In return, the customer might provide:

Breaks on minor delivery shortfalls by the vendor Continued business without any unnecessary or onerous recompetes Detailed feedback for improving the service or product Press releases and references for vendors sales prospects Specific letters of recommendation for vendors sales calls Potential sales leads for vendor with companies in same industry or contacts from other professional relationships

Typically, these items are provided to the opposite party on a best-efforts basis. The items proffered in a partnership are of relatively low cost to the partner providing them but can be of tremendous value to the other party. This type of relationship will significantly increase the value of the contract without requiring arms length contract addendums whose cost and difficulty of enforcement often destroys much of the potential value and usefulness.

The longer the relationship exists, the higher the potential benefits for both parties. For the vendor, sales costs are virtually eliminated, and over time, the cost to serve generally declines due to experience effects, resulting in long-term gross margin improvement. For the customer, the vendors cost reductions are typically shared with the customer via pricing discounts, additional no-charge services, and higher service levels or speed. The customers cost to manage the vendor also declines, and learning curve costs from new vendor entrants are eliminated. Finally, the customer benefits from a vendor whose staff understands the business in intimate detail and can provide customer-specific solutions.

An important benefit of participating in a close relationship with a vendor is the opportunity to influence the vendors product or service development process. This is particularly true for vendors that provide a critical product to a professional services firm, such as a software application for tracking projects and time provided to a business consulting firm or a candidate background screening process for a staffing services firm. Successful vendors invest immense resources in developing their current and future products and services. Many product vendors have an income stream emanating from maintenance contracts to devote to product enhancements and new features. By partnering closely with vendors and providing input to the prioritization process for new feature or capability development, the client firm can leverage vendor research and development (R&D) investment amounts far in excess of the amounts it could dedicate to internal development. The client then steers the product direction to its ultimate benefit.

One software application vendor we worked with invited 25 key customers to their corporate headquarters twice a year for product development and

demonstration sessions. The vendor product manager would create an inventory of all enhancement requests, interface suggestions, and functionality recommendations from the biannual two-day affair, and work with the internal development staff to incorporate as many of the ideas as were possible and appropriate. Although the software vendor had thousands of clients and an annual users conference, these 25 clients drove a disproportionate amount of software enhancements and greatly benefited from partnering with the vendor.

An important fact to consider in building a partnership is that some vendors may wish to partner initially; however, the partnership can rapidly turn negative if problems arise. A variety of events affecting the vendor or the client can cause the partnership to go awry, including turnover of key personnel, a merger/acquisition, a change in strategic focus, financial difficulties, high growth, new requirements, or even the acquisition of another customer who is providing much greater benefits and monopolizing the vendors attention and resources. In these cases, it is best to reevaluate the value of the partnership to ensure that the client organization continues to receive the expected partnership benefits. It is also important to periodically reeval-uate each vendor to ensure that the relationship is satisfactory for both parties. This process is described later in the chapter.

In the end, the customer is paying for the product and/or services. This should naturally put the customer in the position of most influence and provide final control of the terms of the relationship. When money has changed hands, vendors have a business obligation to discharge their contractual responsibilities. Often, vendors try to take advantage of the relationship if the customer is unaware, too busy, or inexperienced in dealing with vendors. Savvy customers know that they are, ultimately, the boss in any vendor relationship. Given a choice between a partnership and an adversarial relationship, all parties prefer the former. However, if a partnership is difficult to achieve, the vendor manager should be certain that his or her companys needs are met by the vendor even if aggressive, confrontational action is required.

Vendor Management Role

The vendor management function is vital to capture the benefits of vendor partnerships as discussed in the chapter. The vendor manager, as well as the firm professionals who directly use the vendor services, should be involved in the selection and ongoing management of key vendors. Other functions of the vendor management role should be delegated to an administrative resource. Tasks performed by the vendor manager include:

Negotiate, execute, file, and maintain all contracts Assist firm managers in processing new contracts

Provide reports on vendor performance and contract status to senior management

Coordinate activities between internal teams and vendors

Define and enforce processes and procedures for vendor management

Assist with RFP and vendor selection administrative process Develop a standard approach to deal with each type of vendor used by

the firm

Establish and monitor service levels required, by individual vendor

Execute internal vendor quality and satisfaction surveys Track and report upcoming vendor milestone dates

Take appropriate action based on the results of vendor scorecards and

surveys

Maintain records related to the successful delivery of products or services

Report progress on fixed bid contracts for services, for example, qualitative progress, percent complete versus percent billed Analyze vendor pricing compared to industry averages Collect and distribute service level reports from vendors

The tendency in most professional services firms is to ignore the vendor management function and by default decentralize all vendor activities. In fact, often the vendor management role goes to the individual who misses the meeting where the responsibility was assigned. However, the organization benefits through reduced costs, reduced risk, and more effective communication between the company and its vendors by centralizing the function. The vendor management role helps ensure that the company drives the relationship versus being driven.

Assigning a Vendor Manager

The first task is to assign the vendor management role. This person (or committee) will be responsible for the tasks previously described. The vendor manager will also be integral to the audit/cleanup process. In larger firms where a specific manager exists for internal functions such as IT or office management, the vendors used by that department should also be managed by that department. In these cases, the overall firm vendor manager function should help keep track of the department-specific vendors. This work includes ensuring that the department heads are following the guidelines in this chapter and that vendor contracts and pricing are being reviewed by senior management. The vendor manager in many ways functions as the company purchasing agent. A variety of seminars, classes, and organizations