I’ve seen firsthand the importance of having a good vendor management practice for an organization. There are several scenarios, but we’ll focus on two service-related ones:

Filling a Capability Gap
This is where your organization lacks necessary skills, knowledge, or expertise.

• Example: e-commerce website development in the 1990s

• Approach: hire a company that is well established in this area, jump-start your organization, learn, and eventually bring it in-house

Non-Core Capabilities
This is where your organization focuses resources on core capabilities and hires others to take care of non-core ones.

• Examples: legal, security, cloud computing, collections

Understanding the services you are hiring a vendor to perform—and why—is essential for managing the relationship effectively. There’s a significant difference between a vendor being part of your critical operations and a purely transactional one.

Key Elements of a Vendor Management Practice

• Scoping
  Ensure you commit the appropriate amount of time to managing the relationship and getting the most out of your vendor. Document the service the vendor is performing, how they will perform it, and when.

• Risk and Criticality Assessments
  As part of due diligence, look for gaps or areas that may cause concern. Use a rating system to remain objective and consistent. Consider how critical a vendor may be should they be unable to provide services. Where risks are identified, determine how to address and minimize exposure (e.g., does the vendor have connectivity to your systems?).

• Due Diligence Standards
  Know the organization you’re doing business with. Confirm their good standing and licensing, learn about their reputation, and gather documents to show they are well-managed and compliant.

• Vendor Selection and Contract Management
  Ensure the vendor has specific obligations, such as notifying you of a data breach or changes in ownership or leadership. Roles and responsibilities must be clearly defined and communicated.

  In my experience, this is where value can easily be lost. If your employees lack clarity—or agreement—on what the vendor should be doing versus what they should do themselves, they often end up taking over the vendor’s responsibilities.

• Ongoing Monitoring
  Decide how you will manage this vendor in the future. Will there be performance metrics that require regular reporting? Is there a specific quality of service you need to measure?

• Termination and Exit Strategies
  Every vendor partnership eventually ends. Plan early by defining how termination will be handled. Address items such as notification process, how data will be destroyed or returned, and whether you’ll bring the function back in-house or outsource it to another provider.

• Executive Leadership
  Senior management must stay informed to ensure support and alignment with the organization’s overall strategic direction.

Final Thoughts

Establishing a vendor management practice can be time-consuming and require significant effort. However, it’s critical to your company’s success and well worth it. Organizations have limited resources and expertise—they can’t do everything in-house.

If you find yourself trying to keep up and feeling overwhelmed, get help. Visit rkmanagementconsulting.com for ideas and methods to guide your organization from chaos to clarity.