Depending on many factors such as the nature of the project, industry, location, or resource availability, restrictions, the cost of selecting the wrong vendor can be enormous, and jeopardize a project or even risk the viability of entire company.
"We encounter issues with poor vendor selection all the time," said Brian C. Evans, owner of disaster recovery consultancy Eastern Public Adjusters. "It's one of the biggest issues we run into in the industry."
As an example, Evans said that he's seen damages and problems initially caused by things like water damage exacerbated by unqualified or dishonest vendors. In one case, Evans had a client in Brooklyn, NY with a single-family brownstone that suffered a severe water damage. The emergency mitigation services vendor hired, prior to Evans' involvement, incorrectly responded to the extensive water damage in the home. "The failure to correctly respond to this water damage resulted in a significant mold condition not covered under the insured's insurance policy," said Evans. "We secured an independent estimate for the required mold remediation totaling $136,373.49 which likely would not have existed at all had the mitigation services been performed correctly by a qualified vendor."
In another case, Evans discusses how a vendor left a condominium owner in a stalemate with their insurance carrier. "The carriers' final settlement offer was approximately $196,000. Once we were retained, we brought in a reputable builder who helped us re-assess the damages. We engaged the carrier with our findings and were able to get them to revise their settlement offer to over $1,000.000.00 and completed the repairs. A process that should have been averted had the claim been handled by a reputable Public Adjuster and builder."
Jake Rheude, marketing director of Red Stag Fulfillment said bad vendor selection is part of why his company exists today. Originally, Red Stag Fulfillment's sister company made the strategic decision to outsource their order fulfillment operations to a third party, so the young business could focus its cash flow and energy on what it considered the primary "needle moving" activities. Between 2008-2012, the fulfillment companies created a roadblock to continued growth. In those four years, they switched fulfillment partners three times due to inadequate service levels. But the final straw came around Christmas of 2012 when their fulfillment partner got six week behind on orders. Orders placed on Thanksgiving Day didn't arrive for Christmas, leading to a host of customer complains and, likely, permanent loss of customers.
"It's very likely that several million dollars in lifetime customer value was lost at Christmas 2012," said Rheude. In addition, Rheude said the fulfillment company at the time had a terrible habit of losing or damaging products in the warehouse. The vendor reported over $300,000 worth of inventory as lost, damaged, or stolen within a 20-month period. Bad experiences with fulfillment vendors ultimately led the ecommerce company to establish Red Stag Fulfillment.
SEE: IT leader's guide to optimizing vendor relationships (Tech Pro Research)
SEE: How to Choose and Manage Great Tech Partners (ZDNet)
How to select better vendors
Vendor selection may, on the surface, seem to have a limited impact, but the stories shared by these business owners are just the tip of the iceberg. Make sure to carefully check into project vendors and their ability to deliver, and ensure mutual interests are fully aligned. What can seem like a simple glitch on the surface could turn into a nightmare and result in devastation for multiple stakeholders. Here are some tips to help with the vendor selection process:
- Ask prospective vendors to give examples of similar projects in terms of nature, size, complexity etc.
- Ask for referrals and do your own due diligence and research into each prospective vendor. Usually there's a lot of information that can be found just on the internet as an initial check.
- Make sure you know exactly how your vendors will meet your needs and enable you to further meet your customer's needs.
- Nail down terms of the relationship in writing. If it isn't in writing, it didn't happen, unfortunately.
- Try vendors on a smaller project to avoid unwelcome surprises on larger, more important projects.
- If there big issues are encountered near the beginning of a project, don't assume things will get better with time. Deal with problems immediately and always have a back-up plan.
- Hiring kit: IT vendor manager (Tech Pro Research)
- Report: The 10 biggest tech vendors in the world, by revenue (TechRepublic)
- Security landscape plagued by too many vendors: Cisco (ZDNet)
- 4 tips for developing a relationship with a new vendor (TechRepublic)
Moira Alexander is the author of "LEAD or LAG: Linking Strategic Project Management & Thought Leadership" and Founder & President of Lead-Her-Ship Group. She's also a project management and IT freelance columnist for various publications, and a contributor and co-host of the "technically speaking" segment on the Price of Business Talk Radio. She has 20+ years in business (IS&T) and project management for small to large businesses in the US and Canada. To find out more about Moira, go to www.leadhershipgroup.com.