Six Keys to Vendor Management: Vendor Management Best Practices for IT and BPO

Improve the Process

This paper was developed for organizations that are considering or are in the process of sourcing major Information Technology (IT) or Business Process programs to an outside vendor. It discusses principles and processes for managing vendors in a complex, multi-vendor environment. The success or failure of the vendor relationship may be determined by what you are doing (or not doing) today.


Once the contract is signed and the chosen vendor comes in the door to begin the transition, the honeymoon is over and the challenging work begins. The selected vendor always looks good on the sales call, but seldom lives up to expectations during the transition. This happens partly because there are inevitable cultural differences, process differences, and “language” differences. However, if both company and vendor are vigilant, they can work together to minimize the impact of their differences. The following six components provide a framework that companies can use to effectively establish and manage vendor relationships:

  • Clear Roles and Responsibilities
  • Communication and Relationship Management
  • Billing Analysis and Review
  • Service Levels, Performance Analysis and Improvement
  • Customer Satisfaction Performance Metrics and Reporting
  • Issue and Dispute Resolution

Clear roles and responsibilities

Effective Vendor Management requires clearly defined roles and expectations between the company and the vendors. This activity is most effectively executed as a part of the Statement of Work, prior to contract award.

Defining roles and responsibilities beforehand helps to avoid potential disputes down the line, because the beginning of any relationship is your maximum leveraging point and is the best place to thoroughly align roles, responsibilities, and expectations. Put them in writing. As the relationship evolves with the vendor and challenges occur, the documented, initial expectations can form a framework for discussions and can help all parties to refocus efforts.

Communication Management

In recent TBI research, end users who expressed satisfaction with their sourcing contracts indicated that excellent communication is a major contributor to that satisfaction with their vendors.

The Communications and Relationship Management Process ensures that issues of mutual interest and importance are communicated to the appropriate persons in the most efficient way on a regular basis. This is not only true for vendor-client communications, but also for internal communications within the client organization. Technology allows a wide variety of meeting or communication methods. Effective communications allow end users to provide input to their vendors on the services provided and to support information sharing that allows all parties to be on the same “page” in terms of service expectations. At the beginning of the relationship, building a clear communication process is vitally important.

Key players in the communication process would be:

  • Business Clients
  • Contract Executive (executive responsible for the executive oversight of the vendor contract)
  • Vendor Manager (Contract Manager with day to day responsibility and interface with the vendor)
  • Business Leaders
  • Program Management Office (PMO)
  • Change Management Committees (if they exist)
  • Other technology groups that may have a key role in the implementation of the contract (for example, a core infrastructure services group).
  • Key vendor personnel

Internal Communications

Vendor Management activities should establish communications with internal groups to solicit input, communicate contract activities, and to gather information about ongoing contract requirements and issues. There should be frequent written communication, in the form of virtual communications and reports, as well as verbal communications, in the form of scheduled meetings, online “town hall meetings” and other conferencing options.

Company/Vendor Communications

Communication with the vendor will be written (using a variety of electronic means to meet the needs of all parties) and verbal (meetings). Formal meetings should be scheduled in advance for the Transition activities as well as for the ongoing arrangement. In addition, the vendor will be required to submit formal, written reports on key dates throughout the contract term. If you have team members and stakeholders spread across the globe or in multiple time zones, make sure there is a good mixture of same-time and non-same-time communication options. For same-time communications, make sure that the same time zones are not always inconvenienced with the timing of meetings.

Many organizations make the mistake of planning same-time communications to take place at times convenient for only certain people, often those in the global headquarters.

For effective teaming, find a way to rotate times.


Whether face to face or virtual, meetings should be structured and lead to make the most constructive use of time. The following is a suggested guideline for meetings:

  • Meeting Chair
  • Agendas (sent out ahead of time, so that participants can be prepared)
  • Meeting Output
  • Voting Attendees
  • Non-Voting Attendees.

At a minimum, the following administrative communications should be scheduled into the services contract:

  • Weekly Contract Operational Review
  • Quarterly Steering Committee Meeting
  • Semi-Annual Contract Meeting.


At a minimum, the following reports should be scheduled into the services contract:

  • Weekly Internal Status Report
  • Monthly Management Report
  • Customer Satisfaction Report

Billing Analysis and Review

As part of the initial planning, setting up expectations related to billing is a key component of the agreement, yet some organizations do not adequately define effective billing analysis and review procedures to ensure that billing is reasonable and accurate. These procedures provide vital information about deployment of resources and costs for types of services.

