Sourcing Decisions 2017: Golden Rules for Implementing a Vendor Management Organization

If you’re dealing with external resources in any capacity, some form of vendor management is essential in your organization, but a lot of companies are not implementing it in the right way.

“Most of the people I talk to in our industry are in a role that has something to do with vendors and suppliers, so the conversation goes into a very tactical, metrics-focused direction,” explained Tim Norton, a long-time vendor management veteran, at Sourcing Decisions 2017. “But just because the metrics are good, are you necessarily getting the best out of vendors?”

Relationship Problems

Upon getting the crowd thinking, Norton then invited them to consider the relationships between vendor and supplier, highlighting that the ability to ask questions of your vendors is vital, whether it’s a long-term agreement or a one-off, transactional relationship. “On some level, vendor management should exist in any company or industry that uses external resources in any commodity,” he advised.

Vendor management is not one thing; it encompasses different aspects in every organization. The department’s function is to design, facilitate, and optimize the external resourcing environment within the enterprise. “If it’s not that, then it’s not going to work,” said Tim. “If all you want is more metrics, then maybe focus on that, but if you need strategic integration with your vendors, then take it that one step further.”

At both GE and UPS, Norton spent 75% of his time on the “right side”, because, as he pointed out, if the work has been done on the metrics and getting the left side in place, then you can be confident in them doing the job.

“Spend more time on the right side and try to figure out if that vendor is willing to invest in you, because vendors will invest an extraordinary amount of money in you if they believe there’s an opportunity for payoff,” he said.

Creating an Environment for Innovation
During the client-vendor interaction, executives like CIOs don’t have much touch time with the vendors because their primary focus is not usually on any kind of vendor strategy. Procurement and project teams are also focused on other things.

“The procurement organization is oftentimes very practical, setting a fair bidding environment for vendors and doing all the negotiation,” said Norton. “Then you have the project teams who are pretty much trying to get work done, so their heads are down and they’re not often thinking about how to do things differently; they’ve been given a vendor program and that’s what they have to live with.”

In this scenario, Norton asks, how does the vendor engage in innovation with the client? Are you getting innovation from your vendors?

“If the answer is no because they’re “not bringing anything to the table”, then ask yourself if you’ve set up an environment for them to bring you those ideas, because it’s likely that there aren’t really any places to engage with you. This is where your VMO comes in.”

Advocate for Vendor Engagement

A lot of project problems arise because the client is failing to engage, but the vendor will usually take the heat. To avoid this, Norton suggests establishing an advocate for the vendor within the company to help figure out what the issues are, but also ensuring that the vendor knows exactly who that is as a single point of contact.

“Vendor management could be that organization that helps with that,” said Tim. “It could be called hard procurement, strategic sourcing, or anything else, but that function of vendor management is necessary in some capacity.”

Norton then gives an example of how vendors can be invaluable assets if engaged with appropriately: “When looking at which locations, or determining where to set up new operations, a lot of folks on the client side will do a lot of work to figure that out, but vendors already have that knowledge as they do it every day, so build the relationship and ask them — you can’t have all that if you only have a tactical relationship with the vendors.”

Best practices for a strategic relationship

So, how does a company start to build this VMO and create the best partnerships with their vendors? Norton offered up a revealing list of ideas:

1. Share your forecast: where are you going business wise and IT wise? This is highly valuable information for a supplier as they can see if they can grow with and invest in the client.
2. Make sure your vendor establishes a dedicated relationship manager as a single point of contact, no matter the size of the firm. This should be one person to interact with from a vendor management standpoint. The same goes on the client side.
3. Share your tech stack so that vendors can make sure they have the right folks for the job.
4. Define what you want to get done and allow the vendor to greatly influence how and where it’s done. Measure the heck out of it and make sure they are delivering for you and you’ll find that your job is so much easier.
5. Engage vendors up front during the design of the strategy by approaching the most suitable ones and allowing them to participate. They can bring valuable info at first and then be ready to serve you when you run with the project.
6. Establish trust and transparency in order to move forward.
7. Go to relevant events to talk to other vendor managers and understand what they are doing and produce ideas.

“Ultimately,” said Norton, “the benefits of a better relationship with suppliers are their alignment with your goals and objectives, allowing you to better get your work done.”

Benefits of a Mutual Understanding

Implementing VMO in some capacity will help establish a mutual understanding with vendors, which makes it infinitely easier to discuss best pricing.

“Vendors will consider you the premier client and they’ll make sure to give you the best talent they have,” said Norton. “There are lots of investment dollars out there, the vendor just have to know that there is a potential benefit to that investment, even if it’s just having the opportunity to be on an RFP or to get a meeting with the CTO.”

“I believe in vendors,” he strongly concluded. “I assure you that a vendor management function will pay for itself instantly.”

For more insight from Tim Norton, check out his author page on Nearshore Americas to read some of his expert commentaries.