IT Vendor Management: Best Practices and The 9-Step Process

Today, outsourcing isn't just a trend – it's a global norm. Just in the US, the outsourcing market is expected to reach US$185.50 billion by 2024. 

Yet, many businesses hit unexpected roadblocks during their cooperation with outsourcing vendors. From minor communication troubles to missed deadlines and security breaches, problems tend to escalate quickly. 

In this article, we’ll explain how IT vendor management can help you choose secure and reliable vendors, negotiate favorable contract terms, and build sustainable long-term partnerships. 

What Does Vendor Management Mean: The Key Components

IT vendor management refers to processes and systems businesses use to manage their relationships with software suppliers. The main goal of vendor management is to establish and maintain productive and cost-effective relationships with outsourcing IT vendors. 

There are four main parts of an effective IT vendor management strategy: vendor selection, contract management, performance evaluation, and relationship management. 

• Vendor Selection. Software vendor selection process consists of finding potential vendors, evaluating their abilities, and making decisions based on what you need. To do this well, you have to understand your own requirements and compare vendors to see if they meet them.
• Contract Management. Once you've chosen your partners, you need to negotiate the terms of contract that work for both sides. You have to make sure everyone knows what to expect, create services development agreements (SLAs), and set performance goals. 
• Performance management. After the start of cooperation, you’ll need to measure how effectively the tech vendor does the job outlined in the contract. This is usually done by tracking specific metrics and KPIs. 
• Relationship Management. Besides just following the contract, it’s advisable to build long-term relationships with your vendors. Open communication and engagement with internal insights will help you find ways to grow together as a team. 

All four parts of IT vendor management are connected and work together to make a strong system. Each one affects the others, creating a cycle that helps everything run smoothly. In the following sections, we’ll discuss each in more detail. 

Benefits of Effective IT Vendor Management Process

While cost savings often drive businesses to look for outsourcing IT vendors, the scope of vendor management extends far beyond financial gains. Here are the primary benefits of an effective vendor management process. 

Improved Quality

IT vendor management sets clear quality standards and expectations for vendors. This, along with regular performance evaluations and well-oiled feedback mechanisms, makes sure that products or services meet desired specifications. 

Risk Mitigation

The common vendor selection guidelines take into account factors like reputation, track record, and financial stability. This helps you make the right choice and avoid unlucky partnerships with financially unstable or unreliable vendors. 

Decreased Vendor Churn

IT vendor management helps you build strong and stable relationships with vendors. By ensuring the clarity of contracts, resolving issues early on, and keeping the communication consistent, you will be able to prevent misunderstandings and disputes that often lead to vendor churn. 

Cost savings

Initially, IT vendor management helps to identify partners that offer the best value for money. Later on, effective negotiation practices help you agree on better rates and terms with vendors. As the partnership goes on, resolving issues quickly will help you avoid costly litigation expenses. 

IT Vendor Management Best Practices: Vendor Selection

IT vendor selection is a foundation of successful vendor management. A vendor management strategy aligns your vendor choices with the unique needs and values of your business. Here are the steps to take to choose IT vendor companies that understand your vision and can contribute to its realization.  

Prepare project requirements

How to choose a software development partner? First, you need to understand what kind of partner you need and which type of services will fit you best. Here are some steps to take before you start looking for an outsourcing vendor. 

• Define the scope of work. Prepare a project specifications document that will include the type of application, platforms, necessary features, approximate deadlines, and expected budget. 
• Determine your focus. What kind of partnership are you looking for? Do you have security requirements that need specialized expertise? Do you need short-term or long-term support? Having your priorities clearly defined will help you narrow down the choices. 
• Prepare a project transition plan. If you are not satisfied with your current vendor and want to find a different one, make a plan for transition. 
• Find a technical or semi-technical specialist. If your technical background isn't enough to decide upon the optimal logic for your software solution, find a technical specialist you trust and who will be able to represent your interests regarding tech choices. 

How To Choose A Vendor: Find Potential Vendors

When you have your goals defined, make a shortlist of potential vendors. Here are several ways to find reliable and effective vendors. 

• Look on Clutch. Check the reviews on Clutch, the leading B2B reviews site. Note the type of projects the company delivered, and if any of them resemble the features you need to develop. Also, note the dates when the clients left their feedback. If there are plenty of reviews within a short period of time, the chances are high that they are fake. Apiko, for instance, has 50 reviews over the span of 6 years. 
• Ask your team for suggestions. Your team members might have worked with an outsourcing vendor before and could give you recommendations. 
• Look on LinkedIn. Ask your LinkedIn connections for IT vendor recommendations. 

