Post contract negotiations, one of the key roles performed by a Vendor Management Office is managing vendor quality. If they aren't, the entire Vendor Management Office concept is in jeopardy of failure due to the lack of post-contract oversight. Here are some key strategies that we think every Vendor Management Office should have in place for managing vendor compliance:

1. Site visits: A no-brainer you say? You'd be surprised at how many vendors never get site visits from their clients. In actuality, the vendor management office should create a schedule for "mutual" visits whereby clients visit the vendor sites and the vendor is required to visit a client site on some regularly scheduled frequency.  Of course it is important to focus on the key vendors but visiting smaller vendors who may have strategic products or services should also be kept at the forefront.
   
   
2. Issue management: Vendors should know the channels to pursue to escalate issues that cannot be resolved at the day-to-day level. There may be billing issues, there may be fulfillment issues, and there may be long-term viability issues which may require the involvement of executive leadership. Vendors should have a means of communicating their concerns in writing to the VMO on a regular basis and request assistance in resolving issues that cannot be resolved at the operational level.
   
   
3. Vendor Scorecards: Scary? Shouldn't be. Vendor scorecards can be simple excel based, five question surveys or can be more elaborate with the ability to rank a vendor as A, B, C depending on the various criteria that are important to your organization. And the simpler the scorecard, the better chance of it being used effectively.So create scorecards that can easily be filled out by the stakeholders and that won't require a PhD to interprete and provide feedback to the vendor.
   
   
4. Outsource experts to manage quality: Let's face it, quality control is a whole another discipline and your internal team may not have the time, the training, or the resources to execute it. So, what to do? Well, hire people who are experts in managing vendor quality control. This can result in you saving money by making sure the quality control program is run effectively and problems are quickly highlighted and resolved before they create real damaging situations.

Vendor quality control management is an important role that a Vendor Management Office should be performing. If your Vendor Management Office is not performing a quality control role, its time they start doing so. Check out our advisory services to see how we can help you with your quality control management needs.

Thinking of setting up a Vendor Management Office (VMO)? Here are three key strategies to implement an effective Vendor Management Office

Create a 360 degree Communication Channel: Don't just focus on executive communication, get the entire team involved and engaged. No bottom-up or top-down communication only. Make it a 360 degree communication channel where everyone who has a role is involved actively.

Implement SLA's and KPI's: Service Level Agreements are important but so are Key Performance Indicators to track not just vendor performance but also outcomes of the contractual process, result, and any qualitative measures that align with the company's core values. Service Level Agreements should be measurable and achievable but not so stringent that they are difficult to achieve and create all around frustration.

Create streamlined processes:  Create simple processes that are comprehensive and logical yet also easy to follow. Don't create a paperwork nightmare, processes that require endless meetings after meetings or processes that have so many steps that the overal project goals get lost in the mounds of paperwork and approvals.

Learn how to negotiate effectively: Negotiation is an art. But when does negotiation become counterproductive or is ineffective? Create a competitive bidding process to get the best deal. Avoid single sourcing just because it's more convenient.

Vendor Management Office or VMO, as many put it across is a framework for managing and governing your outsourcing vendors and to ensure that your desired business outcomes are achieved through your outsourcing efforts. However certain factors when not taken care of can hinder your efforts in setting up an agile and flexible vendor governance framework. Let’s look at the most prominent ones:

SLA Maze – Often SLAs are too many, generic, and are not properly spelt out that makes it difficult for both client and the vendor to understand and execute them.

Communication Barrier – Most of the times we only see top-down communication that involves senior management and executives. Bottom-up communication that generally involves technical team responsible for execution and delivery is either missing or given a secondary treatment. Thus organizations fail to have a two sided view of their contracts.

What about Qualitative Outcomes? – KRAs/ KPIs (Key Result Areas/ Key Performance Indicators) are employed to assess vendor performance, these metrics measure and track quantitative outcomes of the outsourcing contract but leave the qualitative facet of the contract that are important to your organization. Qualitative outcomes such as customer/ employee satisfaction, stakeholder expectation, client-vendor expectation mismatch, long term relationship with the vendor are indispensable for the maximum contract value realization.

Endless Meetings – Does carrying on innumerable, lengthy meetings yield the expected results? Not always. Most often the result of these meetings is ever piling cumbersome status reports that further complicate the overall project and load the project personnel.

Lack of a single consistent tool for measuring the Vendor performance – Manual or partially automated processes do not fully monitor the vendor performance and lack an ongoing vendor review. They demand considerable time of project personnel in feeding data and extracting and interpreting results.

