Don't Roll the Dice on Vendor Risk

Vendor Risk: Can Procurement Manage a Way Out of It?

Employers of any size all around the world and in every industry have one thing in common: they must, by necessity, rely heavily on vendors as a vital component of their business operations. In fact, many organizations have more vendors than they do employees. Unfortunately, said reliance on these third-party relationships and on the activities of a vendor can leave businesses open to various hazards in categories called risk management domains: operational, financial; technical; regulatory compliance; reputational; and information security and privacy.

By employing effective vendor risk management, a business actively engages with its third-party vendors to ensure that the vendors’ operations, actions or inactions do not cause disruption to the business’s operations or otherwise have an undesirable effect on performance. Vendor risk management also keeps a business from getting hit with hefty fines or penalties for regulatory noncompliance or witnessing damage to the company’s reputation or brand — all because of something one of its vendors did (or didn’t do). And the group that’s increasingly becoming responsible for performing the critical task of vendor risk management? The Procurement department.

A Bigger Job to Do

Traditionally, Procurement’s primary role was to handle vendor selection, sourcing and negotiating best value/pricing on goods and services and finalizing vendor contracts. Performed optimally, this role alone contributes undeniable strategic value to the business. Today Procurement does far more heavy lifting because its core functions make it uniquely equipped to proactively identify and mitigate the myriad risks that third-party vendors present. 

Why the Need for a More Proactive Approach

The business environment continues to move faster, smarter, with more organizational interdependencies. Vendor networks are evolving from simple supply chains into complex value chains, growing almost exponentially in size and technical intricacy. Businesses rely heavily on their third-party vendors to cost-effectively fulfill their portion of the process, and thus must be capable of forecasting, overseeing and responding with agility should the slightest delay or deviation in the vendor’s actions be observed. Further, regardless of what functions are outsourced to vendors, compliance with all local, state and federal regulations remains the responsibility of the business.

The Damage Can Add Up

Failing to recognize the danger of vendor risk can cost a company dearly. Last year alone, a U.S. health insurer paid $2.09 billion in criminal penalties to the Department of Justice and $8.8 million to the Securities and Exchange Commission after one of its foreign vendors ran afoul of the Foreign Corrupt Practices Act. A major utility company reported a vendor had released the personally identifiable information of nearly 300,000 employees, and a bank reported a data spill at a vendor’s location exposed nearly two million current and former customers’ personal information. Data breaches like these cost a U.S. company an average of $8.1 million, with the intangible costs of reputational damage much harder to estimate.

Yes, They Can!

Procurement is well-positioned to take the lead on vendor risk management because, frankly, it’s already doing much of the job. Consider that the core functions in modern procurement operations are divided into six accountability areas that represent the supplier lifecycle from start to end:

  1. Strategic Sourcing
  2. Contracts Management
  3. Procurement Processes
  4. Invoicing and Payments
  5. Supplier Management
  6. Spend Analytics

Coincidentally, each of these six areas is essential to managing vendor risk. Thus, by monitoring the areas for which it traditionally is responsible (e.g., Sourcing, Contracts, Procurement, Invoicing) and extending its reach to include the other areas of accountability means Procurement can provide vendor risk management at the enterprise level — in particular, identify perceived operational, financial or information security risks and ensure that any fast-breaking regulatory and compliance matters are addressed to avoid any risks of that nature.

Just as the proliferation of technology is a major contributor to vendor risk, so does it figure prominently in providing a solution to manage it. Third-party cloud-based risk platforms are available that can connect a host of flexible tools with the eProcurement platforms and accounts payable system that the Procurement Department already uses, elevating the system’s scope and reach to bring immediate visibility, transparency, order, and application of best practices into every cross-functional transaction underway. The best of these platforms are robust and scalable, offering:

  • Seamless, easy integration with the company’s existing eProcurement system(s)
  • An instinctive, approachable UX
  • Efficient automated workflows and risk management processes
  • Tailoring for unique industry needs
  • Industry compliance and regulatory requirements as they develop
  • Scannable reporting capabilities
  • Freely shareable dashboards for real-time, aligned collaboration
  • Risk domains and assessment forms that can be tailored to the needs of the business 
  • Comprehensive customer service throughout the vendor lifecycle

Personal Relationships Are Key to Success

To monitor supply chain health, Procurement can further enhance the risk management process by once again doing what it already does: cultivating great relationships with vendors. These are people they talk to often to discuss terms and resolve issues so they’ve proven they’re up to the task. Work strategically, focusing first on top-tier and most-at-risk vendors within the risk management domains yet assess the entire group, as even vendors deemed lower-tier can have an outsize impact on a business should they trigger data breach or bribery claims.

