It’s not our fault; it’s the vendor’s fault! Sound familiar? After over 25 years in the Financial Services industry as a vendor and a contractor of vendor services, I have seen the best and worst of vendor relations. From this experience, I offer you a brief outline of practical strategies to create a win/win scenario with your vendors.
The best place to start on building a solid vendor relationship foundation is to know what you want to accomplish with your vendors and your vendor relationships. Define your approach to vendor relations clearly within your business organization through your strategic plan development. I cannot emphasize enough the importance of a thorough iterative strategic plan for your business organization that includes initiatives necessary to promote good vendor relations. Don’t stop there! Cascade your strategic initiatives into ethical policies, procedures and practices throughout the organization so that you build a culture around good vendor relations. Make sure everyone knows, understands, and is committed to adopting and practicing the strategic concepts supporting good vendor relations. Consider using a documented positioning statement requiring attestation such as a Vendor Code, Vendor Affirmation, or Vendor Ethics publication.
Once your business organization’s strategic intentions are clearly defined and cascaded throughout the organization, evaluate your vendor selection processes. Vendor selection processes should be driven by selection guidelines and methodologies divided into two components, general and specific criteria. General criteria apply to any vendor and would include evaluation components such background reviews of vendor financial performance, references, litigation history, principle leadership, and industry information. Specific criteria apply to the specific vendor product requirements needed to satisfy the business objective and include items your organization would put in an RFP or a call-for-bids. There are vast bodies of knowledge (BOKs) on building sound ethical general and specific selection criteria in various purchasing and supply chain professional groups. This body of knowledge far exceeds the scope and capacity of this article to define. I refer you to these ‘well-healed’ BOKs for detailed analysis and guidance on developing your final detailed selection process. However, from a relationship standpoint, here are a few key points to remember during your vendor evaluation and selection:
o Does the vendor have a clearly defined strategy for client relationships that goes beyond an organization chart and hierarchical account executive and sales representative assignments?
o Do key executives for the vendor organization make their contact information available to you in addition to the assigned account executive or sales executive?
o Does the vendor organization have a mechanism to periodically evaluate customer satisfaction and remediate any areas of concern?
o Does the vendor seem to make an effort to know about your business and your industry?
o Is the vendor willing to go beyond the scope of your agreement to provide meaningful recommendations to your organization that can help build revenue or cut costs?
o Does the vendor extend an open invitation to visit or tour their home office and or remote locations?
All of these are questions designed to help you determine if your vendor is “vested” in the business relationship beyond the clinical terms of your agreement and willing to embrace the opportunity for a healthy vendor relationship.
With an ethical vendor selection methodology in place, and a vendor(s) selected, the next step is to negotiate an agreement. Never accept the vendor’s standard agreement at face value. Negotiate the basic terms of your agreement and let the legal staff’s of both organizations build a binding contract that includes the basic terms of your negotiated agreement and reflects each organization’s values toward vendor/client relationships. Many of the contract terms are customary, mechanical in nature, and include NDA’s, cost schedules, prescribed duration of service(s), SLA’s, performance rewards and penalties, and specific deliverables. While these are undeniably important to creating a clear understanding of each party’s performance obligations, certain other language in the contract will point to an agreement that also represents obligations toward establishing and maintaining a healthy vendor/client relationship. Too often, the sensational wording of the mechanical and legal aspects of a contract take precedent and relationship tactics place second – if at all – to the necessary legal tedium required to pin down deliverables. Each of the mechanical and relationship agreements are equally important to a defining a healthy vendor/client relationship.
I strongly encourage you to define and commit to relationship initiatives that cultivate the business relationship on an ongoing basis. Don’t wait until there is trouble to begin this effort. For example, contract language should define minimum intervals for constructive contact ranging from periodic phone calls from account managers to onsite visits by vendor executives. Invitations to be involved in vendor sponsored user groups, slotted invitations to vendor/client annual meetings, and advanced notice on product developments. These agreements represent a forward looking and proactive effort toward client satisfaction and healthy vendor relations. Taking preventative actions like these can prevent difficulties and reduce costs. Contract language should also delineate constructive and cost effective approaches to problem remediation including vendor/client negotiations and structured arbitration options as a means to civilly resolve problems and preempt costly and damaging litigation. A litigious solution is the absolute last resort and can signal the end of any hope at restoring vendor/client relations.
Aside from litigation driving vendor change, how do you gracefully change vendors even when vendor/client relations are good? The answer lies in setting up the terms for this inevitability at the outset of your vendor selection and contract negotiation phases. The reasons for discontinuing a vendor/client relationship are limitless so make sure you “leave the door open” for a graceful parting for both parties. This is otherwise known as an exit strategy. For example, I have participated in vendor selection and contract negotiation for dual suppliers with contract commitments representing a 50/50 percent volume commitment, room for renegotiation of changes in volume commitments, or exclusivity. Each vendor knew there could be three possible outcomes to this arrangement; continue at 50/50 volume commitment, shift a majority volume to one or the other vendor, or exclusivity.
Why bother putting so much effort into vendor/client relations? The reason is that the investment is worth more than the cost of a bad decision. It only takes one explosive ethical issue or one costly litigious engagement to realize the value represented by investing in good vendor relations. Treat your vendor relationships as valued partnerships in the pursuit of accomplishing your business organization’s strategic mission. Include language in your business organization’s value statements that respect and embrace vendors as well as your industry, your customers and your community. You and your vendors are a mutual extension of each other. So, be careful to enter into relationships that represent a good alignment of values, business objectives, and mutual cooperation which will reflect well on both the vendor and client.