Besides the small introduction, subscribers and consulting clients within this management domain have access to:
This phase helps you organize your VMI and document internal processes, relationships, roles, and responsibilities. The main outcomes from this phase are organizational documents, a baseline VMI maturity level, and a desired future state for the VMI.
This phase helps you configure and create the tools and templates that will help you run the VMI. The main outcomes from this phase are a clear understanding of which vendors are important to you, the tools to manage the vendor relationships, and an implementation plan.
This phase helps you begin operating the VMI. The main outcomes from this phase are guidance and the steps required to implement your VMI.
This phase helps the VMI identify what it should stop doing, start doing, and continue doing as it improves and matures. The main outcomes from this phase are ways to advance the VMI and maintain internal alignment.
Small businesses are often challenged by the growth and complexity of their vendor ecosystem, including the degree to which the vendors control them. Vendors are increasing, obtaining more and more budget dollars, while funding for staff or headcount is decreasing as a result of cloud-based applications and an increase in our reliance on Managed Service Providers. Initiating a vendor management initiative (VMI) vs. creating a fully staffed vendor management office will get you started on the path of proactively controlling your vendors instead of consistently operating in a reactionary mode. This blueprint is designed with that very thought: to assist small businesses in creating the essentials of a vendor management initiative.
Steve Jeffery
Principal Research Director, Vendor Management
Info-Tech Research Group
Each year, IT organizations "outsource" tasks, activities, functions, and other items. During 2021:
This leads to more spend, less control, and more risk for IT organizations. Managing this becomes a higher priority for IT, but many IT organizations are ill-equipped to do this proactively.
As new contracts are negotiated and existing contracts are renegotiated or renewed, there is a perception that the contracts will yield certain results, output, performance, solutions, or outcomes. The hope is that these will provide a measurable expected value to IT and the organization. Oftentimes, much of the expected value is never realized. Many organizations don't have a VMI to help:
Vendor Management is a proactive, cross-functional lifecycle. It can be broken down into four phases:
The Info-Tech process addresses all four phases and provides a step-by-step approach to configure and operate your VMI. The content in this blueprint helps you quickly establish your VMI and sets a solid foundation for its growth and maturity.
Vendor management is not a one-size-fits-all initiative. It must be configured:
Spend on managed service providers and as-a-service providers continues to increase. In addition, IT services vendors continue to be active in the mergers and acquisitions arena. This increases the need for a VMI to help with the changing IT vendor landscape.
38% 2021 |
16% 2021 |
47% 2021 |
---|---|---|
Spend on as-a-service providers |
Spend on managed services providers |
IT services merger & acquisition growth (transactions) |
Source: Information Services Group, Inc., 2022.
When organizations execute, renew, or renegotiate a contract, there is an "expected value" associated with that contract. Without a robust VMI, most of the expected value will never be realized. With a robust VMI, the realized value significantly exceeds the expected value during the contract term.
A contract's realized value with and without a vendor management initiative
Source: Based on findings from Geller & Company, 2003.
A sound, cyclical approach to vendor management will help you create a VMI that meets your needs and stays in alignment with your organization as they both change (i.e. mature and grow).
Phase 1 - Plan | Phase 2 - Build | Phase 3 - Run | Phase 4 - Review | |
---|---|---|---|---|
Phase Steps |
1.1 Mission Statement and Goals 1.2 Scope 1.3 Strengths and Obstacles 1.4 Roles and Responsibilities |
2.1 Classification Model 2.2 Risk Assessment Tool 2.3 Scorecards and Feedback 2.4 Business Alignment Meeting Agenda 2.5 Relationship Alignment Document 2.6 Vendor Orientation 2.7 3-Year Roadmap 2.8 90-Day Plan 2.9 Quick Wins2.10 Reports |
3.1 Classify Vendors 3.2 Compile Scorecards 3.3 Conduct Business Alignment Meetings 3.4 Work the 90-Day Plan 3.5 Manage the 3-Year Roadmap 3.6 Develop/Improve Vendor Relationships |
4.1 Incorporate Leading Practices 4.2 Leverage Lessons Learned 4.3 Maintain Internal Alignment |
Phase Outcomes | This phase helps you organize your VMI and document internal processes, relationships, roles, and responsibilities. The main outcomes from this phase are organizational documents, a baseline VMI maturity level, and a desired future state for the VMI. | This phase helps you configure and create the tools and templates that will help you run the VMI. The main outcomes from this phase are a clear understanding of which vendors are important to you, the tools to manage the vendor relationships, and an implementation plan. | This phase helps you begin operating the VMI. The main outcomes from this phase are guidance and the steps required to implement your VMI. | This phase helps the VMI identify what it should stop doing, start doing, and continue doing as it improves and matures. The main outcomes from this phase are ways to advance the VMI and maintain internal alignment. |
Vendor management is not "plug and play" – each organization's vendor management initiative (VMI) needs to fit its culture, environment, and goals. While there are commonalities and leading practices associated with vendor management, your initiative won't look exactly like another organization's. The key is to adapt vendor management principles to fit your needs.
