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What to do when a vendor shuts down

Published on March 18, 2002
on TechRepublic.Com

Many tech leaders share a recurring nightmare— that a vendor will someday fail to deliver on a critical project or will disappear completely. Most CIOs and their staffs do their best to prepare for such an event but, oftentimes, the best advice and guidance comes from those who've been forced to deal with such a crisis.

Here's one click-and-mortar's "war story" of how it responded and continued doing business after it learned that a primary vendor— one that supported the hardware and software for the company's British e-commerce Web site— was going out of business.

What was at stake

When your business depends on e-commerce, site maintenance, stability, robustness, and development are obviously critical. So when the IT manager of a British online sportswear retailer, Cotswold Outdoor Ltd. Group, learned that a lead vendor was going out of business, he knew he had to act fast, as the vendor provided both the hardware and software supporting the company's e-commerce Web site.

That meant Cotswold's customer data, inventory controls, online product catalogs, and consumer content— as well as future and present sales— were in potential jeopardy.

Steps to averting disaster The company's IT manager, Chris Elmes, acted decisively to circumvent the potential disaster. Within six weeks, as the original vendor prepared to liquidate assets, the tech leader quickly transitioned to a new vendor.

What easily could have been a major disaster with company operations was averted, said Elmes, as his team "was able to manage our way out of the situation very effectively."

Elmes methodically approached the crisis by pulling together a triage team, mitigating risks, and then ultimately bringing a replacement vendor on board. What follows is an explanation of Elmes' approach to the problem and his tips for handling a vendor's demise.

Tip 1: Put the right team in place

Elmes' first step was creating a team of three staffers to handle the vendor emergency.

"The size of the team was kept small to enable us to react quickly and avoid 'death by committee,'" explained Elmes. A small team also helps to streamline communications and enable rapid decisions and actions, he added. In choosing his team, Elmes considered several aspects:

  • He wanted team members with clear authority to make bottom-line decisions and analyze legal contracts.
  • He sought tech professionals that had the necessary technical, tactical, and functional knowledge about the company's Web site, databases, and systems.
  • He wanted the team members to have a clear understanding of maintenance needs and service-level requirements.
  • Each team member had to have experience in evaluating vendors.

Elmes' team included himself, the company's Web site manager, and a member of the company's board of directors. The board member played a key role in rallying required resources at crucial moments in the vendor replacement effort.

Tip 2: Freeze all invoices to the vendor

As details about the original vendor's impending financial demise were unclear, the retailer put a halt on all invoice payments to prevent any financial reclamation issues, since Cotswold had prepaid a portion of its service contract—which was a particular concern, said Elmes.

"The original contract did not include escrow arrangements, which was a big weakness and not to be repeated," he explained.

Tip 3: Review all contracts

The team then set about collecting and studying all of the contacts related to the vendor. Elmes said advice from Cotswold's legal counsel proved essential in understanding some of the contracts' finer points.

Tip 4: Contact the vendor directly

When the team members completely understood the risks posed by the vendor's demise, they approached vendor management to discuss the problem.

The vendor's various divisions— hardware, software, hosting, and client services— each played a crucial part in supporting the sporting goods store's Web presence. It was essential, said Elmes, to first investigate the scenario in which the vendor could possibly splinter into smaller businesses and what that would mean to the site's support and services.

The team also needed the latest source code, as well as the rights to access and modify it as needed, explained Elmes. While such rights should be outlined from the start in a vendor contract, Cotswold realized it wanted the signature of the vendor's CEO on the contract revamping. The signed agreement now protects Cotswold from possible future litigation should the vendor or a spin-off decide to sue for whatever reason.

However, after evaluating the vendor's current status and potential future, Elmes' team decided the best course of action was to terminate the relationship.

Tip 5: Research the options

Before severing the relationship, Elmes realized the need to evaluate competing vendors. In conducting an evaluation of potential new vendors, Elmes recommended that tech leaders research a wide range of issues, including the following:

  • Server and product architecture
  • Security precautions
  • Licensing terms and agreements
  • Ongoing and startup fees
  • Level of service agreements and pricing
  • Expected response times
  • Escalation processes
  • Up-time guarantees and scheduled upgrades

After this due-diligence effort, Elmes' team settled on a new vendor whose staff included people who used to work at the old vendor.

Additional tips to protect your company when changing vendors

Before porting all of his site's data and files to the new vendor and switching the site's IP in the Domain Name System, Elmes made sure his company had complete control over the administration of the Web site's domain names. He explained that this helps avoid headaches and second-guessing regarding a domain administrator's actions.

As a safeguard, the company also backed up the old site, making sure all files were the newest and most current. The team also tested recovery processes in the event that the transfer went poorly.

In the end, the vendor transfer appeared seamless to the outside world, without gaps in processing customer orders, said the IT leader.

"[We were able to] continue processing customer transactions with no interruption to service (except for a short period while the domain changes were replicated across the globe)," he said.

What most would call a "nightmare" scenario has an even happier ending for Cotswold, according to Elmes. A by-product of the site transfer is that Cotswold now has a stronger and more precise vendor contract that covers a variety of contingencies— including escrow accounts for prepaid services.

What easily could have been a business disaster and e-commerce nightmare was not only averted but actually benefited the e-tailer, as the overall site performance has actually improved as well, said Elmes.

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david southgate
writing for living.