“Organizations spend an average of 62% of their technology budgets on vendor products, services and outsourcing.” – Gartner
Managing IT vendors can be a never-ending task. For various reasons, many companies choose to eschew full-service IT management services, opting instead to engage multiple vendors with each assigned to deliver a particular service. However, this model can easily challenge the IT vendor management process and make juggling these relationships difficult.
Let’s examine some of the reasons why having too many IT vendors can lead to organizational inefficiency and look at some IT vendor management best practices.
Why You are Spending Too Much Time on IT Vendor Management
You Use Niche or Low-Priced Single Service Vendors
It goes without saying that cost-containment is a major objective for every organization. In that light, it can be tempting to carve up the services you need and then go with vendors who specialize in that niche or who offer services lower than most competitors.
The problem with this approach is that it quickly adds to the number of separate vendors you’ll need to manage. Looking at your needs as a collection of individual services, and then seeking separate vendors to fill each need, can quickly lead to an unmanageable vendor management situation.
For multiple niche vendors, it can more difficult for each vendor to get a full understanding of your company, the big picture, its pain points, technology landscape, culture, and its values. Whereas fewer and more comprehensive vendor service relationships allow the vendor to get that big picture which allows them to become more of a partner vs a vendor.
A full-service provider can deliver multiple services as a single vendor entity. While they might not always be the lowest-cost option, the efficiencies you’ll gain – especially regarding the time saved by managing fewer vendors – will likely lower your costs in the long run. Another option to consider is to hire a Virtual CTO / CIO to manage your IT and to help consolidate your vendor management.
Spending Too Much on Multiple IT Vendors?
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Using more IT vendors means having to juggle an increased number of contracts. If your contracts tend to use individually-tailored rather than standardized language and terms, you’ll ultimately find yourself spending more time managing your vendor relationships.
The reason for this is fairly simple. Standardized contracts allow you to set SLAs that are relatively uniform across the board; otherwise, you’ll get caught up trying to deal with a patchwork of service standards that might not mesh well. For example, if one vendor guarantees a certain service availability rate while another vendor supplying a parallel service offers another, they may severely impact the SLAs promised to your clients.
It’s critical that you take a “big picture” view when signing individual service contracts. Always remember that each vendor is one piece of a puzzle that needs to work well together as a whole. Using standardized contracts designed to support your overall business objectives will help operational efficiency.
You Lack an Experienced IT Vendor Management Team
For complex IT services agreements, good governance practices include robust relationship, performance, financial, and contract management activities. These activities can be extensive and are fundamentally different from the traditional IT skills used to directly manage service delivery. As a result, responsibilities for large agreements do not lend themselves to being added incrementally to existing IT manager duties. (via ZDNet)
Many organizations see vendor management as a task for the IT manager. Unfortunately, there is a particular skill set required to successfully manage vendors that those trained for IT management simply might not have.
These can include:
- Contract Management – keeping track of expiring contracts to choose the optimal renegotiation time to maximize leverage and terms
- Performance Analysis – understanding how vendors’ performance impacts your business and deliverables
- Relationship Management – gaining a big picture view of the relationship with your vendor to facilitate problem resolution, contract terms and service delivery
- Risk Management – being able to ascertain whether a vendor will be able to fulfill its contractual obligations and therefore won’t put your organization at risk
Having an experienced vendor management team with these skill sets can go a long way toward ensuring that you are maximizing your vendors’ performance and cost-effectiveness, letting you streamline the number of vendors you use and reduce them to a more manageable level.
No Vendor Performance Metrics
It’s imperative that you measure your vendor’s performance across a wide range of criteria. In addition to determining if you’re getting an acceptable ROI, measuring performance can help mitigate your risk as well as provide you with vital information for future contract negotiations. It will also help you determine if using fewer full-service vendors can improve your efficiency.
According to NC State University’s Supply Chain Resource Cooperative, performance metrics should include:
- quality level
- service level
- on-time delivery
- use of electronic data interchange (EDI)
- willingness to share sensitive information
- presence of certification or other documentation
- flexibility to respond to unexpected demand changes
- communication skills/systems (phone, fax, email, Internet)
- quick response time in case of emergency, problem, or special request
- willingness to change their products and services to meet your changing needs
- willingness to participate in your firm’s new product development and value analysis
Not Participating in Vendor Meetings
You should implement regular vendor meetings. The frequency and structure of these meetings should be a reflection of which tier that vendor occupies. These meetings are your organization’s opportunity to hold the vendor to account for the service that they have provided since the last meeting. (via The Royal Gazette)
Vendor meetings are an integral part of an effective vendor management strategy. Yet according to CIO, “only half of IT leaders indicate that their most strategic partner works with them to develop key performance indicators (KPIs).”
It’s therefore critical that you maintain regular communication with your vendors. While holding regular meetings can be time-consuming, it’s ultimately an investment that will pay off in the long run in the form of a smoother vendor relationship and less time resolving issues.
Having an IT vendor management framework in place that follows best practices and employs experienced personnel will allow you to determine whether your existing multiple IT vendor relationships are working for your business. You’ll ultimately be able to decide if the time spent managing your vendors is an efficient use of your resources, and whether or not full-service IT management services might be a wiser course of action.
Resolute Technology Solutions offers IT consulting and managed IT services designed to let businesses focus on reaching their goals. To learn how we can ensure your technology is optimized to suit your needs, contact us.