“The real theme of vendor management is not negotiation, nor saving money. It’s not all your contracts and transactional pieces, though these are all important. The real theme is the relationship,” Tim Norton, Founder and CEO of VMO Benchmark, a US vendor management consultancy firm, told Nearshore Americas recently.
“The theme that sits behind all of these red flags is really the failure to build the right kind of interaction between vendor and client,” he added.
Clear communication between vendor managers and the partners of their companies is the key to a strong relationship and aids both parties in coming to an agreement that benefits them both.
But sometimes, one partner ends up needing to read between the lines to fully understand the intentions of the other. Opaque reasoning, doubtful delivery times and or general disinterest are always a concern for organizations that are contracting services from vendors.
Nearshore Americas chatted with three Nearshore professionals and vendor management experts to hear about the major red flags that they’ve seen in the line of duty and why, ultimately, they may stop working with vendors.
Delivery Times Are Doubtful: When a proposal seems too good to be true, it often is, Alejandro Morales, Vendor Manager at professional services firm JLL explained. “
Certain background information of potential vendors, like its financial integrity, are all easily found out, particularly if they’re public companies. But what is not always so certain is the delivery time of a service and the reality of the access that this vendor has to a key service or product you need,” he said.
Customer references, referring to case studies and due diligence on the part of the vendor manager are all useful here. Better to be cautious than burned.
No Dedicated Point of Contact: “If it seems like every time you talk to the vendor you’re speaking to someone different, it means the vendor has not identified you as a client that’s important to them,” explained Norton.
Either this is a symptom of unpreparedness or inadequacy, a constantly revolving point of contact means that messages are lost and targets are harder to hit. The needs of the client are not being considered. Requesting an official and dedicated point of contract will be necessary, though its initial lack is a huge red flag.
Vendor Has No Plans for You as a Client: If a client comes to you and says we hope to grow 10% with you this year but offers no route to that growth, or any form of a plan as to how to get it done, then suspicions are raised.
“As a good vendor manager, I can help them achieve that aim and let them know what it’s going to take, and explain that they may need to bid on projects they would not usually bid on. But if they offer no plan, that’s a red flag for me,” said Norton.
Too Much Subcontracting : “Most vendors want to grow their contracts with their clients. But if they plan to do this by outsourcing large parts of the contract, particularly core services, to third parties, then this is a worry. This means that we, the client, are not getting their full attention and that they aren’t able to fulfil the expectations of the contract,” said Ricardo Contreras, Head of Vendor Management Office at Mexican IT transformation company, RD-IT.
“Being absolutely explicit in the contract building stage is key to avoiding this,” he said.
Lax MSAs for the Remote Environment: “MSA contracts must be aggressively modified for the work from home security challenges,” said Norton.
When companies are slow to accept this modification or appear unable to meet the requirements of work in the remote world, clients should consider their options, he suggests.
“Many existing MSAs do not allow work from home for consultants. Obviously that is going to have to change. It also lends itself to understanding security that people working from home have which generally is far less than at the office,” he added.
Prices Rise without Reason or Transparency: The process of bidding for a contract can be costly for a vendor. That’s why, during a more simple contract renegotiation, Norton expects contract prices to fall.
“This isn’t because I want the contract for less, it’s because the vendor already has the business – does not need the expense of responding to a Request For Proposal and the learning that is necessary. On the extension, none of these previous overheads exist anymore; you’re already doing business. Other aspects, such as inflation, must be considered. But if prices are rising without reason then that’s a problem,” he offered.
And that goes for raising prices, too.
“I’m happy to hear the logic behind why prices are going to rise. But if the vendor refuses to give reasons then that’s not a vendor I want to renegotiate with. Honesty and openness is always key,” Norton added.
“Many existing MSAs do not allow work from home for consultants. Obviously that is going to have to change.” — Tim Norton
Playing Fast and Loose with the Cloud: Digital transformation efforts mean that security issues of any kind related to data handling, storage and transfer must be exacting. No company can afford to be found wanting in this department.
“It’s particularly important to pay special attention to reviewing the clauses of cloud services provided, since the handling of customer and private data is absolutely critical. Question contracts that don’t specify guarantee policies and liability insurance,” said Contreras.
Vendor Shows No Interest in Client Strategy or Has Client-Specific Goals: Planning ahead and understanding the needs of the client are expected by vendor managers.
“A good vendor comes to you ahead of time and asks what is going to happen in the coming year, what the cost constraints that I’m working under are, and whether I have plans to expand,” said Norton. “I expect them to tell me that we did X amount of business in the last year and they want that to expand, but they need to show a plan of action.”
Without clear and well-considered targets, there is little alignment to the client strategy and that demonstrates little understanding.
“The real theme of vendor management is not negotiation, nor saving money. It’s not all your contracts and transactional pieces, though these are all important. The real theme is the relationship.” — Tim Norton
Simple Differences in What They Say vs What They Do: Backing words with action help build trust between business partners, particularly as technology advances accelerate and the need to keep up-to-date means companies are required to invest heavily into technologies.
“A lot of our clients are dealing with larger and larger sets of data, and they require higher support for services like data centers,” Contreras explained.
“When we contract with these services, we expect absolute guarantees in data protection and security, and for them to fulfil what they have told us they will do. If we begin to see slips between what was promised and what was delivered, this becomes a major problem.”
Vendor Demands More Volume: When a client feels like they’re being held hostage, the relationship is sure to sour, said Norton.
“Occasionally a vendor will demand more volume from a client and, in effect, tell them they won’t be able to hold a price for a service unless the volume is increased. That isn’t the way the relationship should work; a vendor has to earn the contract and align with client goals. Setting out clear intentions from the contract stage is vital,” he added.
General Ignorance of Client Business: Regardless of the service they provide, vendors must show a willingness to learn and understand their client’s business.
“When vendors are unprepared and lack knowledge of a business, it shows,” Norton said. “
They can be tested on data they should know about their client, like yearly volume, last year’s net profit, the vendors a company is already using. This is all very easy to find out and if the vendor hasn’t put that small effort in to secure a strong relationship then that’s a worry.”