The quality of services provided to an enterprise from outside vendors requires nurturing the relationships with each individual vendor. Having multiple vendors means more to manage, so some enterprises establish a Vendor Management Office (VMO) to oversee the management of relationships with vendors and ensure the quality of services that the vendors provide.

Within the VMO are vendor managers—the individual people responsible for dealing with the vendors. Some vendor managers maintain multiple vendor relationships, while in bigger organizations, it is more common to see vendor managers specialized to one or two vendor relationships. In addition to maintaining the relationships, a vendor manager is in charge of actually buying the goods or services from the vendors, including working with them on contracts and negotiations.

The scope of the duties of vendor managers and vendor management offices encompasses many different responsibilities that run the gamut from creating strategies to manage all vendors to managing the performance of a vendor relationship. The performance of a vendor is the most critical aspect of a vendor relationship, and the basis of what is actually being managed.

Vendor management, or the practice of evaluating, measuring, and guiding vendor performance, is one of the thirty core practices of the AOTMP® Efficiency First® Framework. The Efficiency First® Framework is the foundation for a Center of Excellence designed to deliver maximum business value. Additionally, the scope of the traditional VMO may be addressed through other Efficiency First® Framework best practices, such as Contract Management and Sourcing & Procurement.

There are many attributes of a successful vendor management practice. VMOs and vendor managers should aim to balance the suggested Efficiency First® Framework elements to ensure they are extracting as much business value as possible from their vendor management techniques. A successful vendor management practice will include:

  • Collecting, organizing, and prioritizing business requirements
  • Aligning practice with business / technical / operational / financial stakeholders
  • Actively adapting to business requirement changes
  • Influencing desired results through partnership
  • Minimal reactive problem solving
  • Visibility into vendor management practice performance (internal) and vendor performance

Further attributes of the AOTMP® Efficiency First® Framework are the following eight best practices for vendor management.

1. Gather business requirements

Master service agreements, contracts, statements of work, service orders, and work orders offer significant insights into commitments to be monitored. Any other documentation and correspondence that addresses commitments and dependencies associated with commitments should be collected and cataloged as well.

2. Communicate vendor performance expectations

Active discussion of performance expectations with vendors throughout the relationship lifecycle is a best practice. While contracts and agreements typically include quantitative performance measures in the form of service level agreements (SLAs), experience and engagement performance depends on mutual understanding of subjective performance measures. As such, maintaining an open dialog about performance expectations builds trust and partnerships likely to yield more productive results than simply relying on SLAs.

3. Establish vendor performance scorecards

It’s a best practice to establish performance scorecards that include quantitative and qualitative performance data supporting comprehensive vendor performance evaluation. While the core measures of a performance scorecard are the same across a mix of vendors, some may have measures tailored for specific relationship requirements.

4. Collect vendor performance data

Automating and streamlining the collection of quantitative and qualitative performance data from vendors, subject matter experts (SMEs), business stakeholders, and technology stakeholders provides reliable data to feed performance scorecards. Establishing a data collection process that is scalable and sustainable ensures that the effort to collect the data doesn’t outweigh the value the data delivers.

5. Monitor vendor performance and compliance

Monitoring vendor performance against contractual commitments, service level agreements (SLAs), and communicated performance expectations is a best practice that enables a business customer to verify results. While vendors are responsible for delivering commitments, vendor managers are responsible for conveying vendor performance to their business.

6. Resolve disputes

Disputes will occur over the course of a business relationship. This best practice may include exercising dispute resolution procedures contained in a master service agreement (MSA) or a statement of work (SOW) that defines the contractual relationship with a vendor. It may also include negotiating disputes in the business relationship that do not have remediation defined in a contract.

7. Conduct stewardship meetings

Meeting with vendors to review the status of the business relationship and to communicate new or different business expectations on a periodic basis is a best practice. Effective stewardship meets are governed by a structured agenda and focus on maturing partnership and relationship value.

Adhering to these Efficiency First® Framework principles can drive Center of Excellence performance results within a business, takes care of and further cultivates relationships with vendors, and manages the performance of vendor relationships. Vendor Management Offices and vendor managers who follow these best practices create the foundation for maximum business value.

Photo of Ella Paul

Ella Paul

Ella is a Content Writer at AOTMP®

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