Six Steps to Successful Vendor Management - Page 2

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The "Six Steps to Successful Vendor Management" report outlined six steps to successfully manage vendors and form strategic partnerships for custom products, services or outsourcing functions.

"In a time of flattening budgets and mounting priorities," Brady said. "One of the key ways CIOs can stay strategic and competitive is with effective vendor management. You have to manage your vendors well. They represent you to your internal and external customers."

The report claims that viewing vendor management as a life cycle and not a procurement event will provide such benefits as reduced costs, increased customer satisfaction, greater business impact of technology projects, and the ability to co-develop and innovate with partners.

"What we learned was that everyone is doing vendor management, but the question was whether it was a formal vendor management function that theyve developed processes for," said Brady.

The best practices report hopes to provide a common set of practices that can be applied to any organization.

The first step is to acknowledge that vendor management models vary in terms of resources and structure, and to match the vendor management model to organizational needs. Choosing the right one can play a big part in ensuring success.

"This will determine what kind of model you will have for vendor management: a dedicated resource or relying on a program management office, or will you start a vendor management function? Will it be a virtual team that you bring together, or will you, as some have already started, outsource the vendor management relationship entirely? Youve got to match your needs to one of these models," said Brady.

The second step is to categorize an organizations existing relationships according to the role their products and services play in the business. The process of collecting all of the contracts out there, many that companies didnt even know about, putting them into a category of a service they provide and determining where there is overlap can be enormous.

In a famous case, GM managed to save $6 billion by standardizing and consolidating its processes.

"Any CIO stands to save a lot of money. Research has found hundreds and thousands of dollars of savings from duplicated hardware licenses," said Brady. "This is considered the low-hanging fruit, and its important to consider how you ended up with so many soloed licenses everywhere in the first place."

The third step is to establish the selection process. Because every organizations vendor selection process is unique, its critical to decide the parameters and decision points that matter most.

"At this stage, you address whatever problems have come up in past relationships. You cant use the same model for each. Youre talking about partnerships with people," said Brady.

Although engaging an IT legal specialist may not be required for all sourcing, the report notes that complex technology relationships benefit from early legal involvement to manage dialogue, lead negotiations and author partnership agreements. Some companies brought lawyers in from the outside and others had them on staff. This is the fourth step.

"Its important that the relationship is documented, and not just in the contract phase. Many lawyers even feel thats the worst time to be brought in. Before the contract, there are proposals, demos and negotiations, and there can be something lost in between this and the time the standard contract comes together," said Brady.

"Lawyers also helped companies outline which battles were worth picking," she said. "Legal specialists were especially helpful when negotiating ERP [enterprise resource planning] systems, as the product is not ready when the contract arrives. One CIO said that his credibility was heightened by having the legal specialists with him."

/zimages/1/28571.gifRead more here why you should get a lawyer if you plan to outsource.

Regular measurement and data monitoring is suggested as the fifth step, as part of a strong project management approach. There is not one silver bullet tool that can do all of a companys oversight.

"When renewal time comes around, youve got to be on top of it. You need to have good data that you can bring back to your company," said Brady. "A lot of CIOs mistakenly think that just because outsourcing is cheaper that they dont need to monitor the numbers. CIOs must be able to monitor their own data and compare the value of vendors to make informed decisions."

Step six is define the partnership for long-term success and the relationship will be more effective. To be able to set up the parameters of a relationship, CIOs need to have the preceding systematizing of functions in place, the report explains.

"Before you can share intellectual property, co-develop products, share your road map, show how youll help each other with media, joint promotions and even cross-selling products, youll need to define your relationship parameters. Youre still responsible for the ultimate performance," said Brady.

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