There’s a great deal of upside to increasing the breadth of a business’s Procurement operations to include leveraging a cloud-based procurement platform to meld with the company’s P2P system and utilize both, along with personal relationships, to eliminate or minimize the myriad risks inherent with vendor relationships before they can negatively affect the business. At the same time, the wealth of key data and process improvements that are realized will help an employer streamline and optimize daily operations to face the competition with a distinct advantage. 

Sources: Digitalguardian.com, Managing Vendor Risk (The Shelby Group)

Failing Report Card

Introduction to Supplier Scorecarding

From the beginning to the end of a student’s formal education, there is constant evaluation. Each year, quizzes, tests, and papers are graded throughout the semester and these scores are ultimately compiled into a report card. These report cards are then used to help the student, the student’s parents/guardians, and the school faculty evaluate the student’s progress. For many, this is the stuff of nightmares. But if we let go of the emotional baggage and focus solely on the numbers, we can see how this is a useful approach to understand performance over time.

Let’s think about it graphically. On the y-axis, we would place grades, which could be broken up by subject, or aggregated to form a grade point average (GPA). On the x-axis, we would track time. So our graph would look something like this:

GPA Chart

Almost anyone can look at this graph and immediately understand the data. This was a student who started out just below a C+ average and improved to an A average for the final semester. You can see that there were bumps along the way, i.e., the trend wasn’t purely linear. But the graph – and therefore the data – tell a story, a story of pretty considerable and consistent improvement over time

You may have had a wonderful academic experience, or you might have struggled through school. In either case however, whether you were a stellar student or a mediocre one, your grades told you – and your teachers – exactly where you stood. If you’re like me, those sorts of granular performance metrics all but disappeared once you finished your academic career.

The Gap Between Buyer and User

Ask most strategic sourcing professionals about where they invest their time and you’ll hear a familiar answer: “Identifying possible strategic suppliers and including them in strategic sourcing events like RFPs.” Here’s the question that’s not getting asked enough: “What is the state of your current supply base?” Or put more colloquially, “What’s the story with your vendors?”

It’s not surprising to find out that many will tell you that they simply don’t know. They source the vendors and then pass them off to the stakeholders who are the ultimate users of the product or service. If you are tasked with the responsibility of finding a CRM for your organization’s sales team, you can run a really tight process, gather all the requirements, leverage stakeholder expertise, and select what everyone is convinced is the best CRM provider for your needs. Once that process is complete, you have to move on to sourcing the next product or service. The vendor relationship is handed off to a colleague who manages sales operations, and as is often the case, the status moves from out of sight to out of mind.

So when that contract comes up for renewal, what do you do? You plan to renew of course. But in the days leading up to the renewal, you just happen to find out that the sales team is miserable with the CRM. By now, however, it’s too late; you have no choice but to lock yourself in to another year with the provider.

The above example underscores a significant problem – the growing disconnect between the people who are tasked with purchasing products and services and the people who ultimately use them. In some respects, it makes all the sense in the world. Your sales team should be focused on selling; your marketing team on marketing; your HR team on…HRing; and your strategic sourcing team on sourcing. Maintaining open lines of communication around hundreds, thousands, or tens of thousands of suppliers is not simply onerous, it’s impossible. But while this might make logical sense, accepting a data black hole as inevitable is folly. Fortunately, there exists a deus ex machina – the supplier performance scorecard.

What are Supplier Scorecards?

Imagine you could have, with the touch of a button (or click of a mouse), real insights into the performance of your vendor pool. Now close your eyes, metaphorically at least because it’s going to be really hard to read with your eyes closed, and envision a world where these performance metrics were gathered by some combination of hard data, e.g. defect rates, on-time delivery frequency, etc., and by more qualitative analysis by the stakeholders who are most engaged. By implementing a scorecarding program, your wildest dreams can turn into reality.

