Vendor evaluation and management remains a top priority for most senior IT decision makers. Technologies have added to the pressure of enhancing and improving vendor management skills, be it in terms of negotiation, procurement, evaluation or prescribing Service Level Agreements (SLAs).
Effective vendor management offers a holistic view of an organization’s vendors, allowing the organization to:
Objectively evaluate, assess, and select new vendors and service providers;
Establish and formalize the vendor relationship to create mutually beneficial partnerships;
Bring about vendor performance and client expectations;
Manage vendor contracts;
Recognize, monitor, and manage vendor risk to the organization; and
Ensure that the organization’s vendors deliver high quality service and value.
Below are some best practices for successful vendor management:
Matching the vendor management model to organizational goals & objectives
IT leaders who triumph in vendor management pick a model that complements their organization’s requirements. The focus of the vendor management function differs depending on the number and strategic impact of technology vendors in the organization. Best practices vendor management models include:
- Forming a committed vendor management staff;
- Establishing a project/program management office; and
- Creating a vendor management office.
As CIOs evaluate their level of success in establishing a vendor management model, it is crucial they review the following questions:
- What is the suitable number of people to commit to the vendor management function?
- How essential are vendors’ products and services to the organization?
- What metrics should be utilized to measure the effectiveness of the vendor management model?
With these practices, IT leaders can position the vendor management office as a strategic, rather than a bureaucratic function; raise awareness of the office’s role, process, and purpose; and assist client and vendor teams to work together effectively.
Classifying Existing Relationships
IT leaders who manage vendors skillfully often classify them by their level of influence on the business or by the type of product or service they deliver. This allows them to allocate their resources effectively, since it would be difficult for CIOs to manage all their vendors to the same level. Several ways to classify vendors include:
- Strategic, tactical, commodity, or niche players; and
- Hardware, software, services, system integrators, telecommunications.
As CIOs contemplate how they will classify their existing vendor relationships, they might ask themselves the following questions:
- What dollar amount do the contracts of vendors represent?
- Does the vendor provide a commodity product or a niche one?
- How long-term or short-term is the relationship with the vendor?
Establishing a Selection Process
Establishing a vendor selection process is essential for effective and efficient vendor management. Every organization will follow a unique process that will impact its relationship with the vendor and its non-IT colleagues. Best practices for establishing a selection process include:
- Determining the role that an RFP or RFI will play in the selection process;
- Deciding on the appropriate documentation for the deal (contract, SOW, SLAs); and
- Involving third party consulting firms in selecting the right vendor.
As CIOs evaluate their vendor selection process, they may ask themselves the following questions:
- Have I included the right individuals in the process from IT and the rest of the business?
- Does my current selection process yield the best possible partners or, rather, the lowest-cost provider?
- Should I involve my architecture group in the process, and, if so, what role should it play?
Measuring & Monitoring
Successful vendor management involves a strong project management approach with recurring measurement and data monitoring. In addition to contracts, SLAs, and SOWs, organizations should monitor the overall business benefit of the relationship.
Defining the Partnership
Strategic partnerships may last years and involve sharing proprietary organizational strategies, codeveloping products, and promoting success jointly. IT leaders must consider processes, risks, and success criteria for these unique partnerships. Best practices for defining the partnership include:
- Determining when to share organizational goals and future strategy;
- Determining accountability for the overall success of the relationship;
- Agreeing on the circumstances for terminating the relationship; and
- Considering if and when the relationship requires joint promotion through PR or references.
As CIOs evaluate their partnership definition, they might ask themselves the following questions:
- Will I create incentives for my vendors to make or save money for my organization?
- Are there cultural differences between our organizations that I need to address?
- What will happen to our relationship if a merger, acquisition, or other ownership change occurs?
Vendors play a key role in the success of any business. Using the following vendor management best practices to build a mutually strong relationship with vendors will help organizations strengthen overall performance in the marketplace.
At Litcom, we assist our clients in evaluating and selecting enterprise wide business systems, as well as solutions for specific industry verticals, best of breed software applications and the hardware and network infrastructure required to support their business. To see how we can assist you with your organization’s vendor selection process, please check out our free guide: Conducting a Software Selection Process or contact us at: firstname.lastname@example.org .
At Litcom, we help our clients’ progress through the various selection stages from development of requirements to vendor evaluation and contract negotiation, thereby greatly accelerating the process of vendor selection.