Vendor Management

Before I indulge in the meaning of vendor management, I first want to give a brief definition of what a vendor is. For all intent purposes, a vendor is a third party entity that supplies a service or provides a product on behalf of another business. To give an example of a vendor relationship, I will start with a call center in a collection agency. The following examples are third party vendor relationships that may need to be contracted in order for the collection agency to run effectively and efficiently.

Phone Service Provider : Collection agencies cannot operate without having a path of communication to reach their customers i.e.(AT-T, MCI)

Database or System of Record Provider : Collection agencies have to use a computer system or database that stores their customers data and can facilitate the calls to their customers. i.e.(Melida Auto Dialer, Davox Auto Dialer)

Information Storage and Disposal Provider : collection agencies maintain a great deal of confidential information from their customers such as, social security numbers, addresses, phone numbers, date of birth, employment information, relative information, etc. That said, when this information is no longer needed the information has to be properly disposed of or stored. i.e. (Iron Mountain Storage and Retention Company)

Property Landlord : Most collection agencies reside in a rented facility, so the facility has to be maintained for safe and proper business operations for its tenants and customers.

These are just a few vendor types that can be identified for a business; however, once you have identified your vendors, how do you manage them?

What happens if your business phone service provider decides to charge you an inaccurate amount on your bill and you decide to dispute it and then your service is threatened to be turned off for non-payment?

What happens when you have been using your database system of record for years and all of sudden the provider of your system of record goes bankrupt and cannot maintain your service agreement no longer?

What happens when you find that your storage and disposal company is sub-contracting their services to a lower level company to expand their business services; however, your contract does not have a provision prohibiting the use of subcontractors?

There are a variety of answers to these questions that businesses can come up with and most will say 'Get rid of the vendor', ' Cut your losses now'. Is this a good reaction to a contractual disaster? No..No..No..!!!!!!!!!

First and foremost, a business to business relationship should be treated like an instrument of mutual consideration. One side provides a service for a fee and the other side receives the service for a need. Throughout the relationship each side needs to mutually agree on the management of the business relationship and that is where the contract comes into play. A contract dictates what should be done and what should not be done within the business relationship and should not be ignored.

The biggest contractual error a business can make is not to incorporate business requirements into a standard contract with their vendor. Going back to one of the examples of the collection agency stated earlier, if part of the business requirements is to perform a financial viability assessment on a vendor, such as the database system of record provider, then a properly implemented vendor management process would have classified this vendor as a Critical vendor because this vendor houses all of the company's customer confidential information and is highly necessary to the operation of the business. Within the vendor management process frequent financial risk assessments along with other risk assessments would have been performed to alert the collection agency of this vendor's financial insolvency, therefore, a business contingency plan would have been implemented to lower the risk of transistioning the database information to another system while exiting the business relationship with the current vendor.

Yes, in a perfect world, a proper vendor management process would be flawless and elimate all risk; however, we deal in a society of learned experiences through trial and error and many companies become highly exposed to vendor risk due to benign ignorance or ego tripping because some leaders do not want to take the time to learn more about effective contract/vendor management or refuse to invest in an expert that will in the long run save their company from high exposure to vendor risk.

If you are unfamiliar with the process of negotiating terms of a contract, not too informed on how to evaluate the services of your vendors and executing effective action plans, do not have the time to build strong business relationships with vendors, then hire yourself a good qualified contract/vendor manager. And if you cannot find one, contact KRI Consulting Solutions L.L.C. Contract and Vendor Management is our specialty!