Success Steps for Vendor Management Office

More enterprises are taking a look at establishing a vendor management office (VMO) to make IT sourcing more effective. Companies are creating IT VMOs for reasons including the rapid growth of IT spending within the business, the decentralization of technology purchasing, and increased complexity in vendor pricing and licensing.

There are no hard and fast rules for creating a VMO. Some companies have a very formalized approach with dedicated staffing and clearly defined roles and responsibilities. Others are more loosely organized. In both scenarios, the VMO’s effectiveness relies on the adherence to eight guiding principles. They are as follows:

1. Manage VMO as a business within a business
2. Leverage consolidated purchasing power
3. Continuously manage contractual relationships with suppliers
4. Treat suppliers as an extension of internal resources
5. Use the minimum number of suppliers possible
6. Select the highest value supplier, not the lowest purchase price
7. Negotiate win/win deals with all suppliers that balance risk, speed and performance
8. Actively monitor, manage and improve supplier performance

Regardless of how formally the VMO is executed, these principles act as guideposts to decreasing the IT cost risks within the business and improving vendor performance. Observance enables today’s IT sourcing function to become less transaction-oriented and more strategic; less price-focused and more value-driven. Lastly, it transforms IT sourcing from a reactive function into an advisor function that facilitates the attainment of business and IT goals through strong supplier relationship management.

What is Near Shore

What is Near Shore?

 There are many companies who go for outsourcing to meet their operational needs by outsourcing their contact center operations to onshore, offshore, or near shore locations. The decision on which type of outsourcing to choose is based on cost comparisons, proximity to their business location, and language or cultural considerations. It would be helpful to begin by defining the terms “onshore”, “offshore” and “near shore”.

Onshore Outsourcing: Outsourcing operations of the company to another company located in the home country or region. Companies can reduce labor costs somewhat and benefit from highly skilled labor with little or no language or cultural barrier, but the cost of such operations is high compared to offshore or near shore locations.

Offshore Outsourcing: Outsourcing the operations of the company to other companies that are located in a foreign country, and most likely have a different language and culture. Offshore outsourcing offers benefits like higher cost savings and access to highly skilled labor. 

Near Shore Outsourcing: Outsourcing the operations of the company adjacent or nearby country having similar culture and language skills.  Near shore outsourcing offers some cost savings over onshore and has the added benefit of proximity for more frequent site visits, while retaining a highly skilled labor pool.

Near Shore outsourcing is the practice of getting work done or services performed by people in neighboring countries rather than in your own country. There are many companies in the United States who outsource work to Canada and Mexico as they are geographically near to them and they get the resources required from there. The travel and communications are easier and less expensive when geographic proximity is less and there are likely to be at least some similarity between the cultures, and people are more likely to speak the same language.

Near Shore has a great advantage in reduced cost and reduced risk compared to the projects given to the companies in distant foreign countries i.e. offshore outsourcing. Most of the developed countries prefer to provide their outsourcing projects to the organizations in neighboring countries as they find it easier and less expensive. They desire to go for near shoring as the cost effective structures are available nearby than depending on offshore countries for their works done.

The near shore outsourcing has lot of benefits compared to the offshore outsourcing. The Outsourcing solutions provided by the near countries to their clients will not have much difference in their time zones and thus they can provide business process outsourcing services in the same time zone as their customers do. It helps to avoid problems evolve due to language, culture, legal affairs, infrastructure and technology. These benefits represent the most elemental form of value proposition for a near shore offering, since they are seemingly available for every company that establishes in a near shore location, and for a seasoned global sourcing professional can be easily justifiable. Thus, it is understandable to see many players jumping into the near shore bandwagon and claim the near shore value proposition. 

Vendor stratification

Vendor stratification is proposed as a framework for understanding the evolution of preferred vendor programs. Vendor stratification refers to a hierarchical division of a company’s set of qualified vendors into distinct groups. We should be able to recognize important difference between the qualified vendors and use the differences to establish hierarchical rankings of the vendor.

Companies implement preferred supplier programs to reduce their vendor relationships to a reasonable few. Consequently, vendors who do not effectively manage their customer-based relationships are strong candidates for deletion from a customer’s list of long-term suppliers.

Vendor stratification can be done by analyzing the past performance of vendors existing with the company and future expectations from them. One methodology is to look at the share of the sourcing organization’s procurement value, in currency terms, that the vendor has and vendor’s strength based on the expectation of the organization.

The stratification of vendors into different quadrants helps the organization to plan their activities towards the different sets of vendors.

Strategic Relationship

Vendors exhibiting high business strength and having a higher share of business of the sourcing organization fall in the strategic vendor category. The past performance of such vendors is good and therefore the organization gives more business to them while future expectations are also in line with the sourcing organization’s requirement. 

Develop/Maintain Vendor

Vendors exhibiting high business strength yet having low share of business of the sourcing organization, fall in the category of vendors who should be developed or maintained. The future expectations from such vendors are in line with the sourcing organization’s requirement.

Develop Vendor or Develop Alternate Source

These are vendors exhibiting low business strength, yet having a high share of business of the sourcing organization. The past performance of these vendors may not be to the expectation of the sourcing organization but the share of business may be high.

