
• Keep it professional - it’s a small world and in the vendor fulfillment landscape, industry news travels fast. Not only is an organization concerned with reputational risk but the same risk is apparent and applicable to the vendor manager. Your own business brand AKA reputation can play a huge role in future relationships. If the vendor manager is known as a bully then that reputation will stick for a long time.
• Set expectations with your vendors. As a kid growing up, if I misbehaved, I was usually given a warning or two. After that I had to be prepared for whatever punishment my parents deemed necessary. Imagine my surprise when I received a reprimand without notice which was purely based on my parents witnessing something I had done. And that’s the point - set expectations with your vendor. No matter how frustrated you may become, it’s important to set expectations regarding SLAs and overall performance and that the vendor isn’t blind-sided.

Case Study:  The Man with a Sabre and the Quiet Man Who Carried a Big Stick

Vendor Manager A is responsible for managing 12 AMCs. The manager performs monthly scorecard calls with all AMC’s but doesn’t account for the difference in turn times based on geographic volume. If the turn time is below X, then by default the vendor is viewed as failing. The manager promptly fires the failing AMC without notice, quoting failing SLA data. The AMC team is stunned to learn of the loss of the account and didn’t feel like it had a fair shot at keeping the business. 

Vendor Manager B, has the same responsibility of managing 12 AMCs. Under this manager, the performance scorecard takes account of geographic issues and meets the AMCs to discuss the notable concerns. Agreeing to put the failing AMC on an action plan, they work together to better streamline the AMC operation based on the client’s needs. In one case, the AMC improved performance, in another case, the AMC failed to make the grade.

The key take-away? Neither AMC was surprised by the action taken. 

You may or may not agree with the two outcomes and believe Vendor Manager A was merely being proactive in managing a vendor panel. But if we really value RELATIONSHIP, doesn’t the above example show how you can still actively manage your vendor and retain a level of integrity and dignity for all concerned?

For Vendor Manager B, their reputation was intact, they were known as being firm but fair whereas Vendor Manager A lost respect among many different vendors. The personal reputation risk was damaging for the manager who was quick to rattle the sabre.

The above case study shouldn’t be viewed as diminishing the importance of contractual SLAs but highlight the importance of the relationship factor. In fairness, the relationship factor can be classified as an intangible and you’ll usually recognize the importance of it when you see it.

Have a Vendor Relationship Strategy

So far, we have discussed the importance of walking away from the vendor relationship and the potential for the process to be smooth or simply a headache. Saying goodbye to a vendor also includes a level of strategy; it’s important that if you do plan to manage a vendor out or simply fire them that the process meets the policy and procedure document and your internal checks and balances have been performed. At all costs, you should consider and plan where the additional service or product volume should be assigned to.  Depending on your current vendor coverage, this may vary and can quickly become as much of a headache than getting the vendor to reperform. 

Don’t discard or discount the value of relationship management in your third party risk program. Vendor oversight is not a gladiator sport, developing your relationship from simple vendor to partner and trusted advisor is a goal worthy of your attention. The results will pay off 10 fold.

To read more on vendor oversight and ongoing monitoring, download our infographic.