The key to a strong scorecarding program is effective data collection. As mentioned above, quantitative data may well be pulled from other systems like ERPs or accounting software. The qualitative data, which is often where the rubber meets the road, is gathered via surveys. How to build a survey is beyond the scope of this introductory article, but the premise is simple: you create a list of questions that can be used to assess the vendor’s performance. These questions are typically grouped into sections – think “Customer Service,” “Product Quality,” etc. – and distributed to stakeholders who are regularly engaged with the vendors that are being evaluated.

Completed surveys are collected and the data is aggregated, ultimately generated a score. This score is, for all intents and purposes, the GPA of the vendor. And you, the buyer, can watch how different vendors’ GPAs change over time.

The Benefits of a Scorecarding Program

Here’s the unfortunate truth about working in strategic sourcing – you will almost always find yourself at an information disadvantage. You’re an IT category manager and have an expertise in IT? Great. But the person who is selling you Managed DNS only has to master that one subject. Good salespeople will always know more about the product they’re selling than the buyer does. But when you have supplier performance scorecards, you are empowered by data. You can proactively put suppliers into corrective action plans. (The academic equivalent is an ad hoc parent-teacher conference!) You might decide to put a contract for a product or service back out to bid. And when the data looks really good, you might negotiate a multi-year or larger scale agreement to leverage volume discounting while investing in the relationship.

Another significant benefit is giving stakeholders the ability to be heard without overwhelming the recipients of the feedback. Structuring the surveys in a smart way enables stakeholders to share their opinions while providing vendor managers and strategic sourcing team members actionable insights.

Wrapping Up

We live in a world where organizations are increasingly dependent on a litany of providers who are employed somewhere else. Renowned entrepreneur, Auren Hoffman, writes, “99% of companies and organizations have more vendors than employees…. Stitching together the right vendors is really, really hard. Researching vendors and getting them to work together is really hard. Figuring out the right ones is hard. Getting the most out of them is hard. Getting a great return on your investment is hard.”

Want to make things easier on yourself and better for your organization? Set up a supplier performance scorecard and put the data to work.

(And if you’re interested in taking a deeper dive, we invite you to check out Vendorful’s Essential Guide to Vendor / Supplier Scorecards.)

Spend Matters Solution Map - Sourcing - Nimble Persona

Spend Matters SolutionMap Q4 2019 – Sourcing and SRM/Risk: Strong First Showing

Ladies and gentlemen, we are on the map!

The latest Spend Matters SolutionMap has been released and we’re pleased to say that Vendorful achieved a higher Customer Score than any other competing solution, in not one but two categories. That’s right: our customers rank both our Strategic Sourcing solution and our Supplier Relationship Management (SRM) and Risk solution above all competing products, from established industry heavyweights like SAP Ariba, Coupa and Zycus, to more comparable solutions like Scout RFP and Bonfire.

As you can see from the charts in this post, Vendorful consistently ranks above peers on Customer Score. And, notably, we rank higher than Scout RFP — our closest peer in terms of features and functionality — on both Customer Score and Analyst Score. We’re extremely proud to have achieved that despite being much newer to the market than Scout RFP.

However, we are not satisfied! There is lots of room for improvement and we are determined to continue doing what we have done from the day we started: provide outstanding customer service, improve our product every day, and drive innovation in the procurement software space.

Below are a few highlights from the SolutionMap results.

Sourcing — “Nimble” persona

Per Spend Matters, the “Nimble” organization is looking for modern, intuitive cloud-based software that can be deployed quickly and is competitively priced.

Spend Matters Solution Map - Sourcing - Nimble Persona

We’re proud to rank well compared to Scout RFP in this category.

Sourcing — “Deep” persona

As Spend Matters defines it, the “Deep” organization is looking for “the most comprehensive, tailorable solution for the job”. They want best-in-class functionality, and the breadth and depth to support sophisticated requirements.

Spend Matters Solution Map - Sourcing - Deep Persona

Our closest peer on this chart is Bonfire, and we’re pleased that the Spend Matters analyst ranking places us level with them. It validates that we have been able to balance market-competitive breadth and depth of functionality with the ease of use and high level of service that makes us the best-loved sourcing solution among real customers.