Proof of Concept - More often than not clients seek value, but fail to ask for a proof firsthand, a demo of the system/ infrastructure/ application at the client premises with the help of client “people and data” is not always run by the vendor beforehand.

Vendor Selection and Negotiation - Negotiate with the top two. After evaluating multiple vendors, carry out contract negotiations with the final two, and not just the final one. This increases competition and chances of getting a vendor with the top choice.

Keeping Compliance out of Contract – Client often overlook whether the offered product by his vendor is compliant to all legislations and regulations. Once the product is implemented at the client end, any compliance risk and cost of non compliance may have to be borne by the client and can affect the product performance.

Infrequent Vendor Evaluations – Most organizations carry out vendor evaluations at randomly defined periods. The period may be monthly, quarterly, annually or at the start, somewhere middle, and the end of contract. More frequent evaluations may result in weekly or monthly evaluations. Lack of well thought out ongoing evaluations leads to overlooking performance inefficiencies and required improvement areas.

Don’t buy Solution, buy Features – A solution is a broad-based term. Often 70% of the solution is generalized and 50% is customized to the client needs. However this may lead to a client paying for the features which are not of use to him.

Continuing the discussion on outsourcing governance, here are some more reasons why outsourcing governance is important for successful outsourcing relationships.

Saying No: Saying no is actually a more important job for the Outsourcing Governance team than saying yes. The Outsourcing Governance team needs to keep in mind that stakeholders may not always have a 360 degree vision or may not have the same motivation. Sometimes it's a simple matter of miscommunication or misunderstanding when too many people are involved in managing a project or a relationship. Whatever the case may be, governance teams must learn to say no when they are pressured by some stakeholders, or as expectations are unrealistic or demands are unreasonable. By keeping the viability of the entire project in mind, governance teams must learn to say no as often as necessary while convincing the stakeholders why they are saying no. The last thing that the governance team needs to do is say no and antagonize stakeholders which would truly jeopardize a project's success.

Supplier Relationships more important that Dry SLAs:  Yes, Service Level Agreements (SLAs) are very important. And SLA's must continuously be checked and enhanced to ensure that they meet the needs of the business. However when the governance team establishes a relationship with its suppliers that is based on trust and mutual respect, not to mention keeping in focus the shared goals of the organization, success is sure to come. Customer satisfaction cannot just be measured with SLA performance and that's why supplier relationships are more important than dry SLA's.

These and the key strategies shared in my earlier blog are important to creating a successful outsourcing relationship. If you are interested in learning how we can help you with your outsourcing governance, click here.

All Vendor Management Offices (VMO) are not created equal. Roles, responsibilities, and overall scope varies from company to company. Sometimes it's simply a phrase to describe a process implemented and other times a Vendor Management Office may just mean a centralized team doing all the buying. A Vendor Management Office that is not mature may not participate in the total life cycle of the buying process. And then there is the mature Vendor Management Office where they are involved from RFP creation to vendor search, conducting benchmarking studies, handling vendor negotiation, managing post-contract vendor relationships, and ongoingly overseeing the contracts to ensure compliance.

A mature Vendor Management Office drives best practices by ensuring the creation and regular usage of templates all the way through the process from creating RFP's and contract negotiations to even communication management and measuring vendor performance through pre-defined performance metrics.

But how to measure vendor management office performance? Here are three top areas where you can focus to evaluate your VMO performance:

Consitency and Transparency: Is the Vendor Management Office providing guidance, consistency and transparency throughout the sourcing process? Are there mature templates that have been created and regularly used for every single sourcing opportunity? Is vendor risk assessment, benchmarking data, and creating guidelines for pre and post sourcing being handled as a routine practice?

Structured Approach: Is the Vendor Management Office providing a structured approach to negotiations? Is there a formal negotiation methodology in place rather than simply relying on the art of negotiation? Are all stakeholders including legal, finance, and operations involved in the negotiations and final contract creation?

Effective Contracts? Is the Vendor Management Office helping the company create more effective contracts? Are they flexible? Do they include measures for managing compliance issues and resolving conflicts with vendors? Are they nimble and easily modifiable?

You should regularly evaluate the performance of your Vendor Management Office. The Vendor Management Office should own the negotiation and contract management process. This will allow internal business customers to conduct day to day operational management with vendors without drowning in contractual issues.

Vendor Management Office performance should also be evaluated on how well they improve vendor relationships and how well they've converted vendors from simply selling goods and services to becoming partners in creating innovation and better products and services.

Contact us today to learn how we can help you effectively create, enhance, or manage your vendor management office needs.