Depending on the contract arrangements, the vendor would submit invoices that reflect base line contract charges and charges for changes to the contract scope. Wherever possible, rates for additional and reduced work (by staff position or a predetermined unit of work) should be negotiated into the contract.

Invoices should be submitted with a summary page and with backup detail sheets that reflect the program components and the units of work.

Periodically, billing should be analyzed for cumulative contract baseline costs and change request costs. The Vendor Manager should review these analyses with the Contract Executive at least monthly.

Customer Satisfaction Performance Metrics and Reporting

Clearly establishing the expected level of service is critical to successful sourcing contracts. Regular vendor reporting on service levels, employee turnover, staffing
levels, disaster recovery, security, customer satisfaction, etc. is important to effective service management. Performance results and issues should be discussed with users regularly and candidly.

Customer Satisfaction data can be gathered on an event basis, a periodic basis, or both. Event basis data would be gathered after a specific event such as a call to the help desk. An end user would be surveyed to gather information on his/her specific experience during the help desk call. Periodic data would be gathered over a period of time, capturing trend information over that period.

The timing content, scope and method of surveys should be predetermined and spelled out in the Service Level Agreement.

Email is the simplest and most direct method for deploying Customer Satisfaction surveys, though some companies have had success with web page surveys that are linked to an email message.

Service Levels, Performance Analysis and Improvement

Performance analysis and improvement procedures ensure that performance standards are being met through effective performance measurement and reporting. In addition,

Business Clients should expect continuously improving services and make sure this point is addressed at the beginning of the vendor relationship.

Key reasons for tracking performance are to identify:

  • Problem areas that need improvement and improvement tracking
  • Program risks and risk mitigation strategies
  • Hidden program costs
  • Vendor strengths and weaknesses that may indicate their appropriateness for other projects or programs being planned
  • General improvement or deterioration trends
  • Fulfillment of Service Level Agreements

A key component of the service contract should be a Service Level Agreement, which clearly outlines the levels of service that the vendor is expected to maintain throughout the contract term. Service Levels should be measurable, attainable and reasonable for both parties. A small subset of the Service Levels may be critical to the business and should have service level credits (penalties) associated with them.

Issue and Dispute Resolution

Effective, agreed-upon Issue Resolution and Dispute Resolution procedures ensure that problems and disputes are handled as quickly as possible and are solved at the lowest possible management levels.

Issue Resolution

Issues should be resolved using an Issue Resolution Process. An “issue” is an improvement opportunity that requires a decision to be made regarding how a task is to be completed or is perceived as a discrepancy in the deliverables completed or work performed by the vendor. Issues do not include work to be performed as part of the contract.

The issue resolution process should consist of the following steps:

  • Each issue would be determined by the vendor staff and the company staff person responsible for delivery of the program component. Issues should be documented in an electronic Program Issues Log that is readily accessible to the Vendor Manager, vendor Program Manager, and IT/Business Process staff. The Program Issues Log includes a description of the problem, the person the issue is assigned to for resolution, the resolution description, the escalation and escalation date. For each issue, the IT/Business Process staff and the vendor staff should jointly determine the persons responsible for resolving the issue and the resolution date. Each party should be informed of their responsibilities and give confirmation of resolution date.
  • The most appropriate level of management should resolve issues depending on the nature of the issue. Unresolved or open issues that are past the due date should be escalated to the company’s Vendor Manager and the vendor’s Program Manager during regularly scheduled status meetings.
  • If the Vendor Manager and vendor’s Program Manager cannot agree, these issues should be escalated to the Contract Executive and the vendor’s Account Executive.

Dispute Resolution

The purpose of a Dispute Resolution process is to define what should be done should an issue or series of issues lead to a dispute. Provisions for dispute resolution should be clearly identified in the contract. The parties should attempt to resolve disputes informally before taking legal action, for many obvious reasons.

  • A Contract Addendum may be required if the terms and conditions of the contract need to be altered or amended to accommodate an additional (or reduced) service request; for example.


Managing vendors can be either a chaotic, ad hoc process or a well-defined, organized process. Given the complexity of most sourcing arrangements, it is in the best interest of both company and vendor to plan and implement clearly defined Vendor Management processes, pre-defined agreements for managing and administering contract terms, and quantifiable measures for success. This article serves as a framework from which a company can begin to define their specific Vendor Management needs.

We can help.

Technology & Business Integrators, Inc. (TBI), a leading strategic consulting firm with over 49 years of experience, has assisted many companies in identifying and implementing the appropriate organizational structure, processes and procedures for successful Vendor Management. For more information, please contact Stan Goldman or 201-573-0400.

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