SRM — “Nimble” persona

Supplier Relationship Management (SRM) is a newer area for us, and to be honest, we’re not exactly sure which competing products are most comparable to our solution! So we’re very pleased that the analyst ranked us comparably to more established SRM-focused solutions like Procurence, HICX and Allocation, while again having a higher customer score than any other SRM solution.

Spend Matters Solution Map - SRM and Supplier Risk- Nimble Persona

Again, SRM is a new area for us and we expect to deliver major leaps in functionality over the coming months, all while striving to keep our customers happier than any other customer group in the procurement space!

Conclusion

From the day Vendorful was founded, we knew that pleasing our customers would be our number one priority. The two phrases we like to use as internal guides are “maniacal focus on customer satisfaction” and “white glove service.” Another concept we emphasize here at Vendorful is Customer-Driven Development. Client business objectives and user experience are the foundation of all of our software development activities — we focus on building what our customers tell us they need rather than what we think they need. It’s all part of our customer-centric culture at Vendorful, and we are extremely happy to see that our approach has paid off with our customers scoring us higher than any other solution in the areas in which we compete.

To find out for yourself why our customers love us so much, schedule a demo today!

Are your sourcing methods as effective as you think?

Quiz: Are Your Sourcing Methods as Effective as You Think?

If your procurement team is like the ones we usually encounter, then it’s a given that you would like to accomplish your work in the most efficient way possible. So, when traditional sourcing methods deliver the results you need, it’s natural that you stick with them.

However, staying competitive and keeping up with the rapid changes in the business world requires you to take a more forward-thinking approach. Technology means you now have the option do things faster and better. For example, eSourcing platforms help expand your reach as you search for new suppliers or product sources, and can do so at a more competitive cost. With a solutions landscape that has evolved considerably in recent years, there’s no better time than now to reevaluate whether your current sourcing methods are as effective as you think. (And if you are part of the aforementioned procurement teams that we encounter, you’re undoubtedly in the midst of this reevaluation process.)

To assess what you can do to improve your processes, take this brief quiz below. Read through the questions and give yourself a point for each YES answer.

  1. My team and I use a lot of documents, emails, and spreadsheets to manage our sourcing and procurement methods efficiently.
  2. The lack of visibility and transparency in traditional procurement methods means I have to spend more time managing and monitoring bids and proposals than doing productive work.
  3. I tend to spend a lot of time coordinating between suppliers and internal stakeholders to ensure everyone is in the loop.
  4. The prospect of sourcing new products or suppliers feels tedious and daunting, and usually costs a lot of money.
  5. It takes us a lot of time to prepare a proposal to send out to prospective bidders.
  6. It regularly takes our team weeks, or even months, to find the right supplier that meets our stakeholders’ requirements.
  7. Our suppliers tend to feel that we’re pitting them against each other, which creates tension in the relationship.
  8. Our relationships with our network of suppliers can be strained, especially when we are trying to get the best price for our requirements.
  9. Our team finds it difficult to find new suppliers to participate in the sourcing process.
  10. Objectively speaking, our team finds that our current processes can definitely be improved to be faster, more transparent, and cost efficient.

Now, add up the number of times you answered YES to the above questions.

If you totaled 3-5:

Reevaluate your current processes. Your methods may be effective at the moment, but there could be room for improvement. At the rate businesses are evolving, you might find it harder to keep up with the demands of clients and suppliers down the line. At this point, it would be very helpful to find new ways to keep your procurement team focused and motivated—whether through additional coaching, training or by introducing new tools to help them improve current practices.

If you added up 5 or more:

You clearly need to find a new approach to ensure that your company maintains efficiency and efficacy in spite of apparent sourcing challenges. You might consider leveraging sourcing tools that can offer transparency, streamline communication, improve sourcing practices, and manage supplier relationships all in a single eSourcing platform.

Take advantage of Vendorful’s eSourcing and vendor management platform and find out how you can use it to improve your sourcing methods. Contact us today.

eSourcing can boost relationships with suppliers

3 Ways eSourcing Can Boost Supplier Relationships

When it comes to procurement, technology can make a significant impact.

Take eSourcing platforms for example. Whether it improves efficiency or reduces costs, there’s no denying that automating processes can provide significant operational value. With minimal effort, you’re able to communicate your objectives clearly, minimize tedious back and forth coordination between individual suppliers, and substantially reduce human errors in the sourcing process.