Assess The Vendors You’ve Found

Next, you’ll need to assess the vendors’ you’ve found. Here, several key vendor selection criteria come into play:

• Experience. Check for how many years the outsourcing company has been providing its services. Averagely, it takes about 6 months to develop a medium-sized application. So, if the company is younger than 3 years, there's a high probability that their development processes are not well-established yet. 
• Expertise. The vendor should have a proven track record in the services you need. Double-check which of the projects developed are currently up and running. See who the clients were and what their feedback on the cooperation was. You can also contact a few former customers to discuss their experience with the vendor, as well as the history and results of their collaboration. 
• Scalability. As your business grows, can the vendor grow with you? The number of employees is crucial in this regard. With under 20 people on board, the vendor may be less reliable because it will be more difficult to expand your team or replace someone if necessary. 
• Technical support. Stable and long-term technical support will help you maintain and update the solution without significant issues. 
• Cultural Fit. Does the vendor's way of working align with yours? Cultural compatibility can help avoid problems with communication. 
• Pricing. Look for a vendor that fits your budget requirements. Needless to say, extremely cheap offers often hide a lackluster quality of services. 

“They were very clear and concise about project deliverables, sprints and expected delivery timelines against the resources available. They worked on a priority task basis to identify key tasks for planning and workflow processes.”

Jorden Beatty

Product Manager, DASH

 

 

Talk to vendors to find out more

After you have made an initial assessment, contact the vendors in your shortlist to find out more details about their services, workflow, and readiness to work on your project. 

Here is a vendor evaluation criteria checklist that will help you gather the necessary information. 

Experience and credibility:

• Structure and focus of the company. Discuss the areas of expertise of the company, its organizational structure, and company distinctives. 
• Types of services provided. Do the company services cover software development only, or do they offer consulting as well? A reliable vendor may offer to begin the work on your app with a project discovery phase. This minimizes risks and helps to clarify things before going all-in.  
• Expertise with needed tech stack. If you expect a vendor to suggest you a tech stack, check if the tech stack is popular and has a large active community around it. It’s important for further reliable IT support and maintenance. Try to avoid very exclusive tech tools and frameworks. 
• Contacts of their former clients. Former clients can provide a reference for the vendor. Make sure these are the customers whose projects are featured in the portfolio. If they wrote a Clutch review as well – that's perfect. 
• Expertise of the future team members. Who exactly is going to be in your dedicated team? What is their prior related experience and level of seniority? Don't hesitate to ask for their CVs and make an introductory call with the team members. 

Communication: 

• Clarity of project estimates. Pay attention to how detailed project estimates are and the risks section. 
• Vendor's engagement. Note the kinds of questions vendor representatives ask you and whether they proactively suggest solutions. They should be able to detect software development risks. 
•  Level of consulting. Pay attention to whether you were offered specific instruments, services, or solutions, and how well were their reliability and necessity reasoned. 
• Reliability of information. Note how many company representatives were engaged in communication with you. If there is more than one person involved, this points to more objective and complete information exchange. 

This vendor selection criteria checklist will help you compare potential vendors on an equal footing and make the best choice for your business needs. 

Vendor Management Best Practices: Contract Management

A software development contract lists the legal regulations for software development and outlines the rights, responsibilities, and expectations of the client and the outsourcing vendor. It can be a single document or consist of several agreements. At Apiko, we sign two agreements with our clients – a Services Development Agreement and a Statement of Work. You can read more about each in our article on software development contracts. 

Best Practices for Contract Negotiation

When negotiating contracts, it's important for businesses to prioritize their interests while also fostering a partnership mindset with vendors. Here are some best practices to follow.

• Prepare Thoroughly. Before starting negotiations, gather comprehensive information about the market rates, vendor's services,  and their business model. This information will provide you with a clear understanding of the vendor’s goals and give you a firm footing during the negotiations.
• Define Clear Objectives. Make sure that the objectives of the contract align with your company’s long-term strategy and IT requirements. Have a clear view on what is essential and what you may be willing to compromise.
• Involve Stakeholders. Engage key internal stakeholders in the negotiation process to ensure the contract meets the needs of various departments.
• Seek Legal Counsel. Get guidance from legal experts to review contract terms and protect against potential risks.

After the contract is signed, the work on the project can begin. In the next section, we’ll cover the best practices of relationship management and performance evaluation. 

Relationship Management: How To Make The Most Out Of Long-lasting Partnerships

From onboarding to performance evaluation, relationship management encompasses all aspects of long-term cooperation. Here are some of the best practices to follow: 

Specify Commitment

As the very start of your cooperation, clarify the vendor's commitment to make sure you are on the same page. The key aspects include: 

• Budget. While the expected overall budget is discussed at the contract negotiation stage, now you need to determine the cost of development of each feature. You can use a work breakdown structure (WBS) for this. We also recommend to make a resource plan to clarify how much you're going to spend on each team member. 
• Time. Outline more specific project timelines. Usually, we cooperate with our clients to make a project roadmap. It allows everyone to know the time estimates for each feature. It also includes smaller project milestones, such as a 𝞫-release, MVP, etc. 
• Scope. At this stage, you'll need to have a clear document that outlines project scope. This includes app architecture, UI/UX design, and actions that have to be taken to decrease technical debt. 

