A new approach to vendor selection, contracting and management
The problem of vendor performance
Maple Street has been negotiating with your vendors for over 18 years. We negotiated great results but wanted to see where we could improve, so we took the time to evaluate past negotiation projects to determine if our clients were getting the results vendors promised.
The savings were real (though invoices were often wrong), but what we found is, in most cases, clients were not getting promised results. We found there were some cases where the clients did not get any of the benefits, some where they got some of the benefits, but rarely got all the benefits. We also found a consistent disappointment with vendors over time.
We noticed a phenomenon that some clients love a vendor other clients hate, even with identical products and services. Through interviews and analysis, we determined the number-one driver of vendor satisfaction was good account management.
The second most important driver came from the selection process used and assumptions that were made. What we often saw is that the selection process focused on features and capabilities, and the selection was made on the assumption that having those features and capabilities would lead to the results the client sought.
Our conclusion is that if there is good account management, the client felt it had a vendor relationship that was working to achieve results. If they didn’t, they found the product or service itself lacking, which created dissatisfaction.
An additional conclusion is that selections made on definition of results, not features, and building a relationship process with the vendor made all the difference in client satisfaction because clients often didn’t understand their part in using the product and the investment they had to make to get value.
Increasing dependence on vendor performance
At the same time, we watch clients become more dependent on vendors for delivery of services than ever before. Just ask yourself: Who does your member or customer blame if your debit card processing is down? Or your bill pay system isn’t up? You know very well they don’t blame your vendor – they blame you.
We see the dependence on vendor performance increasing rapidly, too. Part of our clients’ competitive strategy, if not the strategy itself, is to provide great customer service and make it easy for members or customers to do business with them. So, when systems are down, not available, or not functioning correctly, it’s viewed as an essential failure by the bank or credit union to fulfill his promise.
That’s how you lose members or customers, and that’s how you lose the battle for business in an ultra-competitive world – death by a thousand cuts.
Our answer to improving vendor performance
Maple Street’s answer to the problem of getting good vendor performance is based on the concept of a relationship contract. For important, key contracts, such as the big technology contracts, Maple Street developed the Performance Addendum.
The purpose of the Performance Addendum is to add a layer to the vendor contract to transform it from being a transaction, to building a process that focuses on a vendor relationship to get results.
A relationship contract is just that, a commitment to build and use the relationship between you and the vendor to work together to focus on and achieve the results you’re after. While vendors often talk about being partners, they rarely are. Partners share profits and losses equally. Your current vendor contract only protects the vendor and has no promise of anything other than “support,” such as that is. Vendors won’t commit to achieve results because results require you to do your part.
After all, the results are the reason you bought the product or service in the first place. We like to say you don’t buy software just to have a software. You buy it to use as a tool to achieve a specific result, like getting more accounts with an online account opening system or more loans with online lending.
The Performance Addendum process
In our relationship contract process, we make sure there is a clarity about the results you desire and a shared understanding with the vendor, beginning in the RFP process.
Then, you and your vendor contractually commit to work together to get those results. The vendor doesn’t promise or guarantee that you will achieve them, but that it will help you using a measurement process.
The vendor agrees to provide resource and information to help us evaluate and measure the results you’re getting (or not) in a scorecard and agrees to meet with you to review those results on a periodic basis.
The purpose of meeting with the vendor is to review results, prepared and measured in a scorecard that Maple Street creates, and have candid discussion about what each of you are doing or not doing to get those results. Think of it as good account management, facilitated by your partner, Maple Street.
The Maple Street Performance Addendum adds this level of vendor commitment to the process to identify results desired, measure (scorecard) to track results and work with vendors to remediate when necessary. Maple Street’s role is to facilitate the process. We start by building the relationship contract requirements into the RFP and ask vendors to commit to this process. In fact, we use the vendor’s willingness to commit as one of the key elements in determining which vendor would make the best choice.
Post contract, Maple Street will take on the responsibility of getting the information and preparing the scorecard and providing it to you for review. Maple Street will also facilitate the periodic meetings and discussions with a vendor about the results to discuss how to improve.
Admittedly, some vendors have been leery of this change, fearing we’re asking them to provide a contractual commitment that you will get the results you’re after. That’s not the case. We’re asking them to commit to a process, and many vendors, once they think this through, realize we’re helping them in their account management efforts. We’ve received some positive feedback by several key vendors and a commitment to work this process.
Vendor management is a system that should reduce expenses, improve vendor performance, and manage risk. Maple Street’s Vendor Advantage System® does all those things.
Are you interested in learning more about the Performance Addendum? Call us at 800-513-6839 or email email@example.com.