Image Copyright : Andrew Grossman
As companies continue to outsource more and more non-core functions such as - networks, data center, applications, voice, video, and security - the job of managing service contracts with vendors is becoming a finger pointing and a data crunching chore. It is because they rely on vendors to provide performance reports on the services they supply. This is like asking students to grade their own papers!
A Google search on “Vendor Management Office” gave me the following result … “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.
This means that Vendor Management has to look beyond the historical task of simply monitoring contract start and end dates. They have to find non-refutable ways to monitor and benchmark the agreed terms of service agreements to ensure service quality, agility and industry competitiveness on a continuous basis.
Let’s go deeper in the two things I bolded in the definition
Evaluating third-party providers: Evaluating services is a complex thing these days. Imagine outsourcing your Network Services. To do a good job, the metrics that needs to be tracked against your contracted terms should be:
Our studies have shown that companies hold up to 20% excess capacity in their IT services. The irony is that most services they are consuming is available in a Cloud or a SaaS model which means they can technically “pay for what they use”. But because they have no visibility of demand and capacity, this benefit is a complete waste.
We have seen customers who get thousands of line items in their vendor invoices for just one service line. Can you imagine trying to reconcile the charges? One company we know did start checking and found more than million euros in incorrect billing. That was the good news and the bad news was the discussion to set it right took more than a year. No one could prove the numbers not to mention the many frustrating hours in spreadsheet wasteland.
The second item I had bolded in the Vendor Management definition was “Managing long term relationships”. They days of signing a 5 or 10-year IT services agreements are gone. Technology is changing at the rate of 2 to 3 years for a complete refresh. Internet Telephony was hot 6 years ago. Three years ago Unified Communications became the new way to go. But today, everyone is using Skype for Business or other multimedia Web based communications systems. I hope you are not the one stuck with a 10-year deal on IP telephony services.
So Vendor Management needs to play an important role in longer term relationship to ensure suppliers are mandated to refresh technology in a timely and non-disruptive manner. This can be done by continuous benchmarking of services and have the ability to build a business case for new technology transformation.
The reason why business cases are not easy to generate is because neither the company nor the vendor has the granular information to build a business case. A good vendor management system will keep track of cost components and help identify the cost drivers which in turn will help with the business case.
Many companies are also realizing that multi service outsourcing is creating a new complexity. The dependency of one outsourced service supplied by Vendor A with another service from Vendor B. We know one large company that employs 70 people just to keep track of service interdependencies. When your Applications provider starts to point a finger at your Network supplier for slow performance, the onus is on you to prove who the culprit is. By defining a common framework for managing all services, the task of service interdependency will become easier.
If you like to learn more about Vendor Management trends, solutions and engage in a conversation with your peers, join me in a Webinar I am hosting on November 15th at 3pm Central European Time.
I will be talking about new age KPI (key performance indicators) needed to manage the modern day IT supplier which is based on a recent book I published “Next Generation Service Contract Management”.
To register, please send me an email at firstname.lastname@example.org and I will send you a ZOOM invite.
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