Eliminate Vendor

Vendors exhibiting low business strength and having low share of sourcing organization’s business fall in this category. These are ideal candidates for elimination.

Where vendor stratification won’t work?

New Vendor Inclusion

Organizations may have to induct new vendors depending on the business needs, like new technology requirement and special processes. 

New Technology Adoption

If vendors are expected to adopt new technology as per the sourcing organization’s requirement, then the early stages of adoption may see vendors’ performance fall and then improve based on the learning curve.

Vendor Management Office

A vendor management office (VMO) is an internal unit within an enterprise that is charged with evaluating third-party providers of goods and services, supervising day-to-day interactions and managing longer-term relationships.

In some cases, an IT vendor management office is established to create and monitor vendor relationships with regard to IT, including establishing the organization’s proper mix of IT outsourcing and insourcing opportunities and setting vendor risk management policies.

Vendor management typically involves numerous oversight duties for a CIO or IT executive, including negotiating and then monitoring the length and substance of contracts; keeping tabs on new technologies; maintaining contact with current vendors and reaching out to vendors with which the organization has not yet worked.

For those organizations not prepared to leap into a full-scale VMO, it’s also possible to establish an IT governance or standards body of employees from across the company to oversee purchasing policies and assess new vendor technologies and other offerings.

When assembling either a VMO or a standards body, it’s vital to have broad representation from procurement, legal services, IT and business units. It can help to involve individuals who have backgrounds in project management as they are often more comfortable in supervisory roles. It’s also important to include people who have a far-reaching view of the organization and who, above all else, understand the importance of good relationships with vendors.

Vendor management allows you to build a relationship with your suppliers and service providers that will strengthen both businesses. Vendor management is constantly working with your vendors to come to agreements that will mutually benefit both companies.

While there is debate on the detailed aspects of IT VMO implementation, including demarcation of responsibilities between procurement and vendor management, and the precedence of the functions, the overall benefits to the enterprise outweigh any internal risks or downsides associated with the VMO model.

IT Resource Management

IT Resource Management allows organizations to analyze, monitor and anticipate the utilization and performance of the IT infrastructure by providing an enterprise wide view of IT services and resources. The solution ensures delivery of IT services and resources in an efficient, cost-effective manner while demonstrating measurable value to business incentives.

Benefits

Make faster, better decisions aligning IT and business.  IT Resource Management provides fast, self-service access to IT resource performance reports and analysis, as well as the ability to answer questions related to IT resource utilization and future investments. This, in addition to demonstrating how IT is aligned with each business unit, helps ensure that IT is a driving force behind the organization’s success. The intuitive, point-and-click administration environment makes it easy to build, execute, maintain and reuse processes that manipulate IT performance data.

Dynamically size your IT infrastructure and reduce risks.  IT Resource Management can help you predict when you might exceed resource capacity so you can plan for the additional resources needed to meet changing business requirements. Concise reporting of IT resource performance data helps identify underutilized IT resources that can be repurposed and brings insights to infrastructure consolidation or virtualization projects without negatively affecting the quality of IT service and business continuity.

Reduce IT costs through better use of resources. With a fact-based approach to managing your IT infrastructure, IT Resource Management delivers the utilization, availability and performance information required to know and forecast IT resource needs. These facts enable efficient IT procurement processes, deployment planning and operational activities that are needed to deliver IT services to the business units. The information made available through IT Resource Management allows IT organizations to uncover bottlenecks and address poor service delivery. Personnel, facilities, hardware and general IT operating costs can be reduced with the effective use of IT information and proper planning.

Measure and manage all IT resources and services.  IT Resource Management is designed to gather and consolidate the IT resource data available throughout the IT infrastructure. It stages, standardizes, transforms, aggregates and delivers analysis and report-ready IT resource performance data from virtually any data source. It produces reports and delivers a Web-based application to enable easy distribution and consumption of the resulting IT intelligence. Using one platform to manage all IT-related data reduces costs, saves time, shortens learning curves and facilitates the development and use of common analysis methodologies throughout the IT organization. In the end, it gives decision makers the information they need for quick and accurate analysis of IT resources.

Vendor Selection Process – By Shailesh Nambiar

Analyzing the business requirements:

The first step is to assign a team who will be working on the project. Definition of the product is an important step while analyzing the business requirements. It is also essential to understand the business and technical requirements of the vendor and then document the requirement for approval.

Searching for vendor:

Compile a List of Possible Vendors according to the business requirement. Select Vendors to Request More Information From. RFI helps you create a Request for Information document, by listing all of the information that suppliers need to give to you, to tell you about their business.

RFP and RFQ:

The RFP or RFQ should have the following sections such as Submission Detail, Introduction and Executive Summary, Business Overview & Background, Detailed Specifications Assumptions & Constraints, Terms and Conditions.

Proposal evaluation and Vendor selection:

Preliminary Review is done of all the vendor proposals. The business and client requirement are recorded and on that basis priority is assigned and accordingly the vendor is selected.

Contract Negotiation:

The contract negotiation handles issues such as cost, timeframe, and whether there are any special considerations to take into account. We should know the difference between what you need and what you want and define if there are any time constraints and benchmarks.  Assess Potential Liabilities and Risks.

By Shailesh Nambiar

(A Sourcing Guru since May 2011)