Best Practices for Vendor Management for Law Firms
I have recently had the pleasure of hosting a roundtable on “Best Practice Vendor Management” at the Alternative Legal IT Conference.
It may seem like a very dry subject and is potentially one which many firms have not considered in a strategic or coherent way but I would suggest that this is an area which will become more prevalent in the near future.
So what is vendor management, why is it important and what should we be doing?
Gartner defines vendor management as the discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal life cycle.
During my roundtable I suggested that most law firms were still approaching vendor management in an ad-hoc fashion and vendor management is often approached in an “issue by issue” way or via an annual review meeting. These meetings tend to focuses on cost, recent issues or operationally irrelevant key performance indicators (KPI’s). Record keeping is decentralised and very few conversations with suppliers cover strategic aims, combined objectives, innovation or true partnership.
After all, we all know that if you are reviewing performance of a supplier against contractual KPI’s then the writing is on the wall for the relationship.
This is a strange concept to most law firms.
Most firms recognise the cost of services purchased for the business but not the impact if those services were not available or the enhancement value they add to the service lawyers provide to their clients. For example, have we ever heard a corporate lawyer celebrating the use of PLC precedents to get a deal done?
Given that review meetings tend to be focused on cost and day to day relationship issues while Gartner’s other three, more important strategic elements are overlooked, this can lead to law firms been accused of knowing the “Cost of everything and the value of nothing”.
So how should a firm go about recognising the value and determining the risk of the supply chain which is needed to deliver its services?
Step 1 – Create Visibility
The first step is to create visibility and understanding about the existing suppliers and the services they provide and to determine their importance in underpinning the services that the law firm provides to its clients.
It is fair to say that until the introduction of GDPR many firms did not even maintain a centralised list of suppliers or contracts. The work done to assess suppliers’ compliance to GDPR can be a great starting place for supplier management.
We would recommend the following tasks:-
- Create a coherent list of all services/contracts which you are making use of which details:
- Description of service
- Supplier contacts
- Business Owner (internal)
- Expenditure per Annum
- Key Dates (Termination, Review, Rollovers etc)
- Key contractual clauses
- Risk Profile
- Importance of service
- Risk to business if service fails
- Supplier Risk Profile
- Formal risk reports from 3rd party report providers
- Introduce centralised record keeping
- Bank of contracts
- History of contractual changes
- Minutes of meetings
- Records of major issues raised
- Document any “Lessons” learned in the duration of the relationship
- Document Known supplier risks & mitigations
Step 2 – Segmentation & Prioritisation
Once you have a list of all the suppliers and services this needs to be segmented and prioritised so the appropriate approach can be made with each supplier. This aims to identify strategic partners, important suppliers and unimportant transactional suppliers.
- Strategic Partners – a small number of strategic partners e.g. Bankers, Accountants, Leading technology providers
- Important Suppliers – Suppliers needed for the business to operate but could be replaced e.g. important but commodity technology suppliers such as telecoms suppliers
- Transactional Commodity – Commodity suppliers who are selected on the basis of price and can be easily changed with no impact e.g. standard photocopy paper suppliers
There are several ways of undertaking this segmentation with some people advocating the Kralijic matrix which uses a 4*4 matrix of “Supply Risk vs Profit Impact”. This is rather subjective and hard for a law-firm to asses so we would suggest a more simple scoring mechanism based on:-
- Risk Rating
- Innovation / continual approval
- Relying on systems / processes to operate.
Step 3 – Management Strategy & Collaboration
Once the suppliers have been prioritised then a supplier management strategy needs to be deployed so that the appropriate time is invested into the supplier relationships.
Using the pareto rule you should expect to invest 80% of your time into your most strategically important suppliers with about 20% going into your more transactional suppliers.
A typical approach for each supplier could be:-
- Monthly meetings
- Issues & Resolutions
- Performance Review (Quality, KPI, Obligations, Risks & Mitigations) (see Step 4)
- Innovation activity
- Review of delivery on combined objectives
- Quarterly Meetings
- Issues & Resolutions
- Performance Review (Quality, KPI, Obligations, Risks & Mitigations)
- 6 monthly or annual meetings
- Performance review (basic service level agreement monitoring)
- Cost Review
This approach will change the focus so that relationships with strategic suppliers becomes one of collaboration where suppliers are treated like true partners and not merely subservient suppliers. Equally, suppliers should approach their customers as partners and not a cash machine.
The focus of these relationships has to be one of “win-win” with recognised combined objectives.
Step 4 – Review & refine KPI’s and development plan
We said at the beginning of this article that when a firm came to review the KPI’s of a supplier it was a sign that there were wider problems and the firm was looking for something to “prove” the lack of delivery of the supplier.
But you obviously do need a method of assessing and managing the vendor relationship. Rather than relying on staid SLA’s such as “99%” up-time, we would advocate for your strategic suppliers, using a balanced scorecard approach which enables an assessment of suppliers across various areas and ensures a more collaborative relationship is created.
The balanced scorecard should encompass elements such as:-
- “traditional” adherence to standards
- Compliance with Obligations
- assessment of how the supplier delivered to contractual obligations
- User Satisfaction
- Regular assessment of end-users’ views of service (regular surveys etc)
- Business Risk
- regular reviews of supplier risk
- review of the risk to business if service fails
- assessment of supplier / service innovation activity
- Combined objectives
- assessment of delivery of shared objectives
- Operation hygiene
- Identification of common/re-occurring challenges
- Definition of processes to address issues
- Mitigation and management of risk
This may all seem rather daunting but a full-blown vendor management strategy as described above is only required for a handful of strategic partners.
The aim of this process is to improve the services the law firm provides to its clients by driving service excellence and increasing value from their vendors whilst mitigating risk and controlling costs.
And that must be a compelling reason for law firms to take a fresh look at how they manage suppliers and services.