Tips For Managing Vendor Relationships In Tough TimesTips For Managing Vendor Relationships In Tough Times

If you're thinking about consolidating your vendor and outsourcing relationships in an effort to save money, don't be hasty. Here are a few tips to consider first.1) Use this time for fostering communication and collaboration with your internal customers and your vendors.

"If you're not careful, you might sign new deals to cut costs now, but when the economy improves, your constituency will be signing new contracts with other vendors," says Christine Ferrusi Ross, a Forrester Research VP and research director of the firm's sourcing and vendor management team.

That's because when you narrow your organization to fewer vendors, some internal customers could discover those new relationships aren't providing the skills or services they require.

"You need to spend time with your [internal] clients about the relationships they have with their vendors," what they're getting in terms of services and skills, otherwise decisions to stem costs in the short term could end up making things even more unwieldy later, she says. "You don't want to end up in the same boat or worse six months from now."

Communication also is vitally important between you and the vendors. "Give the provider the ability to offer good ideas, not just be an order taker," she says. Now is the time for CIOs and sourcing managers "to build trust."

2) Tap into your vendors' expertise while things are slower.

Service organizations have more people sitting on the bench these days. Now's a good time to access skills and expertise that are usually harder to find. For instance, if you've been wanting to pilot new business intelligence applications in your organization, a vendor just might have people with those talents available to help right away. "Renegotiate with your vendors to add incremental project work," Ross says.

When it comes to working with vendors "that are on shaky ground" because of the economy, evaluate the risks and possible rewards carefully. Working with a vendor that is having problems "isn't a death sentence," she says. In fact, it could be an opportunity to strengthen the relationship moving ahead. Telling a vendor "I'm going to give you more work to help you" can result in some good new opportunities, she says.

3) Evaluate alternative geographies.

This is a good time to look at what's going on in other countries for possible sourcing relationships, she says. "Consider what's going on economically, politically in other geographies," she says. For instance, rising inflation in India might mean it's time to consider services from vendors in other countries, like Vietnam or the Philippines, she says. Consider "whether there are markets we can take advantage of" based on current conditions and trends.

Looking for more ideas? Ross and her colleagues will be discussing other tips and insights about vendor relationships during Forrester's Services & Sourcing Forum 2008 in Miami next week.

You also can share your suggestions about managing vendor relationships in a tough economy right here.