All vendors are not of equal importance to your organization. Internal resources are a scarce commodity and should be deployed so that they provide the best return on the organization's investment. Classifying or segmenting your vendors allows you to focus your efforts on the most important vendors first, allowing your VMI to have the greatest impact possible.
Having a solid foundation is critical to the VMI's ongoing success. Whether you will be creating a formal vendor management office or using vendor management techniques, tools, and templates "informally", starting with the basics is essential. Make sure you understand why the VMI exists and what it hopes to achieve, what is in and out of scope for the VMI, what strengths the VMI can leverage and the obstacles it will have to address, and how it will work with other areas within your organization.
Phase 1 |
Phase 2 | Phase 3 | Phase 4 |
---|---|---|---|
1.1 Mission Statement and Goals 1.2 Scope 1.3 Strengths and Obstacles 1.4 Roles and Responsibilities |
2.1 Classification Model 2.2 Risk Assessment Tool 2.3 Scorecards and Feedback 2.4 Business Alignment Meeting Agenda 2.5 Relationship Alignment Document 2.6 Vendor Orientation 2.7 3-Year Roadmap 2.8 90-Day Plan 2.9 Quick Wins 2.10 Reports |
3.1 Classify Vendors 3.2 Compile Scorecards 3.3 Conduct Business Alignment Meetings 3.4 Work the 90-Day Plan 3.5 Manage the 3-Year Roadmap 3.6 Develop/Improve Vendor Relationships |
4.1 Incorporate Leading Practices 4.2 Leverage Lessons Learned 4.3 Maintain Internal Alignment |
Phase 1 – Plan focuses on getting organized. Foundational elements (Mission Statement, Goals, Scope, Strengths and Obstacles, Roles and Responsibilities, and Process Mapping) will help you define your VMI. These and the other elements of this Phase will follow you throughout the process of starting up your VMI and running it.
Spending time up front to ensure that everyone is on the same page will help avoid headaches down the road. The tendency is to skimp (or even skip) on these steps to get to "the good stuff." To a certain extent, the process provided here is like building a house. You wouldn't start building your dream home without having a solid blueprint. The same is true with vendor management. Leveraging vendor management tools and techniques without the proper foundation may provide some benefit in the short term, but in the long term it will ultimately be a house of cards waiting to collapse.
Whether you are starting your vendor management journey or are already down the path, it is important to know why the vendor management initiative exists and what it hopes to achieve. The easiest way to document this is with a written declaration in the form of a Mission Statement and Goals. Although this is the easiest way to proceed, it is far from easy.
The Mission Statement should identify at a high level the nature of the services provided by the VMI, who it will serve, and some of the expected outcomes or achievements. The Mission Statement should be no longer than one or two sentences.
The complement to the Mission Statement is the list of goals for the VMI. Your goals should not be a reassertion of your Mission Statement in bullet format. At this stage it may not be possible to make them SMART (Specific, Measurable, Achievable/Attainable, Relevant, Time-Bound/Time-Based), but consider making them as SMART as possible. Without some of the SMART parameters attached, your goals are more like dreams and wishes. At a minimum, you should be able to determine the level of success achieved for each of the VMI goals.
Although the VMI's Mission Statement will stay static over time (other than for significant changes to the VMI or organization as a whole), the goals should be reevaluated periodically using a SMART filter, and adjusted as needed.