Multisourcing or a multi-vendor environment brings an old adage to mind: "don't put all your eggs in one basket".  Many a company has in the past fallen on difficult times when they relied on one company to provide all their IT needs. Multi-vendor environments are quite common now but there are still some who wonder whether the effort is worth the overall savings. Here are some pros and cons to consider if you are considering setting up a multi-vendor environment:

Pros:

• Competition drives collaboration and better prices. A team of strategic vendors bidding on the same scope of work allows you to benefit from collaborative opportunities as well as from better cost.
• Splitting the scope up between two or more vendors allows you to better manage your risk if a supplier is unable to perform or goes bankrupt.
• Multiple vendors means leveraging multiple skills to get the best solution. Rather than relying on one or two vendors to "be all", leveraging each vendor to get their specific expertise in place provides more value to you.
• Multiple vendors also allows you to negotiate better terms, not just better prices.

Cons

• Requires more internal time to manage multiple vendors. This includes time spent not just by the operational procurement team but also by the management team.
• He said, she said can result from one vendor blaming the other for work not completed on time or as required, when contracts are not clear or have some gray overlapping terms.
• Managing accountability and standardization of process, communication, and metrics becomes more of a challenge.

Multi-sourcing does work.  But does it work for all? That remains to be seen as each situation needs to be evaluated and understood before a clear path can be determined.
Call us if you are seeking an expert team to help you evaluate if mutli-sourcing is for you.

Outsourcing is no longer a hands-off relationship, as enterprises look forward to do more than just transfer existing processes and ask vendors to achieve the SLAs. They rather aim at partnership development and strategic alignment with their vendors. Managing the Vendor Relationship becomes more important when clients expect their provider to deliver long-term business value. 

SLA’s as a performance driver – A Myth

SLAs/Metrics are ingenuous tools for measuring the overall success of an Outsourcing contract; they are too many and too detailed to be truly meaningful. These should be aided by rigorous governance structures on both sides; ongoing performance reviews; and continual refinement of the Outsourcing contract goals. Linking business goals to the SLA metrics can get both parties much more focused on the key aspects of the operational and relationship aspects of the deal which benefits both.

A Vendor Management Framework enables the organization to continually improve its IT and Business operational capabilities throughout the relationship with its vendor. Its key takeaways are:

Vendor Relationship Management

Ensures business strategy and IT strategy are translated and communicated to vendors with respect to services and projects they deliver, thereby ensuring that the organization drives maximum business value from its Outsourcing arrangement. IT Managers need to create an environment that encourages both the vendor and customer to suggest improvements and two way exchange of ideas/concerns.

Communication Management

Communication is a crucial factor in achieving performance and process improvements across the Outsourcing lifecycle. When the communication channels between the vendor and his client are fully open, and when there are right people on both the sides, it is possible to achieve better results and add value by bringing out areas of concern and suggesting areas for improvement. This also helps address certain intangible risks involved due to information loss and mismanagement.  The vendor should also utilize practical experience learned from one client to other deals of similar nature.

Vendor Performance Management

Ensures adequate measuring and monitoring of services delivered and prompt resolution of issues faced.  It also includes on-going reviews of vendor contribution to the business and the delivery of assured business value. Relationship Management Scorecard is a strategic Vendor Governance tool that conducts regular health checks on the vendor performance and outsourcing relationship.

Vendor Financial Management

Validates, manages and monitors economics of the Outsourcing contract. It manages financial risks associated with the contract, ensures accuracy and audit-ability of all financial transactions and places proper financial controls across the agreement lifecycle.

Vendor Service Agreement

Ensures that vendor’s services are properly aligned and integrated into the organization’s IT service portfolio. It works with the organization’s service and process owners to continually improve IT services underpinning business processes. It facilitates business transformation by driving the approach to systematically integrate the vendor’s advancements into its internal IT service and process structure.

An Advisor can help you navigate the Outsourcing Contract maze by:

• Providing an actionable plan through an objective evaluation of vendor’s offerings
• Setting timeframes and provide a proven roadmap for business target realization
• Navigating clients through a pragmatic, fact based process
• Leading or supporting negotiations with a focus on key elements of the contract to ensure a smoother long term sustainable relationship with the   vendor
• Building a strong foundation for on-going vendor governance
• Using a pragmatic yardstick to evaluate outsourcing outcomes

Ok so there's a lot of talk about Vendor Management and its benefits and how it can be implemented, etc. So when looking for vendors to incorporate in your pool of strategic or short-term vendors:

1. Do interview more than one and fewer than 10 vendors in a particular area of need
2. Don't single-source just cause its easier, faster, or because it seems like a good deal
3. Do ask about their expertise, experience, team, clients, case studies.
4. Don't just look at the hourly rate or project cost, also understand "total" cost of involvement/deliverables
5. Do ask how the company will provide continous innovation and ideas to help save you money long-term, not just one-time
6. Don't ask them how they perform when compared to their nearest competitor. Do you really think you are going to get an honest answer?
   
