How to Replace a Vendor who is not Meeting Your Requirements

Businesses are outsourcing a large part of their processes these days, in order to focus on their core competencies. This means that they are becoming more dependent on third-party vendors for products and services each day. Hence, vendor management becomes a critical aspect of Project Management Certification Courses and in the life of a project manager. Especially in global projects of massive size and complexity, there are several vendors involved who provide various types of products and services and are bound by different types of contracts. Ensuring that these vendors provide services to the level agreed to in the contract and that customer satisfaction is high becomes a challenge for a project manager.

Vendor Transition

Vendors are an important link in the supply chain of a project, and end-user customer satisfaction depends on the performance of vendors. When your current vendor is not performing well and is not meeting the quality standards mandated in the contract, it becomes imperative to replace the vendor without interrupting services and impacting the customer.

The whole process needs to be streamlined, which begins from the moment you realize that your vendor needs to be replaced, right up to the moment when you sign the contract with your new vendor. If it is a complex project with several vendors, then the vendor transition process can be treated as a project in itself with initiation, planning, execution, and close-out phase.

There are various reasons why a customer might replace a vendor. Listed below are the most common reasons.

Possible Reasons to Replace a Vendor

  • Performance (in terms of quality of product or service supplied and promptness in delivery) not meeting the required levels agreed in the contract
  • Customer satisfaction metrics not being met
  • Increase in vendor costs – mainly due to an ill-defined contract
  • Internal changes in organization – changes in objectives, business domain, scalability, etc.

Factors that Influence the Decision to Find a New Vendor

The following questions need to be answered before making the decision of finding a new vendor:

  • What will be the additional value created by the new vendor?
  • Can the business function in question be actually improved or transformed?
  • Will customer satisfaction be improved?
  • Is the cost of the transition process viable for the company?
  • What will be the impact on the business and customer during the transition period?
  • Are there resources that need to be transferred from the existing vendor to the new vendor?
  • What are the timeline and schedule? How will it affect service delivery?

If the above-mentioned questions are satisfactorily answered, then the process of finding a new vendor can begin.

Key Pre-Vendor Transition Criteria

Three key tasks must be completed before beginning the transition process:

  • Management Support:

    You need the funds to execute the process and if you go ahead with the process without the management’s buy-in and then fail to meet the targeted metrics, then you will be answerable to them.

  • A Strong Communication Plan:

    All the stakeholders involved in this process need to be updated. They need to know when they are required to be involved and what role they are supposed to play in the whole transition process.

  • Effective Risk Remediation Plans:

    As mentioned earlier, the transition process can be a project in itself. Hence, it entails a certain amount of risk in terms of the credibility of the newly chosen vendors, contract negotiations, budget constraints, etc. A strong risk remediation plan is a must before you embark on the vendor transition process.

Transition Planning

The transition planning process consists of five key elements:

    1. Identify Stakeholders:

Gather the core team which will execute the transition process. The team needs to have a Vendor Manager, a steering committee with high-level decision-makers, and legal, tax, procurement, and finance personnel.

    1. Get Approval on List of Potential Vendors:

The team needs to brainstorm and shortlist potential vendors based on certain selection criteria. These criteria may differ depending upon the current requirements of the organization.

    1. Contract Break-off Strategy with Existing Vendors:

The current vendors are not going to be happy about being terminated. Ensure that you are paying as low a termination fee as possible. Also, include them in the RFP (Request for Proposal) to make them feel that they are being re-considered for a contract with the new set of requirements. This should appease them.

    1. Transition Activities and Scheduling:

Schedule the solicitation process (mostly an RFP), shortlisting, contract negotiation, and vendor training activities such that there is minimal impact on existing service delivery and consequential customer satisfaction.

    1. Budget for the Transition Process:

Decide the budget required for the entire process along with a buffer amount with the help of the steering committee and obtain approval from top management to go ahead with the process.

Below are the additional steps you can take to ensure a smooth vendor transition.

How to Ensure a Smooth Vendor Transition

    1. Develop the RFP:

Develop an RFP such that it gives you all the information you need from the shortlist of suitable vendors. An RFQ (Request for Quotation) will give you their price and any other information about them. Ask questions so that you are able to collect comprehensive information about their capabilities and limitations. The RFP should also include a price bid form. The RFP should also mention the criteria based on which they will be evaluated, roles and responsibilities, and quality expectations.

    1. Design Evaluation Criteria:

As a team, decide on the parameters on which the potential vendors are going to be evaluated. These parameters will depend on the kind of product or service they are required to supply and the corresponding needs of your company. Ensure that the steering committee reviews these evaluation criteria and approves of it.

    1. Send Out RFP:

Mention a single point of contact for all communication between potential vendors and your organization. This makes coordination much easier.

    1. Review Received Proposals:

Once you receive proposals from the vendors, have separate calls with them, discuss their proposal, ask questions, encourage them to ask questions, and clarify all grey areas. Then sit with the steering committee and the entire team. Review each proposal individually in accordance with the evaluation criteria. Do not tell the chosen vendor that you have chosen them. If you do that, you will lose leverage during contract negotiations. Tell the chosen vendor(s) that you are in negotiation with one or two other vendors as well.

    1. Contract Negotiation:

It is absolutely important that you have an air-tight contract with Service Level Agreement (SLA) metrics in place which ensure quality service and customer satisfaction. Include incentive clauses for exceeding expectations and penalty causes for failing to meet expectations. Incorporate lessons learned from your experience with the previous vendor. Make sure that you cover currency exchange fluctuations – this is one of the most important causes of conflict when dealing with global vendors. Other critical elements of the contract are evaluation metrics and process, dispute resolution process, and an exit management plan.

    1. Close Contract with Current Vendor:

Once you have agreed on a new contract with the new vendor, it is time to close the existing contract with the vendor who had to be replaced. Clear out severance pays, and retain them to train the new vendor if they agree to it. You can pay them a retention bonus if they agree to do this. Ensure you maintain a personal touch in the whole termination process.

As discussed above, a well-formulated vendor transition process ensures that your service organization gets the best out of your vendors without any impact on the quality of service delivery and customer satisfaction. Vendor transition is a key aspect of project management and hence it is indispensable for project managers to be aware of and implement this process when they need to replace vendors.

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Lucy Brown
Lucy Brown has many years of experience in the project management domain and has helped many organizations across the Asia Pacific region. Her excellent coordinating capabilities, both inside and outside the organization, ensures that all projects are completed on time, adhering to clients' requirements. She possesses extensive expertise in developing project scope, objectives, and coordinating efforts with other teams in completing a project. As a project management practitioner, she also possesses domain proficiency in Project Management best practices in PMP and Change Management. Lucy is involved in creating a robust project plan and keep tabs on the project throughout its lifecycle. She provides unmatched value and customized services to clients and has helped them to achieve tremendous ROI.

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