Squeezing business value from vendors? – Part I

As organisations face sustained pressure to reduce costs, improve financial and operational performance, Vendor Relationship Management (VRM) is a critical enabler for success. In this week’s post, we will introduce you to the topic by outlining the aims and objectives of the VRM concept.

The new world of simplified ‘as-a-service’ offerings brings greater complexity to management with multiple vendors and different service level agreements.

The increases in contract volumes and complexity have resulted in an increased importance being placed on vendor management. VRM has become an integral part of the IT organisation. It is becoming more important than ever for clients to consider how they extract maximum value from outsourcing arrangements, particularly in the context of multi-sourcing environments.

Outsourcing provides opportunities to leverage external expertise and scale to provide quality services at reduced cost, enabling internal resources to be more focused on organisation specific activities, appropriate to their knowledge and skill.

However, without effective VRM, organisations are at risk of services not delivering what the business requires and at a premium cost to the business.

Aims & Objectives

VRM is the discipline of managing vendors to extract maximum possible value from a contractual arrangement through governance and relationship building. The relationship building is key, and understanding what the benefits are for both parties is critical as any one-sided transactional approaches may be less beneficial.

The proactive management of ongoing commercial relationships ensures that any technical or contractual loopholes are closed and that commercial conversations are escalated to the appropriate level to ensure prompt resolution of issues.

VRM focuses on the transition, transform and optimise phase of the Deloitte sourcing methodology (see figure 1). Vendor Management

Today outsourcing deals are entering 3rd and 4th generation, with more demanding clients and vendors bringing more sophisticated services and offers. Companies are further seeking to set up complex multi-sourcing models across a number of service providers, leading to an awareness for:

  • Moving into emerging activities of Vendor Management such as multivendor integration and vendor risk management
  • Developing service provider relationships as an essential and mandatory investment leading to a strong partnership
  • Moving client skills and processes towards managing vendors on operational, managerial and strategic levels, rather than focusing on execution
  • Keeping the contract alive by managing it on a daily basis rather than monitoring it & periodically amending it.

Next week’s preview

In the next part of this topic, we will look at the eleven key capabilities in order to achieve maximum benefit from optimising the Vendor Management approach.

Did you miss any of the previous Deloitte Source Point blog posts? Read them here.

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