However, beyond improving internal efficiencies, companies using eSourcing platforms should also know it’s a tool that can facilitate better working relationships between businesses and suppliers. This post explains some of the ways it can do so…

1. Helps you find the right supplier efficiently

Traditional methods of sourcing suppliers can be a long-drawn-out process. It’s tedious, time-consuming and, given the effort, it takes to individually coordinate and brief potential suppliers, leaves a lot of room for error.

An eSourcing tool that streamlines the selection process makes things a lot easier. The tool allows you to simplify the entire bidding process given that everything is available on a central platform. As a buyer, you’re able to request all the necessary information you need from all potential suppliers at the same time. You can easily compare results and determine which supplier not only has the best bid but also best fits into your organization.

By identifying potential partners through eSourcing tools, you’re essentially starting a working relationship that wasn’t solely achieved through negotiation. It allows for time to create effective RFPs given that you’re removing the labor-intensive paperwork behind the process.

2. Improve communication between suppliers

Most of the errors made during the procurement process happen because of all the back and forth required to communicate with suppliers individually.

Typically, as you begin to search for suppliers, you will need to send out a brief to each of them. This means you will need to reply individually to their questions. A lot can get misinterpreted in the back-and-forth.

Using an eSourcing tool means all questions and clarification can be communicated via this centralized platform. Interaction on the platform is smoother and facilitates better collaboration. There’s also no need to keep repeating your answers given that everyone involved in the bidding process can easily refer to the information provided. In addition, coordination can be done in real-time.

Communicating in a structured way shows that you are considering your supplier’s time as well as yours. After all, as tedious as the procurement process can be for you, keep in mind that it can also be as time-consuming and complex for potential suppliers.

3. Provides unprecedented transparency

Any successful working relationship is based on trust. This can be difficult when you might be perceived to be starting a professional relationship on the wrong foot.  eSourcing tools make the process more transparent. Everyone gets the same access to the same information, and no one is given an unfair advantage.

This also translates to the selection process. Making your selection criteria available for everyone to access assures suppliers that they are all being evaluated on the same standards.

eSourcing offers a systematic and efficient approach to one of the most labor-intensive and complex processes in procurement–finding the right suppliers. Not only is this beneficial for operations, but it can also enhance supplier relations, which is critical to a project’s success.

Take advantage of Vendorful’s eSourcing platform and find out how we can help improve your procurement process, contact us today.

Vendor feedback helps!

3 Ways Feedback Can Improve Vendor Relationships

For any organization, ensuring that your vendors are able to meet your requirements and expectations is critical. However, this is not just a matter of choosing partners and then passively waiting for them to delight or disappoint: how you manage your vendor relationships can have a major influence on whether they succeed or fail.

One action customers can take to improve vendor performance is to consistently collect feedback from internal stakeholders. This proactive approach increases visibility into your vendor’s performance throughout the contract lifecycle, and ultimately enhances the business relationship.

Let’s delve into the nitty-gritty details of how feedback can improve vendor relationships with the explore the top 3 reasons to keep your lines of communication open.

  1. It helps clarify expectations between yourself and vendors

A study published in the Washington Post states that frequent feedback can help boost employee performance by as much as 12 percent. Why? A manager who is able to clarify his/her expectations to employees reduces the risk of miscommunication.

The same can be applied to vendors. Although you have a contract that may cover the basic service terms, it can leave a lot of room for confusion given the fast-paced nature of conducting business. Regularly scheduled performance evaluations can help to align expectations and ensure that operational and performance issues are addressed.

  1. It facilitates proactive performance management

According to a study conducted by the Harvard Business Review, “negative (redirecting) feedback, if delivered appropriately, is effective at improving performance.”

In the context of procurement, it’s typical for companies to provide performance surveys at the end of a contract. However, while useful for future reference, the retrospective nature of such an inquiry means that vendors are unable to address and possibly correct deficiencies as they arise, particularly if they are not specifically articulated. With regular periodic feedback, vendors can proactively address performance failures, thereby improving their operations in real time.

Doing otherwise could be a missed opportunity to strengthen your vendor relationships.

