The key components of a successful vendor management process
In a large company it can be very challenging to manage the IT needs across all the business functions. Companies are increasingly outsourcing more and more of their IT functionality to dedicated service providers who can provide the necessary skills, products and services.
This brings in new challenges in the form of implementing and managing agreements with multiple vendors. It is therefore important for companies to have a well-defined multi-vendor management policy in place, in order to optimise the return gained from the various vendors.
A fully integrated multi-vendor telecoms management system will have a fairly high level of complexity, and require a variety of skills. But if successfully implemented it can give a company an essential point of reference with which to track their costs, usage, and performance across multiple service providers.
Some of the key components of a successful vendor management program include:
Identify your different types of vendors
Within a large company there are generally four main types of vendors engaged to support the ICT function. They are:
|Strategic vendorsThese are vendors which are central to the business processes. They are generally involved in multiple projects or applications, and are key business partners.||Tactical vendorsThese are vendors which provide once off projects. They are not necessarily central to business processes.|
|Commodity service providersThese are vendors which provide a basic service which could be provided from a wide range of different service providers.||Expert service providersThese vendors provide a particular niche service that requires a higher level of knowledge or skill.|
Once you have identified and categorised all your vendors, you can begin to look at what services can be consolidated. It is possible that some vendors already fit into more than one category. One can then see if it is possible to further consolidate your services across vendors. For example, it may be possible for an expert service provider to also supply some of the commodity services.
Cutting down on the number of vendors will save time and energy within the company as employees have fewer people to deal with. It also allows for stronger, win-win relationships with service providers and results in better communication and improved service levels. It also allows for improved cost optimisation through potential economies of scale.
On the other hand a company must also be aware of putting “too many eggs in one basket“ with a single vendor as any disruption to that vendor’s service delivery could result in a negative experience across several business services.
Implement Proper Vendor Governance
It is important to create a central function that will manage all vendor relationships in a multi-vendor environment. The management functions will be a combination of resources across procurement, finances, technical architecture, etc. with the central role residing within an IT shared services structure or a more governance driven procurement and contractual management function. This will allow for better quality management and a clear oversight of all contracts. This ensures that issues don’t fall through the cracks and enables better relationships with vendors.
The five pillars of vendor governance:
Financial management – validate and manage costs, monitor the economics of the deal, ensure value proposition is realised.
Relationship management – drive satisfaction, partnership oversight and strategic alignment, risk management.
Contract management – ensure compliance with service delivery structure, resolve disputes, maintain legal documents.
Performance management – ensure the right work is done right, measure and monitor delivery performance, drive operational efficiency.
Compliance and legislation – ensure that vendors have all the necessary certifications and that they are correct and up to date.
In the path towards an adequate governance structure it is important for the company not too relinquish control of the oversight and reporting of services to their vendors. Companies need to have their own independent and auditable view of the costs and performance of their vendors. They need the skills and supporting tools that can provide an integrated and single view across all management aspects of the multi-vendor environment.
Standardise Contracts and SLAs
It is very difficult to manage a wide variety of different contracts. This can be avoided by taking a master services agreement approach and using common service descriptions and service level methodology across all vendors. This creates a level playing field for better contracts and easier contract management.
A lack of accountability can also lead to finger pointing. It is therefore important to identify key dependencies with various vendors and ensure that there are proper KPIs and SLAs in place so that problems are solved by the vendor and not by the customer.
The Benefits of Improved Vendor Management
There are many benefits to a business when they improve their vendor management program, some of these include:
Increased flexibility and simplicity – proper vendor management results in process consistency, contract simplification, consistent contract terms and conditions, and contracts with lower cost commitments.
Lower cost to the firm – the company will often receive a better pricing on a higher volume of goods and services purchased from strategic vendors.
Lower cost to the vendor – Fewer strategic vendors which receive more business will lead to an economy of scale which benefits the vendor and reduces contract management costs.
Better communication with vendors – consistent fair terms and conditions and SLAs reduce the risk from both sides; and the creation of a global bidding process provides consistent criteria and communication with all vendors.
Improved cash flow – improved vendor management means it is easier for businesses to reconcile their invoicing and manage their cash flow better.
Receive the best possible service – better relationships with vendors and a clear picture of who is responsible for what service means that the company can get the best possible service out of the vendors.
Reduces reliance on capital assets – having reliable and trusted vendors allows the company to outsource more easily rand have access to cutting edge technology trends without increasing capital expenditure.
A South African View
In South Africa there is a business trend towards reducing the numbers of suppliers.
Very large enterprises currently have more than 5 primary service providers in the ICT area. This is likely to be reduced to 3 or 4 in the next two years, namely:
- WAN / LAN / Internet / Hosting
- Data Centre / Servers
- End-user Services
Large enterprises meanwhile will likely reduce from 3 to 5 ICT suppliers to 1 to 2 over the same period and medium sized companies, which currently have 2 to 3 vendors, will in future just have 1 vendor.
At the same time many large enterprises in South Africa are also pulling back from large outsourcing projects as they find themselves losing control of the services. They feel they took outsourcing too far and have lost access to critical skills, while not being able to internally manage the required SLAs and costs.
Additionally in the South African competitive environment, service providers that are given primary contracting responsibilities often misuse this power position to shift blame onto other service providers and promote their own position.
Service providers have not yet reached a maturity where they can take over everything that the company is not capable of managing in one fully outsourced service. Until such a point that managed service providers are able to do this, organisations should create a capability to integrate and manage multiple vendors, across technical, financial, contractual, service delivery, service levels, etc.
They can either create this capability internally or work with specialist service provider tools that help the enterprise to create a single view across all services, covering cost, service levels, baseline of services in use, consumption of services, performance issues, etc.
While multi-vendor management may seem complex, if a company correctly leverages its potential it can be a great business tool. By correctly managing service providers companies can improve their performance and get the most out of their outsourced skills, products and services.