Managing your vendors and suppliers doesn't stop after the outsourcing contract is signed. You must continually measure and monitor your vendor's performance in order to ensure continued success.
Additionally, performance measures must be spelled out in the contract so that the vendor understands your expectations, and you have a course of action if the vendor's performance does not meet those expectations. Without this understanding, the success of your outsourcing project will be uncertain and unmeasured—a shot in the dark.
Vendor management is the discipline behind the process of working with vendors, controlling costs and increasing value while ensuring quality and mitigating risks. It promotes productive and successful relationships between your business and vendors.
The initial justification for an outsourcing project is usually based upon cost savings. Unfortunately, most companies do not know if they are saving a little or a lot—or if they're saving anything at all.
Before beginning any outsourcing project, you must know what your current costs are for the product or service you're considering outsourcing to a vendor. Firstly, this information will give you additional leverage during the negotiation process.
Secondly, the product or service must be delivered at a level of quality that is defined by your business, communicated to your vendor and used to measure their performance. These two aspects will give you the tools you need to manage your vendor.
Assemble a team of people who have a vested interest in selecting and managing the vendor for the project. The vendor selection team will define, in writing, the product, material or service that you are searching for from a vendor. They will also define the technical and business requirements.
This does not mean that you throw open your accounting books and give vendors user IDs and passwords to your systems. Appropriate vendor management practices provide only the necessary information at the right time that will allow a vendor to better serve your needs.
This may include limited forecast information, new product launches, changes in design and expansion or relocation changes, just to name a few. These requirements should be published in the areas relevant to this vendor selection process. The team should also seek input from vendors on requirements.
Any outsourcing arrangement must be viewed as an extension of your company into the vendor's organization. Any quality control standards or methodologies must be communicated and shared with your outsourcing vendor so that the product or service will be delivered at a level of quality that is consistent with your internal organization. This will prevent any negative impact on your current customer base.
The Vendor Benefits
"If you can't measure it, you can't manage it" was the mantra of a previous employer of mine. Giving the vendor the tools to define and measure quality will aid the vendor's quest to provide a consistent quality product or service to you. Additionally, the vendor can use these tools for a continuous improvement program that will help them manage quality while controlling their costs.