Vendor-Management Programs Can Pay Off

FRAMINGHAM (04/18/2000) - A small but growing number of companies are implementing programs to assertively manage relationships with key vendors.

With the ever-increasing influence that technology vendors and their products exert on business capabilities, customers see the need to manage these resources more carefully to ensure they accomplish their strategies.

Such vendor-management programs vary in structure but usually include a designated "vendor/manager" from the customer side. This vendor/manager's interaction with other customer stakeholders in the vendor relation-ship is key, as is coordination with the customer's information technology architecture and standards organizations.

Managing vendors and all facets of the relationships - from controlling sales contacts to ensuring contractual compliance - takes time and effort, so it also costs money. But you can more than make up for that because the program saves more than it costs.

Two cases in point: A major insurance company reports an average savings of $300,000 per month just by cross-checking all vendors' invoices with what their contracts allowed.

More remarkable, a major telephone company saves an average of $1 million per month by catching overbilling by vendors.

But what about other benefits? Companies with these programs cite the following benefits from key operational and strategic/tactical components of vendor management:

At an operational level, the goal is to establish focal points for monitoring compliance, problem resolution, vendor product introduction and negotiation control. Benefits include:

Consistent service in all of a customer's facilities around the world.

The vendor/manager can consolidate buying power by knowing what the entire company spends on the vendor's products.

Problems are documented or resolved in ways that are consistent with the customer's strategy for that vendor, including how problems are escalated within the vendor's and customer's organizations for resolution.

Problem-escalation methodology is understood by both sides of the table, saving time and increasing productivity.

Better performance from vendors who know they're being closely monitored.

Duplicate problems within a large, decentralized organization are eliminated.

Problems are fixed and stay fixed because of consistent vendor/clientcommunication.

Problem-resolution cycle time is reduced because the process for it has been defined and communicated.

There are fewer telephone sales pitches from vendors to customer staff, cutting down on some vendors' divide-and-conquer tactics.

Product or version introduction is handled according to the customer and vendor's jointly planned and coordinated strategy for the product type.

On a strategic and tactical level, the goal is to establish alliances with vendors to mutually plan, set requirements and establish measurement. Benefits include:

Vendors send advance notification of new products and versions through the vendor/manager and should no longer market new products to multiple points within the customer's organization.

A customer can gain input into the vendor's product-planning process.

As a result of jointly forecasting with the customer, a vendor can lower its costs by better planning production and distribution, passing the savings on to the customer.

The customer will receive the product when it is needed, usually just in time.

The customer will be able to provide clear, consistent, focused and timely feed-back to the vendor, which improves the whole process.

The parties can improve the supply-chain process through mutual and thorough examination of the vendor's processes and the customer's requirements, and implement mutually beneficial and cost-efficient changes.

With these improvements, both sides can save money, and the vendor can be ensured a given level of business in the long run. The customer is assured a consistent, high-quality supply of product.

There are mutual benefits from such programs. While some vendors will undoubtedly perceive these programs as threats, they can actually represent significant opportunities for additional business and process improvement for vendors who are willing to play by these rules.

And there's always a chance the vendor will become a better vendor because of them.

JOE AUER is president of International Computer Negotiations Inc.

(www.dobetterdeals.com), a Winter Park, Florida., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High-Tech Acquisition Professionals. Contact him at joea@dobetterdeals.com.

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