An important fact to consider in building a partnership is that some vendors may wish to partner initially; however, the partnership can rapidly turn negative if problems arise. A variety of events affecting the vendor or the client can cause the partnership to go awry, including turnover of key personnel, a merger/acquisition, a change in strategic focus, financial difficulties, high growth, new requirements, or even the acquisition of another customer who is providing much greater benefits and monopolizing the vendor ’s attention and resources. In these cases, it is best to reevaluate the value of the partnership to ensure that the client organization continues to receive the expected partnership benefits. It is also important to periodically reevaluate each vendor to ensure that the relationship is satisfactory for both parties. This process is described later in the chapter.
In the end, the customer is paying for the product and /or services. This should naturally put the customer in the position of most inf luence and provide final control of the terms of the relationship. When money has changed hands, vendors have a business obligation to discharge their contractual responsibilities. Often, vendors try to take advantage of the relationship if the customer is unaware, too busy, or inexperienced in dealing with vendors.
Savvy customers know that they are, ultimately, the boss in any vendor relationship. Given a choice between a partnership and an adversarial relationship, all parties prefer the former. However, if a partnership is difficult to achieve, the vendor manager should be certain that his or her company’s needs are met by the vendor even if aggressive, confrontational action is required.
Vendor Management Role
The vendor management function is vital to capture the benefits of vendor partnerships as discussed in the chapter. The vendor manager, as well as the firm professionals who directly use the vendor services, should be involved in the selection and ongoing management of key vendors. Other functions of the vendor management role should be delegated to an administrative resource. Tasks performed by the vendor manager include:
• Negotiate, execute, file, and maintain all contracts
• Assist firm managers in processing new contracts
Purchasing, Procurement, Vendor, and Asset Management 389
• Provide reports on vendor performance and contract status to senior management
• Coordinate activities between internal teams and vendors
• Define and enforce processes and procedures for vendor management
• Assist with RFP and vendor selection administrative process
• Develop a standard approach to deal with each type of vendor used by the firm
• Establish and monitor service levels required, by individual vendor
• Execute internal vendor quality and satisfaction surveys
• Track and report upcoming vendor milestone dates
• Take appropriate action based on the results of vendor scorecards and surveys
• Maintain records related to the successful delivery of products or services
• Report progress on fixed bid contracts for services, for example, qualitative progress, percent complete versus percent billed
• Analyze vendor pricing compared to industry averages
• Collect and distribute service level reports from vendors
The tendency in most professional services firms is to ignore the vendor management function and by default decentralize all vendor activities. In fact, often the vendor management role goes to the individual who misses the meeting where the responsibility was assigned. However, the organization benefits through reduced costs, reduced risk, and more effective communication between the company and its vendors by centralizing the function.
The vendor management role helps ensure that the company drives the relationship versus being driven.
Assigning a Vendor Manager
The first task is to assign the vendor management role. This person (or committee) will be responsible for the tasks previously described. The vendor manager will also be integral to the audit /cleanup process. In larger firms where a specific manager exists for internal functions such as IT or office management, the vendors used by that department should also be managed by that department. In these cases, the overall firm vendor manager function should help keep track of the department-specific vendors. This work includes ensuring that the department heads are following the guidelines in this chapter and that vendor contracts and pricing are being reviewed by senior management. The vendor manager in many ways functions as the company purchasing agent. A variety of seminars, classes, and organizations
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are available to provide training and expertise on purchasing and vendor management. The U.S. Bureau of Labor Statistics has this to say about training, certification, and continuing education for purchasing and vendor managers:
Regardless of industry, continuing education is essential for advancement. Many purchasers participate in seminars offered by professional societies and take college courses in supply management. Professional certification is becoming increasingly important, especially for those just entering the occupation.
In private industry, recognized marks of experience and professional competence are the Accredited Purchasing Practitioner (APP) and Certified Purchasing Manager (CPM) designations, conferred by the Institute for Supply Management, and the Certified Purchasing Professional (CPP) and Certified Professional Purchasing Manager (CPPM) designations, conferred by the American Purchasing Society. In Federal, State, and local government, the indications of professional competence are Certified Professional Public Buyer (CPPB) and Certified Public Purchasing Officer (CPPO), conferred by the National Institute of Governmental Purchasing. Most of these certifications are awarded only after work-related experience and education requirements are met, and written or oral exams are successfully completed.2
The National Association of Purchasing Management (now known as the
Institute for Supply-chain Management; NAPM/ISM) has information on
certifications available. The APP certification requires passing two exams as well as two years of experience (or one year of experience and an associate’s degree). The CPM certification requires four exams and five years of experience (or three years and a four-year degree from an accredited institution).
The details on certifications available can be found at the NAPM/ISM and American Purchasing Society web sites. A full list of related resources is found at the end of this chapter.
Taking Control of Vendor Management
There is a well-defined process for taking control of vendor management.
This process is appropriate for companies with a track record of failed vendor relationships, a variety of unruly vendors managed by disparate groups or individuals across the firm, or simply a new vendor management process.
Most professional services firm managers or partners at some point inherit a variety of disparate vendor relationships in various stages of health and effi-cacy. Without gaining control of these relationships, service and spending problems can quickly arise from malicious vendors in poor partnerships who are looking to take advantage of the chaos or changes at customer organizations or from benign vendors who are simply paying attention to the customers that work the hardest to manage the relationship. Inattentive vendors
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can wreak havoc on a firm relying on their services; a period of business change or ongoing weak management of the function can cause vendor and client agendas to diverge, and the relationships deserve special attention and tight performance management during these times. Exhibit 16.2 depicts the vendor audit /cleanup process.
The first task is to assign a vendor manager, or vendor management committee, as described in the previous section. Once this has been completed, the second task is to identify all current vendor relationships. These may exist in various departments, business units, functional units, and geographies.
For every vendor relationship identified, all related legal, financial, and operational documents should be collected in a single repository. The vendor manager should review each contract and make particular notes about service level commitments, prices, maintenance agreements, evaluation/reporting procedures, and start and end dates of the agreement.
It is often difficult to locate the contracts for all service vendors in a professional services firm. The contracts may have been signed by a manager who has since departed and the original documentation lost, particularly for long-standing arrangements. A contract may be filed in the purchasing department, legal department, or human resources department; in larger organizations, the purchasing manager should keep a copy of the contract, as well as the manager of the functional area directly involved with the vendor (e.g., IT department, human resources department). Failing the location of an internal copy, the vendor manager can request a contract copy from the vendor. As a last resort, the vendor manager and vendor can renegotiate a contract to govern the ongoing relationship without necessarily changing the Collect
Establish
Assign
Identify
inventory,
Meet
ongoing
administrative
all
review and
with
vendor
responsibility
vendors
store all
vendors
management
contracts
process
• Serve as vendor
• Produce vendor
• Audit
• Goals
• Procurement
management
inventory
– Contracts
• Objectives
process
function
•Best approach
– Terms
• Alignment
•Payment terms
• Individual or
is working
– SLAs
• Performance
•Revised contract
group, depending
with accounts
• Discard outdated
expectations and
on firm size
payable area
vendor contracts
SLAs
• May include
coordination
with functional
department heads
in larger firms
Exhibit 16.2
Vendor Audit/Clean-Up Process
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original terms. Often, long-standing contracts will have expired without renewal, while the firm continues to use the service or product. These situations create an ideal opportunity for the vendor manager to renegotiate the terms of the agreement.