Definition of Vendor Management IT Glossary

Where this is the case for any categories of vendors, it is important to establish if it is worth attempting to impose vendor management on them. If you are receiving good services and good quality products from a vendor, then that may be sufficient to achieve your goals, and any additional vendor-management activities might not add any value. Ineffective vendor management and lack of trust in vendors can lead to increased headcount and costs for you, as you continually check the quality of vendors’ services produced.

This includes ensuring alignment between the organization’s service level targets in client SLAs, and the targets for vendors defined in the contracts. At the operational level, vendor management activities are simply an extension of the enterprise’s procurement function. On the other hand, the tactical level has a more specific focus with individual business units responsible for management of their own vendors. Define the IT vendor management metrics you’ll track, such as customer service level, delivery dates, and service quality. Along with setting KPIs, schedule regular meetings with your vendors to discuss project progress and share feedback rather than just discussing problems.

IT Vendor Management: What It Is and How to Get It Right

If during your first meeting, the vendor recognizes you have an attitude of being in charge, then that could be the vendor’s perception for a considerable period of time and the vendor may prove difficult to manage. Vendors who want to work as a partner with their customers may even sever their relationship after the first vendor-management engagement if they think working with you will be challenging. An IT vendor management strategy defines a company’s approach to working with vendors based on its business strategy, goals, values, and vision.

• Some vendors, especially large ones and those providing commodity services, will prefer to manage their deliveries and may resent any attempts by you to apply vendor-management techniques once contracts have been awarded.
• This can help clients meet business objectives, minimize potential business disruption, avoid deal and delivery failure, and ensure more-sustainable multisourcing, while driving the most value from their vendors.
• Vendors should be monitored for risks that could impact the company, such as the risk of compliance breaches, lawsuits, data security issues and loss of intellectual property.
• These two processes are usually connected, and are typically handled by the same software, but they are fundamentally different.
• Using effective vendor-management processes will ensure vendor agreements delineate appropriate requirements for service, quality, cost and satisfaction that are aligned to an organization’s strategic goals and IT requirements.
• Using heavy-handed vendor-management tactics and language with vendors are unlikely to help the relationship.
• Apart from performance tracking, vendors should also be checked for potential risks, which may hinder or disrupts business operations.

Contract negotiation is traditionally carried out by procurement specialists. Instead of thinking agile, they tend to draw up unrealistic and rigid contracts which over-prioritize cost savings. Let’s take a closer look at what you stand to gain from streamlined vendor management.

Improved Selection

For example, a vendor providing hosting services might ask for extra payments to apply major updates to database software. Vendor management can avoid this situation by clearly determining your goals, selecting vendors that can support those goals, and creating contracts that fully specify what vendors will supply and how they will be managed. Almost every business uses IT products and services provided by external organizations. The terms supplier and service provider are also alternatives to the term vendor. A business could have a few or many different vendors, each with different terms and conditions. Vendor management is the term used to describe all of the activities the customer organization should perform, so it can obtain the best value from its vendor arrangements. The detailed vendor-management activities and the level of management required for each vendor will vary, according to the characteristics of the vendor and what products and services it supplies.

• How you do vendor management will be invisible to your internal customers, as in their eyes you yourselves are the internal provider of IT services.
• As far as possible, make allowances for future events— for example, if you plan to spin off a division, mention in your contract that you can transfer licenses at the same price.
• The vendors used by a company will vary considerably depending on the nature of the organization, and could include companies as diverse as seafood suppliers, IT vendors, cleaners and marketing consultants.
• Including onboarding activities in vendor management will help to develop those relationships and allow vendors to understand your organization, IT landscape, IT operating model, and your goals better.

The best value comes from developing long-term partnerships with trust and commitment between both parties. Even SVMs with extensive IT contract knowledge can face procurement challenges when the process is managed by a completely different team . This division may lead to discrepancies and inefficiencies in the drawing up of contracts, causing the SVMs heartburn down the road. When combined with pre-existing contracts that don’t meet the fast-paced nature of IT, companies may end up stuck in long-term agreements that force them to use outdated technologies. As IT becomes more focused on aligning with strategic initiatives across the business, so too are the company’s technology needs rapidly changing. At the same time, IT must balance evolving business requirements with meeting the latest security standards.

Categorizing vendors for effective management

Your IT vendor management strategy should align with your business needs and vision. This is why your first step to better vendor management is to determine your main focus—whether it’s safety, cost, innovations, service quality, or something else—alongside other factors such as user requirements and market trends. Once the vendor is on board with the company, it’s important to keep track of its performance against well-defined parameters.

• Active and effective two-way communication is the key to success in all steps of vendor management.
• It also establishes the company’s main priorities for vendor selection, such as innovation, safety, or service quality.
• It can also be extensive which include training and investment in the supplier’s operations.
• If during your first meeting, the vendor recognizes you have an attitude of being in charge, then that could be the vendor’s perception for a considerable period of time and the vendor may prove difficult to manage.
• In a multi-vendor environment, your onboarding approach should also include introducing vendors to each other and encouraging them to work together where there are dependencies between their IT products and services.

The VMO should formalize the negation processes and leverage performance metrics for renegotiations. Information which is critical to the identification, classification and communication of and with vendors. Capital and equipment investments in suppliers are needed to ensure that have the tools to perform. My company has helped hundreds of companies scale engineering teams and build software products from scratch. Discuss your project with selected candidates in detail and ask them to provide estimates of both cost and delivery time.

Vendor Management Toolkit[edit | edit source]

Partial acquisition of the supplier firm is similar to the direct involvement but has more risks and is also not part of the core business of the company. Direct involvement is the most effective strategy, as the company will understand the gaps and possibilities of the vendor. Keep the vendor under competitive pressure by regularly reviewing contracts.

For the IT industry, where multi-year outsourcing contracts are commonplace, strategic and agile vendor management may sound like the perfect solution to outsourcing problems. What’s more, successful long-term partnerships are more cost-effective than switching vendors for short-term gains. Vendor management is not like a battle where there are winners and losers. For good relationships, both customer and vendor must gain something from the partnership. Using heavy-handed vendor-management tactics and language with vendors are unlikely to help the relationship. If vendors believe they have been unfairly or unjustly treated, then this perception is likely to lead to resentment and loss of any co-operation. It’s important to get the contract right at the outset and to ensure the terms agreed benefit both parties.