Ten Proven Principles of Vendor Management

The following ten fundamental principles will guide your efforts in managing vendor relationships:

1. Solid project management goes a long way—Outsourced projects place more importance on the project management fundamentals. Although you might be able to get by with less on internal projects, outsourced projects bring a visibility and accountability (both financially and legally) that make solid project management and leadership a requirement to make the relationship work. In particular, the following aspects of project management become essential:
   • Well-defined and properly planned project
   • Effective project sponsorship
   • Buy-in and commitment on success criteria
   • Well-managed expectations
   • Clear roles and responsibilities
   • Effective communications
   • Formal change control management
   • Effective issue management TipThe principles and techniques in managing virtual and cross-cultural teams in “Managing Differences,” are valuable in outsourced project arrangements. NoteJust because procurement and vendor management require formal communications and processes, it does not mean that only formal communication methods are used. In fact, the formal communications should just follow (and document) what has already been discussed and agreed to.
2. Vendor management is multifaceted—Effective vendor management has four distinct elements that need attention:
   • Evaluation and selection
   • Contract development
   • Relationship management
   • Delivery management
3. “See” the contract, “be” the contract—Borrowing an expression from the sports world, you need to be fully aware of what the contract states. Ideally, you are involved in the development of the contract or, at the very least, the project definition document that is referenced by the contract. In either case, you need to have full knowledge of what the contract states for three reasons:
   • To ensure that you clearly understand what the vendor is responsible for
   • To ensure that you are managing the project and vendor consistently with the contract
   • To understand what incentives are motivating your seller
4. Formality rules—Due to the legal implications of the work relationship, all changes must be in writing and formally controlled, no matter who originates the change. In addition, all project communications dealing with procurement management should always be formal and written. NoteIn many organizations, a natural conflict exists between the contract administrator and the project manager. There are three reasons for this:
   • The contract administrator is the only one authorized to change the contract.
   • The contract includes or references the project definition document or project plan.
   • The project manager owns and manages the project definition document and project plan.
5. Contract complexity should be consistent with project risk—Both the procurement process and the level of contract detail should be consistent with project risk. The same due diligence process needed for a multimillion dollar project should not be used for a $50,000 project.
6. If it is important, put it in—Any aspect of an outsourced project that is important to either party should be in the contract. This includes, but is not limited to, deliverable specifications, the methodology used to create the deliverable, specific resources, roles, and responsibilities, planned communications, deliverable acceptance criteria, and project success criteria. Do not rely on assumptions.
7. Management commitment is key—Partnerships between organizations are the result of demonstrated management commitment. More important than what the contract says or doesn’t say, the commitment level and flexibility demonstrated by senior management (from each party) to make the relationship work will be the determining factor.
8. Focus on “win-win”—This principle is a cultural shock to many organizations, but both parties should focus on building win-win relationships throughout the project. When issues and tensions occur (and they will), actions should be focused on mutually beneficial resolutions and on easing tensions—not escalation and provocation.
9. Clarify terms and processes—Take the time to review, explain, and clarify all terms and processes involved in the project. More conflicts result from misunderstandings than anything else.
10. Clarify internal roles and responsibilities—Make sure to clarify the roles and responsibilities for the procurement (purchasing) department versus the project team, especially between the contract administrator and the project manager. Conversely, the seller project manager needs to clarify his role and responsibilities in this arrangement with his sales, accounting, and legal departments.