5 Keys To Successful Vendor Management

5 Keys To Successful Vendor Management

Reliance on third-party organizations is more than just the new norm in business; it’s increasingly necessary to leverage the niche-specific expertise that only third-party providers can offer, allowing businesses to focus on their own core competencies. 2016 research by Deloitte has found that nearly three-quarters (73.9%) of respondents “believe that third parties will play a highly important or critical role in the year ahead.” 

That’s a significant jump from 60.3% in 2015. Yet managing this third-party ecosystem of financial, IT, HR, and other providers can prove very challenging, and poor vendor management can make organizations vulnerable to unnecessary risks. Here are five keys to ensuring a successful, low-risk relationship.

Do your due diligence.

An ounce of prevention is worth a pound of cure, as the saying goes. Before engaging in a relationship, always perform background research; check references if available; and ask for any appropriate credentials, work samples or other proof of accomplishments. Trust is key to any successful third-party relationship, but blind trust creates avoidable risks.

Monitor the vendor. 

Whichever department or individual “owns” the vendor relationship must consistently monitor the vendor’s activities and performance. According to Deloitte’s report, “increased monitoring and assurance activity over third parties is believed to significantly reduce third party risk.” That’s because consistent monitoring ensures that problems are spotted immediately and can be corrected before they spiral into more serious issues.

Measure performance.

At the outset, clear deliverables and expectations should be established so that your organization can measure the vendor’s performance. Keep an open mind when tracking performance, though; cost benefit is almost always the #1 benefit desired and cited when outsourcing work, but a good vendor will also yield secondary benefits like simplifying workflows and making in-house workers more efficient and able to focus on core work.

Establish clear, accessible lines of communication. 

The organizations must be able to communicate quickly, efficiently and effectively. In general, when setting up a vendor relationship, your organization needs to address the basic “W” questions like who, when, what. For example, who serves as the primary point of contact at each company, and who else needs to be included on communications? How and when will that communication happen? For example, regular meetings can be invaluable, but when do they need to occur?

Think strategic and long-term, not just transactional and short-term.

Ultimately, most successful vendor relationships are long-term, collaborative, mutually beneficial investments that pay dividends in empowering your in-house people to focus on core areas of business. Therefore, vendors should be managed not just according to short-term expectations, but in terms of how they fit into the organization’s long-term objectives. Given the opportunity, a good vendor will strengthen both.

For more information about outsourcing, contact CoAdvantage.