Download the Info-Tech Phase 1 Tools and Templates Compendium
Regardless of where your VMI resides or how it operates, it will be working with other areas within your organization. Some of the activities performed by the VMI will be new and not currently handled by other groups or individuals internally; at the same time, some of the activities performed by the VMI may be currently handled by other groups or individuals internally. In addition, executives, stakeholders, and other internal personnel may have expectations or make assumptions about the VMI. As a result, there can be a lot of confusion about what the VMI does and doesn't do, and the answers cannot always be found in the VMI's Mission Statement and Goals.
One component of helping others understand the VMI landscape is formalizing the VMI Scope. The Scope will define boundaries for the VMI. The intent is not to fence itself off and keep others out but provide guidance on where the VMI's territory begins and ends. Ultimately, this will help clarify the VMI's roles and responsibilities, improve workflow, and reduce errant assumptions.
When drafting your VMI scoping document, make sure you look at both sides of the equation (similar to what you would do when following best practices for a statement of work). Identify what is in scope and what is out of scope. Be specific when describing the individual components of the VMI Scope, and make sure executives and stakeholders are onboard with the final version.
Download the Info-Tech Phase 1 Tools and Templates Compendium
A SWOT analysis (strengths, weaknesses, opportunities, and threats) is a valuable tool, but it is overkill for your VMI at this point. However, using a modified and simplified form of this tool (strengths and obstacles) will yield significant results and benefit the VMI as it grows and matures.
Your output will be two lists: the strengths associated with the VMI and the obstacles the VMI is facing. For example, strengths could include items such as smart people working within the VMI and executive support. Obstacles could include items such as limited headcount and training required for VMI staff.
The goals are 1) to harness the strengths to help the VMI be successful and 2) to understand the impact of the obstacles and plan accordingly. The output can also be used to enlighten executives and stakeholders about the challenges associated with their directives or requests (e.g. human bandwidth may not be sufficient to accomplish some of the vendor management activities and there is a moratorium on hiring until the next budget year).
For each strength identified, determine how you will or can leverage it when things are going well or when the VMI is in a bind. For each obstacle, list the potential impact on the VMI (e.g. scope, growth rate, and number of vendors that can actively be part of the VMI).
As you do your brainstorming, be as specific as possible and validate your lists with stakeholders and executives as needed.
Meet with the participants and use a brainstorming activity to list, on a whiteboard or flip chart, the VMI's strengths and obstacles.
Be specific to avoid ambiguity and improve clarity.
Go back and forth between strengths and obstacles as needed; it is not necessary to list all the strengths first and then all the obstacles.
It is possible for an item to be a strength and an obstacle; when this happens, add details to distinguish the situations.
Review the lists to make sure there is enough specificity.
Determine how you will leverage each strength and how you will manage each obstacle.
Use the Phase 1 Tools and Templates Compendium – Tab 1.3 Strengths and Obstacles to document the results.
Obtain signoff on the strengths and obstacles from stakeholders and executives as required.
Download the Info-Tech Phase 1 Tools and Templates Compendium
One crucial success factor for VMIs is gaining and maintaining internal alignment. There are many moving parts to an organization, and a VMI must be clear on the various roles and responsibilities related to the relevant processes. Some of this information can be found in the VMI's Scope referenced in Step 1.2, but additional information is required to avoid stepping on each other's toes; many of the processes require internal departments to work together. (For example, obtaining requirements for a request for proposal takes more than one person or department). While it is not necessary to get too granular, it is imperative that you have a clear understanding of how the VMI activities will fit within the larger vendor management lifecycle (which is comprised of many sub processes) and who will be doing what.
As we have learned through our workshops and guided implementations, a traditional RACI* or RASCI* Chart does not work well for this purpose. These charts are not intuitive, and they lack the specificity required to be effective. For vendor management purposes, a higher-level view and a slightly different approach provide much better results.
This step will lead your through the creation of an OIC* Chart to determine vendor management lifecycle roles and responsibilities. Afterward, you'll be able to say, "Oh, I see clearly who is involved in each part of the process and what their role is."