  1. It gives companies a chance to recognize good performance

Feedback need not be negative: buyers can certainly provide positive reinforcement as well. In general, people are more willing to go the extra mile if their efforts are recognized. It’s a great motivational tool.

However, it’s difficult to acknowledge a job well done if you are unable to pinpoint the reasons a particular operational flow is successful or showing marked improvement. If you wait to long to analyze and recognize successful outcomes, the key stakeholders might forget important context. Collecting feedback in the midst of an engagement allows buyers to accurately document strong performance and recognize it.

Good vendor relationships – with a strong focus on vendor performance – foster smooth operations, and promote relationship growth and longevity. Consistent feedback is one of the best ways you can facilitate such relationships. Intermittent feedback is better than no feedback, but a frequent, open, constructive dialogue – supported by stakeholder data – is best of all.

Technology has proven itself to be a game changer for many industries. Therefore, it’s no surprise that it has made a significant impact even in the very niche aspects of business operations, like vendor management. Platforms like Vendorful can make this process easy, painless and automatic. (And if you can think of ways to gather insightful feedback from your vendors, tell us about it below!)

For a comprehensive explanation on how to improve vendor relationships, get in touch with us today.

For any organization, ensuring that your vendors are able to meet your requirements and expectations is critical. However, this is not just a matter of choosing partners and then passively waiting for them to delight or disappoint: how you manage your vendor relationships can have a major influence on whether they succeed or fail.

Vendor feedback helps!

One action customers can take to improve vendor performance is to consistently collect feedback from internal stakeholders. This proactive approach increases visibility into your vendor’s performance throughout the contract lifecycle, and ultimately enhances the business relationship.

Let’s delve into the nitty-gritty details of how feedback can improve vendor relationships with the explore the top 3 reasons to keep your lines of communication open.

  1. It helps clarify expectations between yourself and vendors

A study published in the Washington Post states that frequent feedback can help boost employee performance by as much as 12 percent. Why? A manager who is able to clarify his/her expectations to employees reduces the risk of miscommunication.

The same can be applied to vendors. Although you have a contract that may cover the basic service terms, it can leave a lot of room for confusion given the fast-paced nature of conducting business. Regularly scheduled performance evaluations can help to align expectations and ensure that operational and performance issues are addressed.

  1. It facilitates proactive performance management

According to a study conducted by the Harvard Business Review, “negative (redirecting) feedback, if delivered appropriately, is effective at improving performance.”

In the context of procurement, it’s typical for companies to provide performance surveys at the end of a contract. However, while useful for future reference, the retrospective nature of such an inquiry means that vendors are unable to address and possibly correct deficiencies as they arise, particularly if they are not specifically articulated. With regular periodic feedback, vendors can proactively address performance failures, thereby improving their operations in real time.

Doing otherwise could be a missed opportunity to strengthen your vendor relationships.

  1. It gives companies a chance to recognize good performance

Feedback need not be negative: buyers can certainly provide positive reinforcement as well. In general, people are more willing to go the extra mile if their efforts are recognized. It’s a great motivational tool.

However, it’s difficult to acknowledge a job well done if you are unable to pinpoint the reasons a particular operational flow is successful or showing marked improvement. If you wait to long to analyze and recognize successful outcomes, the key stakeholders might forget important context. Collecting feedback in the midst of an engagement allows buyers to accurately document strong performance and recognize it.

Good vendor relationships – with a strong focus on vendor performance – foster smooth operations, and promote relationship growth and longevity. Consistent feedback is one of the best ways you can facilitate such relationships. Intermittent feedback is better than no feedback, but a frequent, open, constructive dialogue – supported by stakeholder data – is best of all.

Technology has proven itself to be a game changer for many industries. Therefore, it’s no surprise that it has made a significant impact even in the very niche aspects of business operations, like vendor management. Platforms like Vendorful can make this process easy, painless and automatic. (And if you can think of ways to gather insightful feedback from your vendors, tell us about it below!)

For a comprehensive explanation on how Vendorful can help a company improve their vendor and customer relations, get in touch with us today.

Vendor Relationships

How to Tell if Your Supplier Relationship Management is Successful

Supplier relationship management is tricky, and many organizations are unknowingly mismanaging their supplier relationships. From tunnel vision to a dangerous vendor “lock-in,” a mismanaged supplier relationship almost always impacts your bottom line… even if — and probably especially if — you can’t see the problem.

