Strategic Vendor Management Process – Our Experience and Insights
Before you take on a new vendor, consider the impact the relationship will have on your organization. Will the vendor be engaged in your most critical initiatives, systems, or business processes?
Think beyond scorecards and costs. Do the service and solution strategies align with your architecture and goals? Does the vendor exhibit partnership-like traits?
IT vendor management leaders can improve the way they manage these relationships by adopting a three-pronged approach focused on overall vendor analysis, vendor performance reviews, and vendor action plans for continuous improvements.
1. Data-driven Insights
Begin by building a holistic picture of the vendor and what it delivers to your organization This entails the identification, collection, aggregation, and presentation of the vendor profile, performance, and market data.
Create vendor profiles that provide relevant market, interaction, and performance data specific to each strategic vendor. Update monthly.
Build dashboards that provide near-real-time updates. They often include tactical data most relevant to understanding a strategic vendor’s performance.
Use quarterly scorecards to provide a regular update and objective analysis of the most relevant and strategic measures of a vendor relationship. These can include a 360-degree review, for which the vendor provides a customer assessment and recommended improvement actions.
Prepare vendor risk plans annually, or as required by policy or regulation. Plans should provide an overview of vendor risks and the relevant actions taken, or necessary, to reduce residual risks and respond to risk events.
At this stage, it’s vital to ensure the data gathered is reliable. When you’re confident with the data and reporting mechanisms, you can analyze and look for trends that support a discussion with a vendor.
The next step is to create the governance framework for how the collected data is communicated with the vendor and across the organization’s key stakeholders. Ideally, this is a schedule of review meetings that are agreed upon at the point of procurement or during the onboarding process. Typically, the schedule will contain the following reviews:
Monthly operational performance reviews to report on performance against SLAs and metrics. This is also a good time to review vendor solutions to any past performance issues.
Quarterly relationship reviews focus on evaluating the long-term strategic value of the relationship, as opposed to the tactical aspects of the monthly reviews.
Biannual risk reviews to update and refine business continuity and mitigation plans, and report on risks pertaining to the relationship.
Annual executive review to ensure alignment between the vendor and the client’s goals, as well as a time for senior executives on both sides to build trust and share ideas.
3. Action plan
Collecting sufficient information and designing processes to review it with the vendor have prepared yourself for extracting more value from the strategic relationship. But this will all be of limited value unless you can also ensure broad commitment from within your organization.
To help build buy-in from stakeholders, build standard agendas that can be used for each review type consistently across all providers. Then pilot the process with one or two strategic vendors. Use these pilots to evaluate the best timing, deliverables, and participants, which may vary between vendors and internal stakeholders.
When the process is refined, expand it across more strategic vendors. A slow expansion will demonstrate the value of the process and help you make time to communicate it to stakeholders, who should be drawn from business, IT and the vendor side.
Relationships with strategic vendors are key to business performance, but many IT vendor management leaders struggle to compel their important vendors to be proactive, collaborative, and innovative. When managed badly, large strategic vendors can become complacent, slow-moving, and difficult to change.