As most organizations rely on multiple third-party vendors, effective management of these relationships has become an increasingly important skill. CIOs in particular face constant demand to implement quality products and services without unnecessary expenditures. With continued digitalization across all industries, and an ever-growing roster of qualified software and hardware vendors ready to meet nearly any evolving technology need, CIOs must be cautious of selecting vendors out of ease and convenience, especially when their service, price, or features are no longer meeting the organization’s full demands.
A vendor management strategy should be an end-to-end approach, from needs identification to performance and accountability metrics. As with all relationships, strong vendor partnerships must be built on honesty, trust and respect. Though the process may be time consuming, by applying the following techniques as a starting point, CIOs will be equipped to better streamline the analysis and implement solutions that get the job done at the right price. These techniques can be built into a series of effective processes that aid in driving optimal ROI from outsourced products and services as part of a larger vendor management strategy.
Step 1: Define your needs and create clear objectives
Before meeting with vendors, establish a good understanding of your business drivers. For example, do you need a technology to improve capabilities or offerings, or automation or outsourcing to reduce overhead? Defining these needs and addressing critical questions will help teams develop a scope to efficiently guide product selection and negotiations. By vetting vendors that won’t meet your most important requirements, you save time in research by only considering qualified candidates.
Step 2: Assess multiple options and encourage competitive pricing
Promoting competition for your business and assessing your options will lead to more
successful outcomes. Set a budget you can afford and always try to find at least two or
three vendors that can provide you the same product or service at the price you need. This will help you maximize your negotiation leverage and increase your understanding of market pricing. Even if you don’t want to use another vendor, you can hear different viewpoints on pricing, develop a basis for comparison, and promote competition.
Step 3: Create a detailed agenda before vendors arrive for negotiations
Your agenda should be tailored to your scope. It’s also helpful to provide your vendors a list of questions before meetings begin and request questions from them, so both you and the vendors can prepare answers prior to the meeting.
The more detailed your pre-meeting planning and agenda can be, the more productive and efficient these meetings will be. By keeping vendor discussions restricted to the requirements outlined in your scope, vendors will not be tempted to use valuable time to introduce unneeded or irrelevant offerings.
Step 4: Assemble cross-functional teams with an IT management sponsor
Teams should be comprised of members with various objectives, including operations, IT, finance and strategic planning. The leader’s task requires facilitating a balance between building a consensus and meeting business objectives in a timely manner. A cross-functional team along with an egalitarian leader will lead to more effective results, both immediately and long-term.
Step 5: Establish vendor days to maximize time efficiency
Vendor days are regularly scheduled days and/or time periods specifically for meeting with vendors. Establishing set time periods helps shortlist who you meet with, it helps coordinate effective teams, and it helps companies better prepare for meetings.
Step 6: Define what you want to spend and don’t buy more than you need
Don’t let vendors dictate the process and due diligence you need to go through. Decide what you want to pay and stick to it. Clearly communicate what you’re willing to pay to vendors. If a vendor does not offer products or services at the price you need them, let the vendor walk away for a while and be prepared to reevaluate.
When negotiating, organizations should also avoid buying unnecessary items or engaging in any premature sales deals. Vendors may try to entice you with bulk order discounts or month end or quarter end sales, but you won’t save money buying what you don’t need.
Step 7: Create a scoring tool to rank objectives outlined in your scope
A scoring tool provides an objective list of criteria used to evaluate vendor offerings and reach a decision. The tool you use can be filled out on a dashboard after each meeting with minimal effort, and it ensures due diligence was taken before adopting a new technology.
Evaluated items in your scoring tool should be pulled from your outlined objectives. You will need to rank and weigh items to prioritize more important considerations. By providing a platform to judge vendor offerings per your specific requirements, managing a scoring tool will help you assess which vendors will satisfy your most important needs. It can also provide useful data when you need to shortlist viable candidates.
Step 8: Assign a point person for contact
While you’ve assembled a cross-functional team for vendor reviews, you should select a single point of contact from the team who will be the representative with whom vendors coordinate and negotiate. The designated point person will not make final decisions but will help ensure a competitive environment and streamline communications. Vendors should be restricted to managing all communications through the point person. As a result, this will help you establish and maintain a governance process.
Step 9: Make sure vendors understand and adhere to all rules of engagement
Establishing a defined set of rules will aid in negotiations and go a long way in establishing a synergetic partnership with a vendor. To facilitate profitable and fair negotiations, companies should be clear about the consequences involved in rule violations.
Step 10: Respect your vendors
While the previous steps will help keep your vendors aligned to your organization’s needs, it is just as important to let your vendors know where they stand and what is expected of them. Tell the vendors why they were not selected and brief them on your decision. Remember to always keep your relationships professional and never burn bridges. Vendors are crucial partners to the organization so select them wisely and treat them with respect.
Every organization can benefit from an effective vendor management strategy, and it starts with the initial vetting and analysis process. These techniques lay the foundation for CIOs to oversee an efficient procurement process and set up mutual understanding of what’s expected by both vendor and organization to create a long-lasting partnership. By controlling negotiations through a fair governance process with set spending limits and creating a competitive environment, organizations increase their chance of procuring optimal products and services at the best value.
About Kevin Torf
Kevin Torf, co-founder and managing partner of T2 Tech Group, is an information systems executive with a 35+ year career, specializing in large-scale IT project design, procurement and implementation. Kevin brings decades of experience in complex application deployment, IT architecture, electrical engineering and data center construction, infrastructure and consolidation, particularly within the healthcare space.
He established T2 Tech Group as a vendor-neutral team of highly experienced technologists, subject matter experts, PMs, CIOs, executives and entrepreneurs helping organizations assess their requirements, procure equipment, build vendor management governance programs, and manage relationships for long-term value.