7. Do share an overall range of budget tha want to be in
8. Don't tell them your exact budget figures
9. Do ask about performance measurement, metrics, reporting, and all things that are done post-project
10. Don't threaten or bribe them with future business to get a short-term unreasonable pricing

Successful Vendor Management means open communication, ongoing dialog, sharing challenges and needs, and making sure that you aren't pushing a vendor for ongoing unreasonable reduced pricing. After all, putting a supplier out of business is hardly going to help you!

There are many important relationships in business. Certainly, the customer relationship is critical. The employer - employee relationship is a key one as well. But one that is sometimes overlooked is the vendor relationship.

At one time vendor relationships were seen as adversarial.  Less was more when revealing information to your vendor about your operation. Then, when it came time to negotiate price, each side's goal was to get as much as possible.

The total quality movement changed this thinking. Materials needed to come just-in-time. Quality had to be right the first time. Vendors needed to know more about your manufacturing flow to deliver the right product or specifications.

Today, things are even more complex. Instead of a separate prepress distributor, paper distributor, or pressroom products distributor, now graphic arts distributors are carrying plates, ink, and pressroom supplies. Paper merchants offer packaging, janitorial and other products as well as paper.  Software, workflow and integration are all key elements in the digital age. Picking the right vendor is a real partnership.

Because most vendors have a much broader line of products and services make sure you are using everything your vendor has to offer.  Sometimes the vendor's own sales people don't fully understand or sell all their products. Visit the vendor's web site and ask to be put on an email list for new product announcements and newsletters.

Many vendors offer free training or webinars to help educate your employees and customers about new technology or just the basics. Vendors may have product specialists or marketing people who are watching the trends and can help you decide where you want to go. Imagine having a group of customers come in for a lunch meeting with an industry expert, from one of your vendors, who speaks about how to get the best marketing response rates or the use of variable data.

Vendors now offer plant audits in various areas. Some of these are fee-for-service and some are at no charge, if you use enough of their products or services. Having someone from the outside take a look at your operation can often yield great improvements. Making sure you are getting optimal use or mileage from their products. When was the last time you had your stretch wrap machine adjusted to operate for the maximum pre-stretch or minimum number of wraps on a skid? Are you getting the best usage from your ink or plate chemistry? Is there ancillary equipment that can save you money, such as press wash recycling or fountain solution filters? Your vendor can be of valuable assistance in these areas.  If they can't, maybe it's time to look for a vendor who can.
Purchasing decisions are becoming more and more challenging. Procurement professionals nowadays have the added challenge of working with offshore suppliers or working  in a multi-supplier environment which can be stressful to all involved. But why should there be only one point of contact for vendors?

To create a real "partnership" with your vendors, why not have multiple touchpoints with the vendor team even if it is coordinated centrally by the procurement professionals in your organizations?

Not clear what I mean?

Well, all I'm saying is that centralization of vendor management is important to get a good arm around what you are buying for how much and from whom. However, to really create synergies, there should be multiple people from your organization engaged with multiple people in the vendor's organization. By doing so, more information will be readily shared and there will be more of an opportunity to brainstorm ideas that will help you.

You know that your vendors are constantly seeking to grow their footprint in your organization. By talking to more than one or two people in their organization, you can find ways to improve your processes or challenge them (in a friendly manner ofcourse) to help you better manage your costs. 

Vendor management doesn't have to be the responsibility of only your procurement team because it's not just about cost. Other dimensions to consider are quality, responsiveness, speed to market, and so on. So to make all this work; your team should be made up of department leads, plant managers, engineers, procurement professionals, IT professionals, and an executive that oversees the entire process.

And although you may be focused on building a great partnership with your vendors, remember that competitiveness helps. That means that continue to bid out your projects, check market prices to ensure that you continue to receive competitive pricing, and ensure that you have fair practices to evalute a vendor's performance.

And if you think you are getting a better deal with a new vendor, don't forget to consider the cost of switching to the new vendor. Many times that cost is lost in the negotiation process and then when it raises its ugly head after the contract has been signed, the relationship starts off on the wrong foot through the simple lack of understanding and communication of all involved.

Healthy vendor relationships are important to help an organization reduce costs and drive profitability. But it takes two to tango and two to make it work, so work on it and make your vendors your partners with fair and clearly communicated vendor management practices.

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.