In today’s competitive business environment, most organizations have moved from single vendor to multi-vendor relationships, getting their business processes outsourced to an increasing number of vendors. There is an inherent risk associated with relying on single vendor relationships. The lack of consistent controls, ineffective vendor assessment programs, and inefficient reporting processes make it problematic for organizations to proactively and reliably measure, manage, and optimize vendor performance.
Maintaining visibility across the service portfolio and accurately assessing vendor performance are two major pain points of vendor management. Often clients become data rich and information poor. They are overwhelmed when each vendor starts feeding slew of status reports, SLA and KPIs.
To improve the vendor management process, it is important to track and evaluate your vendors on a regular basis. An appropriate process should be put in place to categorize your vendors. This vendor stratification will help you bring additional focus toward managing your strategic vendor relationship and less emphasis on tactical ones. Spending more time on monitoring your key vendors ensures they are meeting your expectations and it also allows you to proactively take measures to seize opportunities or mitigate risks.
Vendor Classification/ Stratification strategy helps you prioritize your vendor management efforts; it classifies vendors into appropriate tiers and dynamically assigns controls based on defined vendor classified tiers.
The three vendor management competencies based on which vendors can be categorized are:
• Relationship - value aligned to deal with business goals, internal external focus, business changes addressed
• Performance - service monitoring, service assessment, business outcomes, metrics aligned to deal objectives
• Contract- commercial terms followed, contract elements, contract elements adjust to change
Benefits include:
Eliminate weak vendor choices and proliferation
Vendor Classification/ Stratification helps control costs at the procurement stage by enabling a ready comparison of vendors, the services they provide, and the fees they charge. With a holistic picture of materials, services, costs, and expertise available from each vendor, you make informed choices and better decisions. Also the vendor list it reviewed and trimmed to drop poorly performing vendors.
Centralized Vendor Profile
By executing vendor stratification an organization chooses to retain best options in each type of solution and service. This includes an alternate vendor strategy of strategic intent and best vendors with niche skills or other temp services.
A centralized system allows organizations to have more control - vendors do not get added through an ad hoc process but via proper vendor assessment cycle.
Vendor Performance Assessment
Existing vendors are benchmarked against multiple parameters such as delivery quality, responsiveness, cost competitiveness, alignment with client organization’s objective through a continual performance assessment cycle. The outcome is re-rating of vendor and reclassification through vendor stratification process.