A Case for Managing Your Vendors Like Your Employees

As companies grow from startup to small business to thriving enterprise, it is common that the founding executives have to embrace many roles and functions along the way. The common joke about an entrepreneur (a.k.a. the CEO) is that they are also often referred to as the Chief Bottle Washer.

One of the first positions that tends to get staffed as companies scale is the Human Resource function. Once an organization grows beyond 10 – 20 employees, there is a true need to have a trained professional step in and take on the role of managing the risk, compliance, cost and performance of the company’s most valuable resource – their people.

What commonly gets lost in this exciting and sometimes scary journey of organizational growth is the importance of dedicating an equal amount of oversight and formality to the management of another valuable company resource – vendors/third-parties.

Based on our experience working with organizations of all sizes, let’s compare how many companies view the Human Resource function vs the Vendor Management function as staff sizes and the number of vendors a company uses continue to grow.

First, let’s look at Human Resources:

• Personnel – The Human Resource function most likely has grown and matured along with the company. What was once a single individual managing HR is now a team made up of specialists that help manage the employee lifecycle (i.e. recruiting, hiring, payroll, benefits and performance management).
• Policies & Procedures – Enterprise-wide HR policies and procedures have been established, which helps to create consistency in the overall management of employees. As new staff are on-boarded, they are required to understand key HR policies (i.e. code of conduct, conflict of interest, leave, benefits, etc.) Upper management ensures staff remain familiar with all HR policies and procedures.
• Tools and Systems – HR has likely implemented a variety of tools and systems to centralize employee information and to effectively manage HR-related processes. Examples of some common tools and systems include recruiting software, benefits management platforms and payroll systems.

Now, let’s look at Vendor Management:

• Personnel – While the number of vendors the company uses has surely grown, the number of employees dedicated to managing vendor relationships likely hasn’t. In many cases, this responsibility is added to the plate of Business Owners rather than being assigned to a team of people dedicated to managing the vendor lifecycle (procurement, risk assessments and due diligence, contracting, onboarding, oversight and termination).
• Policies & Procedures – Here, in most cases you will find that the opposite has occurred compared to what we see in HR. The company may have enterprise-wide policies and procedures that address some components of vendor management (most commonly procurement and contracting), but there isn’t a formal Vendor Management Policy.
• Tools and Systems – While HR can easily tell you how many employees the company has, determining how many vendors a company has is a different story. This is likely due to vendor data being decentralized and the lack of investment in a true vendor management system. Each department may maintain their own list of vendors, and vendor contracts might be stored in emails or filing cabinets rather than in a central location.

When looking at Human Resources, the necessity of controlling risk and managing the complexity of employees is a mandatory business discipline. A company that reaches $30 million dollars or more of revenue wouldn’t be able to function or ever scale to that level of growth without a full investment in the HR function.

On the other hand, it is still common to find companies of this size and much larger that have not committed the resources necessary to manage their vendor relationships in a disciplined manner. More frequently than not we find that the oversight of third-parties is performed inconsistently across the company, which points to an unmeasured level of risk. Our belief is that more and more companies will begin to see their team of vendors as equals to their team of employees when it comes to adopting a disciplined, lifecycle approach to managing these relationships.

Moving forward, companies embracing the business discipline of Vendor Management, in a similar fashion to that of Human Resource Management, will ensure they have a consistent and well-disciplined approach to overseeing the investment in their most valuable assets – their people and their vendors. We believe this is the formula that will sustain their success for years to come.