*RACI – Responsible, Accountable, Consulted, Informed
*RASCI – Responsible, Accountable, Support, Consulted, Informed
*OIC – Owner, Informed, Contributor
To start, define the vendor management lifecycle steps or process applicable to your VMI. Next, determine who participates in the vendor management lifecycle. There is no need to get too granular – think along the lines of departments, subdepartments, divisions, agencies, or however you categorize internal operational units. Avoid naming individuals other than by title; this typically happens when a person oversees a large group (e.g. the CIO [chief information officer] or the CPO [chief procurement officer]). Be thorough, but don't let the chart get out of hand. For each role and step of the lifecycle, ask whether the entry is necessary; does it add value to the clarity of understanding the responsibilities associated with the vendor management lifecycle? Consider two examples, one for roles and one for lifecycle steps. 1) Is IT sufficient or do you need IT Operations and IT Development? 2) Is "negotiate contract documents" sufficient or do you need negotiate the contract and negotiate the renewal? The answer will depend on your culture and environment but be wary of creating a spreadsheet that requires an 85-inch monitor to view it.
After defining the roles (departments, divisions, agencies) and the vendor management lifecycle steps or process, assign one of three letters to each box in your chart:
This activity can be started by the VMI or done as a group with representatives from each of the named roles. If the VMI starts the activity, the resulting chart should be validated by the each of the named roles.
Download the Info-Tech Phase 1 Tools and Templates Compendium
Phase 1 | Phase 2 | Phase 3 | Phase 4 |
---|---|---|---|
1.1 Mission Statement and Goals 1.2 Scope 1.3 Strengths and Obstacles 1.4 Roles and Responsibilities | 2.1 Classification Model 2.2 Risk Assessment Tool 2.3 Scorecards and Feedback 2.4 Business Alignment Meeting Agenda 2.5 Relationship Alignment Document 2.6 Vendor Orientation 2.7 3-Year Roadmap 2.8 90-Day Plan 2.9 Quick Wins 2.10 Reports | 3.1 Classify Vendors 3.2 Compile Scorecards 3.3 Conduct Business Alignment Meetings 3.4 Work the 90-Day Plan 3.5 Manage the 3-Year Roadmap 3.6 Develop/Improve Vendor Relationships | 4.1 Incorporate Leading Practices 4.2 Leverage Lessons Learned 4.3 Maintain Internal Alignment |
Phase 2 – Build focuses on creating and configuring the tools and templates that will help you run your VMI. Vendor management is not a plug and play environment, and unless noted otherwise, the tools and templates included with this blueprint require your input and thought. The tools and templates must work in concert with your culture, values, and goals. That will require teamwork, insights, contemplation, and deliberation.
During this Phase you'll leverage the various templates and tools included with this blueprint and adapt them for your specific needs and use. In some instances, you'll be starting with mostly a blank slate; while in others, only a small modification may be required to make it fit your circumstances. However, it is possible that a document or spreadsheet may need heavy customization to fit your situation. As you create your VMI, use the included materials for inspiration and guidance purposes rather than as absolute dictates.
One of the functions of a VMI is to allocate the appropriate level of vendor management resources to each vendor since not all vendors are of equal importance to your organization. While some people may be able intuitively to sort their vendors into vendor management categories, a more objective, consistent, and reliable model works best. Info-Tech's COST model helps you assign your vendors to the appropriate vendor management category so that you can focus your vendor management resources where they will do the most good.
COST is an acronym for Commodity, Operational, Strategic, and Tactical. Your vendors will occupy one of these vendor management categories, and each category helps you determine the nature of the resources allocated to that vendor, the characteristics of the relationship desired by the VMI, and the governance level used.
The easiest way to think of the COST model is as a 2 x 2 matrix or graph. The model should be configured for your environment so that the criteria used for determining a vendor's classification align with what is important to you and your organization. However, at this point in your VMI's maturation, a simple approach works best. The Classification Model included with this blueprint requires minimal configuration to get your started, and that is discussed on the activity slide associated with this Step 2.1.
Operational |
Strategic |
---|---|
|
|
Commodity |
Tactical |
|
|
Source: Compiled in part from Guth, Stephen. "Vendor Relationship Management Getting What You Paid for (And More)." 2015.
