A Maturity Model for Vendor Relationships: You Can’t Marry All of Them

Vendor management is an internal IT function that often has room for improvement. A maturity model is a helpful tool for evaluating the state of any given vendor relationship, and determining the overall balance of your organization’s dependency on vendors.

5 Vendor Relationship Stages

Relationships with vendors span these stages of maturity:

  1. Ad-hoc vendor
  2. Operational support
  3. Process improvement
  4. Competitive advantage
  5. Strategic partnership

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Each relationship stage is more “mature” than the previous one, with a higher degree of accountability, interdependency, complexity, and management approach.

Diversify Vendors by Maturity Stage

Important to note: maturity models tend to imply that a progression from immature to mature is appropriate or correct. However, not all vendor relationships need to move to higher and higher stages. Some, in fact, may need to regress.

For example, I have a very healthy, ad-hoc relationship with my local supermarket checkout clerk. She and I do not need to evolve our relationship beyond what our business transaction needs. In fact, if it did, that would be strange. I don’t need to nurture all my relationships to become more and more intimate. I already have a wife and am quite happy with the maturity of that particular strategic partnership.

Likewise, IT will distribute its spend across a range of vendors, each at various stages of relationship maturity. For many organizations, it will look like a bell curve:

Most vendors would love to advance relationships with customers up a level or two. But as the customer, you want to allocate your vendor spend across the stages in a fashion that is most appropriate for your objectives, management resources, and risk appetite.

Don’t get me wrong. Vendor relationships do need to be managed, and might need improvement, but they do not need to increase in depth or sophistication.

Avoid a Mismatched Distribution of Relationships

There are exceptions. Startups tend to be highly dependent on suppliers. You treat them as business partners, even if, in some cases, they don’t reciprocate.

But mature organizations should support a diverse portfolio of vendors across the maturity model. As a rule, it’s wise to reduce the number of ad-hoc vendors. By the same token, realistically, you shouldn’t have too many strategic partners. (We will cover strategic partnerships in more detail in a separate post.)

Make Adjustments to Vendor Relationships

As you conduct a periodic review of your vendor relationships, you might find that some vendor relationships are in the wrong category. As a result, you will want to increase the maturity of some of the relationships and decrease it for others. Decreasing the maturity of a vendor relationship is ultimately the same as commoditizing it.

Here are a few suggestions for adjustments you can make, by various facets of the vendor dynamic:

ElementHow to CommoditizeHow to Advance
PaperworkStandardize the agreements. Use your templates as opposed to the vendor's.Collectively create outcome-based engagement mechanisms.
RelationshipKeep it professional and at arm’s length.Learn about the vendor's objectives to find greater synergies.
Performance ManagementSimplify performance management to QA or a short list of SLAs.Measure outcomes on both the vendor's and client's sides, and take swift action based on the readings.
Time AllocationDecrease time spent on communication, status reporting, and management.Increase cadence of communications, and time spent on management and goal setting.
CostLook for opportunities to lower the cost and extend payment terms.Implement an outcomes-based compensation model where both partners win or lose together.

It is important to recognize your organization’s vendor relationship pattern and periodically re-adjust how you work with each supplier. Understanding the various stages of the vendor relationship maturity model is the first step.

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Originally published on CIO.com

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