A Guide To Vendor Management
Vendor Management
Every company works with a set of third parties. These third parties collaborate with their own set of third parties, making an extensive network of vendors. Especially in the IT industry, vendor management is necessary to mitigate risks and control service quality.
But before that, what is IT vendor management?
It is a broad term that covers the processes and systems organizations use to manage their IT suppliers to get the most from their partnerships, and this is not just limited to cost control. IT vendor management software concentrates on vendor information, streamlining communication, and reporting. It can also automate routine tasks such as billing and order distribution. The industry has been characterized by rapid growth and fast-changing regulations lately.
Five Aspects of IT Vendor Management
Many companies have trouble dealing with their IT vendors because they don't take vendor management seriously. Effective IT vendor management is becoming critical every day, and here is the first step in understanding the process. The five aspects of an efficient IT vendor management strategy include:
- Vendor selection involves choosing vendors according to the organization's goals and long-term strategy.
- Contract management is about negotiating terms and conditions that will work for the organization and its vendors.
- Vendor performance monitoring tracks selected metrics and KPIs to ensure service excellence.
- Relationship management is crucial as it is needed to establish successful partnerships that result in effective communication and collaboration.
- Risk management is done to mitigate potential risks, such as data breaches.
Five Key Benefits of a Good Vendor Management Process
A proper vendor management process allows businesses to manage the challenges of joining hands with a third party. A well-thought vendor management process allows your business to make the best of any service you get. The key benefits of a proper vendor management process include the following:
Improved Vendor Selection
With good vendor management, you will be able to find vendors compatible with the company's strategic goals and vision, not just project objectives. It saves time in the long run, and an effective management process helps you to avoid interruptions in vendor sourcing.
Strengthens Relationships With Vendors
The advantage of better vendor selection is that it increases the chances of establishing long-term partnerships and building trust. This win-win approach is at the heart of an effective IT vendor management strategy.
Saves Money
An advantage of having strong relationships with vendors is that it allows you to negotiate better rates. Even better, it makes way for successful long-term partnerships that are more cost-effective than switching vendors for short-term gains.
Improves Performance Management
You can have a comprehensive view of the vendor's performance and KPIs when you have worked with an effective vendor management process for a while. Thus, a good strategy makes your requirements and expectations more consistent, which in turn helps your vendors give you better results.
Reduces Chances of Risk
There are policies and procedures for risk management and mitigation in a vital vendor management process. This help protects your confidential company data, reduce the risk of delivery failure or supply chain disruption and establish emergency plans.
IT Vendor Procurement vs. Strategic IT Vendor Management: What's the Difference?
Traditionally considered as part of the procurement process, vendor management is operational. On the other hand, IT vendor procurement tackles two concerns — risk and cost — that companies are most concerned about while sourcing vendors.
It is usual for procurement specialists to opt for the providers with the lowest cost and put their efforts into contract negotiations that protect the company with watertight terms and conditions.
However, focusing on sourcing IT vendors with the cheapest rates is no more an effective strategy for many businesses. In most cases, a more agile approach is appreciated; thus, vendor management has evolved into a new discipline. It is often referred to as strategic vendor management to avoid further confusion.
Compared with procurement, the strategic vendor management process is used to mitigate risks and reduce costs by building effective and sustainable relationships with third parties. The specialists in this field ensure that vendors follow industry best practices, adhere to company policies and standards, and comply with security and other regulations.
In an IT industry where outsourcing contracts run for long years, strategic and agile vendor management might be the perfect solution to outsourcing problems.
The Secrets of an Effective IT Vendor Management Process
The suitable vendor management process might differ slightly for each business and its vendors. The rationality and objectives you approach vendor management should be unique to have the best outcomes. The methods also vary based on each organization's operational and hierarchical dynamics. However, there is a basic outline of what makes up a successful vendor management program:
- Strong rapport and knowledge-sharing between vendors, reporting authorities, and teams
- Regular and timely analysis of performances and outcomes
- Streamlined SLAs and solid KPI-setting
- Free-flowing communication and feedback cycles
How to Set Up an Effective IT Vendor Management Process
The key to setting up an effective IT vendor management process is to break it into distinct stages with steps that can be executed effectively. Most vendor management strategies have six different locations.
1. Establish Business Goals
Before getting into the thick of it, enlist the help of a vendor and establish SMART goals. This way, you and your potential vendors understand what needs to be done.
2. Vendor Location and Selection
Analyze potential vendors thoroughly to ensure they have the resources, experience, and personnel to satisfy your goals and KPIs.
3. Risk Assessment and Monitoring
To ensure that every potential vendor is transparent in their dealings, it is essential to exercise due diligence in risk assessment. Key metrics such as total annual spending, on-time delivery rates, and aggregated internal risk assessments must be adequately examined. It is also pertinent to collect necessary data for frequent, ongoing risk reporting and ensure vendor due diligence.
4. Contract Negotiation
Reaching mutually beneficial contract terms and agreeing on risk KPIs for performance monitoring is unavoidable in setting up an effective vendor management process. As a business, you should also collect the documentation required to process and set up a prospect as an approved vendor.
Final Thoughts
These are everything involved in the basic framework within which most vendor management systems align. There is no trick to finding the most convenient supplier and establishing a vendor management system. Instead, the key is working in harmony with vendors and prospects to ensure you're receiving the best offers.
