In 2011, I was the project manager for a global re-organization and outsourcing project that reduced the number of vendors my company dealt with directly from ~1200 to 4. Reducing the number of vendors we managed by 300x was a big achievement, but…we had no formal way to manage those vendors. My next assignment was to create, run, and refine a vendor governance framework with associated processes. The following incorporates what I learned then and since.

As with nearly any new process, managing vendors well starts with being very clear about WHY you have hired a vendor, WHAT you expect them to deliver, and HOW you expect them to work on your behalf. Let’s look at each factor.


You must start with the why—why have you hired a vendor? Very often, cost savings are a primary driver of the deal, but there can be other reasons:

  • Capability—the vendor has expertise your company does not have and does not want to acquire
  • Quality—the vendor may be able to deliver a service more effectively or to a higher standard than your company could do in-house
  • Scope—your company may need services or materials in multiple locations or on a timeline that you cannot achieve in-house
  • Strategic reasons—your company may be using a vendor to gain an advantage in some way beyond a direct, tactical benefit

The why of the relationship should be very clear to both parties, and where necessary, codified in the contract


Next, you need to consider the what—what services or materials will they deliver, when (including timeliness of delivery), how often, and to what quality level? The answers to these questions must be in the contract and form the basis of Key Performance Indicators (KPIs) and/or Critical Performance Indicators (CPIs). 

  • The difference between the two is that a miss on a CPI might be grounds for ending the contract, while a miss on a KPI might only attract financial penalties or a need to make the recipient whole.


The next consideration is how you expect the contractor to work. This is particularly important if their role is customer-facing in any way, but it can also be important if the vendor interacts with your company employees. The How could include things like

  • Materials or supplies that must be used
  • Techniques for delivery that must be used, or techniques that may NOT be used.
  • Adherence to company cultures, standards, codes of conduct, regulatory requirements, or other expectations

These Hows must also be captured in the contract, along with agreed metrics for measuring them and designation as KPIs or CPIs if applicable.

Other items that must be captured in the contract include a framework for managing the relationship:

  • Who will meet to discuss and resolve conflicts or disagreements?
  • How often should they meet?
  • How will changes to the contract be managed (when the contract is for more than a one-off engagement)?
  • How will failures to meet contractual terms be resolved?
  • When the contract ends, who will do what by when?
  • For what reasons can the contract be terminated early?
  • If that happens, what are the responsibilities of each party?


A last consideration for managing vendors is the element of risk—how will your company manage the risk that using vendors brings?

  • How will you know if they are doing or not doing something that will create risk for your company?
  • If the vendor does something wrong or fails to do something right, who is responsible to do what? What penalties will the vendor bear? What restitution are they required to make?
  • What level of control does your company have over the vendor company, and what legal or regulatory obligations must the vendor bear on your behalf?

As you can see, managing vendors well is not optional, nor should is it something that can be “dealt with later”. If you need help managing your vendors, contact me at 646-736-9006 or at jeff-dot-hosken-at-jirehenterprises-dot-solutions.