Mismanaged relationships are more common than you think.

Less than 48 hours before I started drafting this article, I had dinner with someone who works in city government. He told me a story about engaging with a technology consulting firm to build timesheet software. The rationale for choosing this particular vendor, he said, didn’t make sense. But even after the decision was made, there was still an expectation that a product would be built on time and on budget. Regrettably, the proverbial ball was dropped by the buyer. Perhaps it’s not surprising then, that after years of delay and cost overruns, the city finally sued the firm.

While most mismanaged supplier relationships don’t result in litigation, they are almost invariably costly. And though it might be hard to pin down the percentage of client-vendor relationships that are mismanaged, it seems as if everyone who works in an organization with some degree of scale has a story about the subject.

Problems arise at any point in the relationship.

Challenges relating to supplier management are particularly insidious because they can arise at any point in the relationship, beginning in the discovery stage. Even an organization that runs an RFP process using best practices might be challenged by not finding — and subsequently including — the right suppliers. Those organizations that nail discovery, but make compromises on their RFPs, might also end up with the wrong suppliers.

Like any relationship, the client-supplier dynamic can change over time. In some circumstances, the goals of the client’s business and the supplier’s business diverge over time. Even when things go well, there can be complications. One example is when a vendor’s strong performance leads to additional selling into the buyer’s organization. Liz (Brady) Witherspoon, a Principal Consultant at Forrester Research, explained:

“It is not uncommon for a division to have the same software implemented 15 times in 15 different locations in 15 different ways, when maybe it could have been implemented one time across the board.”

Interestingly, one of the biggest challenges that organizations face is far more mundane. A surprising number of organizations don’t even know whether a supplier is delivering as promised. Unreported dissatisfaction will typically not result in change. And, with certain kinds of engagements where the passage of time makes a supplier’s solution “stickier,” it can become increasingly difficult to get disentangled from a bad vendor.

In fact, in some situations, the vendor might exhibit better staying power than the buyer’s employees. Absent a mechanism for maintaining and transitioning institutional knowledge, the buyer risks ceding control of systems and business processes relating to the vendor’s product or service, raising the risk of “lock in.” The ramifications of breaking from “lock in” can be significant in terms of cost, time, and lost production. When an organization wants to free itself from “lock in,” it is essentially looking at a reboot with the added expense of migration. Unsurprisingly, breaking a “lock in” may well require significant reorganization of the company, production loss, and cost.

How to spot a mismanaged relationship

So how do you know if your supplier relationships are being mismanaged? Check if any of these apply to you and your company:

  • Your company awarded a substantial contract without a proper sourcing process
  • There are multiple, partial, or wholly redundant contracts with the same vendor
  • You don’t know what contracts you have
  • You lose the ability to switch suppliers easily due to lock in
  • Your contracts terminate and/or auto renew without anyone’s being aware in advance
  • Spend increases slowly, but significantly, over time without anyone’s noticing
  • You lose track of “market pricing” and you don’t know how your suppliers’ pricing competes with those of their competitors

How to avoid and get out of a bad relationship

Break-ups hurt, but a thoughtful “conscious uncoupling” can be less painful than a continuing relationship. Here’s how to avoid and catch bad vendor relationships before they become a bigger issue.

1. At a minimum, you should be keeping track of all of your suppliers, contracts, and some indicia of vendor performance somewhere. Paper and spreadsheets aren’t the best way to keep track of your business relationships, but if that’s all you have, then it is better than nothing.

2. To reduce the risk of being locked in with a particular supplier, invest in supplier management software that simplifies the process of keeping track of all of your supplier-related data and information. This not only removes the likelihood of losing notes and data, but the software would likely give you greater insight into your relationship with your suppliers.

3. If you really want to level up your management game, marry supplier management software with a Vendor Relationship Management Office. A VMO is in charge of evaluating products and services, maintaining vendor relationships, and covering the day-to-day communication with vendors.

4. Should you relate to any of the mismanaged relationship red flags listed above, choose a way to steer your vendor relationships in the right direction before they own that portion of your business completely.

Looking for other ways to choose the right vendor? We’ve laid out the benefits and disadvantages of the three different methods to manage your sourcing process.