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Four Keys to Successful Project Vendor Management
By Bruce Harpham

Purchasing goods and services is a key activity in many projects. In large projects where vendors provide complex services and high value goods, successful relationships with vendors make or break the project’s success. If twenty five percent of your project budget or tasks are performed by a vendor, then you need to adopt a relationship management approach.

What Is Your Vendor Management Experience?

Approaches to vendor relationship management vary depending on the organization. Some large organizations have long term contracts with firms such as IBM and Microsoft. In that context, one often sees full time contract relationship managers on staff. If your organization has relationship managers, seek out their advice on managing vendors as you start work on your project. They may have templates, checklists and other organizational process assets you can use to manage the relationship.

What if your organization has no meaningful experience with vendor management or complex contracts? You can draw on several resources. The Project Management Body of Knowledge (PMBOK Guide) includes a section on procurement and another on stakeholder management. Combined, these knowledge areas provide a valuable starting point.

Unfortunately, some readers find the PMBOK difficult to interpret as it is written in an abstract manner. This article will give you the fundamentals of managing a vendor relationship successfully.

  1. Analyze the vendor’s strengths and weaknesses

    Every vendor has different capabilities, even providers of commodities. Take the time to understand both strengths and weaknesses so that you can set expectations with the rest of your stakeholders. Current and past customers of the vendor are the best source of information regarding a vendor’s capabilities so put your internal network to use before you speak with the vendor.

    Tip: Use your internal network to see if anybody you know has experience with the vendor.

    Vendor Strengths: For example, some suppliers provide customized training while others simply refer their customers to published training materials. In the case of strengths, the vendor may surprise with you with new approaches that helps you achieve results fasters.

    Vendor Weaknesses: In some projects, you may end up working with vendors that have significant weaknesses. For example, your vendor may rigidly insist on observing the letter of the contract. This approach can slow down the project’s progress. Whatever the vendor’s weakness, it is up to the project manager to understand the weakness and manage them.

  2. Share The Big Picture With The Vendor

    Vendors operate outside your organization which puts them at an information disadvantage. As a result, the vendor will not know the project’s business case, significant risks or other important information unless you tell them. For the best results, share the big picture with the vendor early in the project.

    For example, your organization may be working hard to meet a deadline for a product launch – making schedule performance of the utmost importance. If you are relying on the vendor to deliver critical expertise or other contributions, reiterate the point that you are depending on the vendor to deliver.

    In some cases, your organization may have policies that limit what documents and information you can share. In those cases, share what you can. You may not be able to share the product launch date but you can still reiterate the importance of delivering to the schedule.

  3. Conduct Regular Reports on Vendor Performance

    Project managers understand the importance of monitoring and reporting to ensure project success. Applying monitoring to vendors represents a special challenge because they are external to your organization. For significant vendors, there are two broad approaches to vendor monitoring: contract based reports and non-contract reports.

    Contract based reports are a common feature in enterprise contracts. The vendor may be required to issue monthly reports and statistics (e.g. “average number of days to respond to customer support requests”). Quantitative reporting can be analyzed using Microsoft Excel, Microsoft Access and other software. If the contract specifies penalties for failure to achieve certain service levels, close monitoring of such reports becomes even more important.

    Non-contract based reporting can be challenging to implement. If the contract with the vendor has no reporting requirements, the project manager will have to use their leadership skills to obtain reports. One approach is to show the vendor that reports can be good for them. For example, you can develop a monthly score card report that includes positive and negative comments depending on performance. By making it clear that you will recognize good vendor performance, the vendor will see value in monitoring

    By having regular performance conversations with the vendor, you will gradually strengthen the relationship. A strong relationship is a key ingredient for going beyond the letter of the contract.

  4. Go Beyond the Letter of the Contract

    Contracts are useful tools for the vendor and project manager to clarify their expectations. However, rigidly insisting on the letter of the contract – nothing more, nothing less – has significant drawbacks. For example, the project may urgently need more equipment to solve a problem and you may not have time to complete a change request.

    If you have built a good relationship with the vendor, you will enjoy the benefits of additional flexibility. Flexibility is a two way street however – the vendor will expect reciprocal treatment. Most vendor relationships start out as contract focused – building trust to exceed the letter of the contract only happens over time.

Bruce Harpham writes about project management and leadership for growing IT project managers at Bruce’s project experience includes governance of multi-million dollar vendor relationships at financial institutions and leading projects at universities.

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