How to manage your vendors strategically

Here are 6 tips for managing your suppliers

At almost every company I’ve worked for, people have blamed vendors for poor project delivery and/or operational execution.

‘Vendor bashing’ can feel very adversarial and as far from a partnership model as possible. Every vendor needs to be managed differently – some need special treatment.

Here are 6 tips for managing your vendors.

1. Segment your suppliers

All vendors are not equal. Have your team evaluate your entire population of vendors and determine which ones belong to which segment.

Supply chain management guru DS Rogers noted that: “The idea of supplier segmentation is pretty simple – grouping suppliers in a supply base by their impact on the business.”

I did this exercise in a previous role and chose a vendor (not one that we spent the most money with) but one that we need to work closely with or risk the failure of a major transformation project.

2. Communicate intent

Let your team, management and perhaps even your board members know that you are segmenting your suppliers and identifying your more strategic partners. Don’t be shy to let key contacts inside your suppliers know what you are doing too.

Although their initial reaction is likely to be favourable (who doesn’t want to be treated like a strategic partner) you’ll need to create a ‘storyline’ and share it with all your stakeholders for discussion.

Do some analysis to determine how each person might feel about your plans.

3. Build a ‘balanced scorecard’ plan

If you don’t create a balanced scorecard to connect activities you undertake with your vendors and how these relate to your big picture strategy, you potentially put these relationships at risk.

The scorecard needs to cover everything including financial and non-financial benefits to both parties over the short and long term.

I once created a balanced scorecard for a strategic partnership that was not going very well. This helped me turn the relationship around and I was even asked to record a video testimonial on how great the partnership was.

The framework provided by this scorecard allowed both teams to look beyond short-term project issues and consider the partnership as the key long-term goal. This certainly changed the behaviours of all parties.

4. Engage the executive suite

Have this balanced scorecard reviewed and signed off by the executive suite from both sides of the partnership. This requires some lead time and review changes, but in the end you have an agreement for the approach. Believe me once the top guys are aligned, it is easier to keep the partnership going in the right spirit.

This engagement itself can’t be underestimated and this requires face time between the various parties. To that end, I included targets for this engagement on weekly, monthly, quarterly or yearly basis. For instance, monthly or quarterly ‘CEO to CEO’ conference calls with bi-annual site visits to share best practices and learnings.

This ongoing dialogue is the key and in one major transformation example this global vendor provided 30 per cent more resources at no cost. This was all due to this balanced scorecard.

Another time, I had targeted co-innovation as one of the goals of the partnership. As a result, we pushed a global partner to develop an API layer to enable digital mobile development.  We were in fact there first customer for the mobile banking and not surprisingly this gap had not been recognised. 

5. Follow-up and measure

This is the hard part that requires perspiration. As the CIO you have to set the tone and yourself not ‘bad mouth’ the vendor. Instead, talk about the benefits of the partnership. You will be pleasantly surprised how this simple act can change the dynamic of the relationship.

It is unfortunately too easy for yourself and the team to fall back into the mode of vendor bashing. All evils of the world come as a result of their poor work. But as we know it takes ‘two to tango’. We both have to work on ensuring that we don’t step on each other’s toes and we understand our respective roles.

To make this real requires a commitment to meet regularly perhaps each fortnight or at least each month with the strategic vendor to ensure there is good dialogue and the relationship can be strengthened through regular contact.

In one example when I worked for a retail bank, we had the two CEOs on a call each week along with a few other executives. This ‘shortened the distance’ between the two parties and helped forge a true partnership.

By the time we were going live, it was impossible to tell who was who in the room. All the team acted in unison and there was no finger pointing.

A miracle perhaps but it is repeatable. This just takes commitment from the highest levels and a strategic perspective on the issue which looks above the forest to see the fires in the trees.

6. Provide plenty of feedback

Once we all start talking honestly about the issues, the barriers can start to come down and we begin to address the real root causes. It is often the case that even within large vendors that there are significant divisions and boundaries that prevent them from working effectively.

This combined with the departments and divisions that exist in your house all contribute to the need for open communication and feedback.

While this takes some effort and is indeed bi-directional, we will start to look to anticipate issues and look forward.

In our open source, cloud-based world, we need to address such a culture.

Our own career success can depend on be a builder of these relationships.

To develop this capability and competency in your team is a critical success factor. Surprisingly little focus and training is dedicated by many CIOs in this arena, so dare to be different and make this a real strength of your team.