Onboard Your Vendor

The onboarding process integrates the vendor into your business operations. Here's how to quickly and effectively onboard the vendor’s team:

• Provide Necessary Information. Gather all the necessary information including tax forms and payment information. 
• Make Structured Onboarding Plans. Assign a manager responsible for onboarding, and create an onboarding plan that outlines important milestones and responsibilities.
• Notify Team Members. Notify internal parties about the vendor and its role in the operations. 
• Create Workflows. Create workflows that specify how vendor systems and processes will work together with existing infrastructure.
• Provide Training Programs. Implement training sessions if necessary. These will allow your partner to learn about operational procedures and expectations. 

Establish Clear Roles

If you want your vendor to be accountable, you need to clearly define the roles and responsibilities of your vendor’s team members. Here is some advice on how to do it effectively: 

• Set a single source of truth. Provide one member of your team with the authority to present app requirements and role responsibilities. Offer your vendor a documented proposal or make a video call to explain everything. Encourage the vendor to provide input and suggestions to refine your proposals. 
• Highlight individual responsibility. Assign individual owners to specific tasks or deliverables. 
• Keep Everyone Informed. Share the finalized roles and responsibilities with all involved parties to ensure that everyone understand what they’re expected to do. 
• Assign a qualified overseer. You'll need to regularly check the functionality developed by your vendor and provide feedback. If you don't have a (semi-) technical background, assign a responsible team member to this role. 
• Work with the QA engineer. Work closely with the QA engineer from the start. Having a single product vision will help you achieve better quality of results. 

Start With Essentials

We advise to prioritize faster production release. First, build a small initial app version that contains only necessary features. Then, make a limited release, collect user feedback, and start improving the app in iterations. 

Organize The Process of Delivery

During the delivery process, keep the communication regular, open, and honest. Establish and maintain: 

• Regular meetings. Set up weekly or bi-weekly meetings to discuss ongoing projects and any immediate concerns. Define clear agendas and make sure that you have a common vision with the team. 
• Progress reports. Get progress reports from the team before each meeting. Agree what they will include: percentage of budget spent, percentage of overall scope completed, risks, blockers, or other aspects. 
• Accessible points of contact. Designate specific individuals within both organizations who can be reached for various inquiries. 
• Demo meetings. Schedule demo meetings to introduce functionality and gather feedback from users with no technical background. 

Effective and regular communication with your team helps to prevent issues before they escalate, stabilize operations and foster a reliable partnership. 

Conduct Performance Reviews

Regular performance reviews are a must for a productive business partnership. They provide both parties with the opportunity to discuss achievements and areas for improvement. These sessions should include:

• Quantitative Analysis: Measure vendor performance against agreed-upon KPI metrics and timelines. If there are deviations from the timeline, address its causes and analyze the team's explanation. 
• Compliance Verification. Conduct periodic audits to verify compliance with contractual obligations and procurement guidelines.
• Qualitative Feedback. Address subjective aspects such as communication and problem-solving effectiveness. 
• Future Planning. If anything went wrong, define which risks were predicted and which were missed by the team. Then, plan performance for the next period. 

With regular performance reviews, you can make sure that the vendor commits to meeting the set standards. In some cases, you may also be able to revise some contract details. 

How To Address Challenges in IT Vendor Management

Managing outsourcing IT vendors comes with a fair share of challenges. Here is how to address the most common ones: 

Security

Just in the first quarter of 2023, 6.41 million of data records were leaked, which impacted millions of people worldwide. When partnering with an outsource provider, keeping an eye on security is a must. 

• Assess the vendor’s security. Verify the vendor’s credentials and certifications, and review their contracts and SLAs for data security clauses. 
• Document data security obligations. Make sure that the contract reflects your expectations on compliance with data security laws and industry standards.
• Implement data security control and monitoring. Classify and protect the data according to risk level and track the vendor’s compliance with agreed-upon security metrics. 

Technical problems

Human error is pervasive. Even the most experienced developers make mistakes. Some of our tips to reduce technical error include: 

• Ensuring access to tools. Make sure your outsourcing team has access to all necessary project development tools and services. This includes servers, 3rd-party tools, Apple Store and Google Play Store.
• Implementing automated testing. Automated testing reduces human error, increases test coverage, and allows to conduct testing at scale. 
• Using specialized quality checkers. Use tools like SonarQube to check code quality and identify possible risks and problems with application logic, security, etc. 

Workflows

The outsourcing vendor might have different workflows compared to your team. Some strategies to align your workflows include: 

• Choosing the optimal cooperation model. If having full control over the workflows is important to you, consider augmenting your team with additional staff. Alternatively, you can outsource vendor management by hiring a dedicated team of developers that includes a project manager for app development and, perhaps, a business analyst. 
• Familiarizing the vendor with the systems you use. This should be done during the onboarding process, but it’s important to keep the vendor in the loop if anything changes. 
• Using vendor management technology. Vendor management software can help you streamline the management process and achieve operational efficiency. 

Conclusion

IT vendor management is a multifaceted process. From selecting a vendor and negotiating the contract to overcoming difficulties in day-to-day communication, the IT vendor management process needs effort and dedication. 

The most important thing is to focus on learning, adapting, and innovating together. Your ability to manage vendors effectively will be greatly influenced by your willingness to engage with these processes continually.