Download the Info-Tech Phase 2 Vendor Classification Tool
One of the typical drivers of a VMI is risk management. Organizations want to get a better handle on the various risks their vendors pose. Vendor risks originate from many areas: financial, performance, security, legal, and others. However, security risk is the high-profile risk, and the one organizations often focus on almost exclusively, which leaves the organization vulnerable in other areas.
Risk management is a program, not a project; there is no completion date. A proactive approach works best and requires continual monitoring, identification, and assessment. Reacting to risks after they occur can be costly and have other detrimental effects on the organization. Any risk that adversely affects IT will adversely affect the entire organization.
While the VMI won't necessarily be quantifying or calculating the risk directly, it generally is the aggregator of risk information across the risk categories, which it then includes in its reporting function (see Steps 2.12 and 3.8).
At a minimum, your risk management strategy should involve:
Vendor risk is a fact of life, but you do have options for how to handle it. Be proactive and thoughtful in your approach, and focus your resources on what is important.
Download the Info-Tech Phase 2 Vendor Classification Tool
A vendor management scorecard is a great tool for measuring, monitoring, and improving relationship alignment. In addition, it is perfect for improving communication between you and the vendor.
Conceptually, a scorecard is similar to a school report card. At the end of a learning cycle, you receive feedback on how well you do in each of your classes. For vendor management, the scorecard is also used to provide periodic feedback, but there are some nuances and additional benefits and objectives when compared to a report card.
Although scorecards can be used in a variety of ways, the focus here will be on vendor management scorecards – contract management, project management, and other types of scorecards will not be included in the materials covered in this Step 2.3 or in Step 3.4.
The Info-Tech scorecard includes five areas:
An overall score is calculated based on the rating for each criteria and the measurement category weights.
Scorecards can be used for a variety of reasons. Some of the common ones are:
Identifying and resolving issues before they impact performance or the relationship.
Info-Tech recommends starting with simple scorecards to allow you and the vendors to acclimate to the new process and information. As you build your scorecards, keep in mind that internal personnel will be scoring the vendors and the vendors will be reviewing the scorecard. Make your scorecard easy for your personnel to fill out, and containing meaningful content to drive the vendor in the right direction. You can always make the scorecard more complex in the future.
Our recommendation of five categories is provided below. Choose three to five of the categories that help you accomplish your scorecard goals and objectives:
Some criteria may be applicable in more than one category. The categories above should cover at least 80% of the items that are important to your organization. The general criteria listed for each category is not an exhaustive list, but most things break down into time, money, quality, people, and risk issues.
*Source: The Decision Lab, n.d.
After you've built your scorecard, turn your attention to the second half of the equation – feedback from the vendor. A communication loop cannot be successful without dialogue flowing both ways. While this can happen with just a scorecard, a mechanism specifically geared toward the vendor providing you with feedback improves communication, alignment, and satisfaction.
You may be tempted to create a formal scorecard for the vendor to use; avoid that temptation until later in your maturity or development of the VMI. You'll be implementing a lot of new processes, deploying new tools and templates, and getting people to work together in new ways. Work on those things first.
For now, implement an informal process for obtaining information from the vendor. Start by identifying information that you will find useful – information that will allow you to improve overall, to reduce waste or time, to improve processes, to identify gaps in skills. Incorporate these items into your business alignment meetings (see Steps 2.4 and 3.5). Create three to five good questions to ask the vendor and include these in the business alignment meeting agenda. The goal is to get meaningful feedback, and that starts with asking good questions.
Keep it simple at first. When the time is right, you can build a more formal feedback form or scorecard. Don't be in a rush; as long as the informal method works, keep using it.
Download the Info-Tech Phase 2 Tools and Templates Compendium
Download the Info-Tech Phase 2 Tools and Templates Compendium
A business alignment meeting (BAM) is a multi-faceted tool to ensure the customer and the vendor stay focused on what is important to the customer at a high level. BAMs are not traditional operational meetings where the parties get into the details of the contracts, deal with installation problems, address project management issues, or discuss specific cost overruns. The focus of the BAM is the scorecard (see Step 2.3), but other topics are discussed, and other purposes are served. For example:
As you build your BAM Agenda, someone in your organization may say, "Oh, that's just a quarterly business review (QBR) or top-to-top meeting." In most instances, an existing QBRs or top-to-top meeting is not the same as a BAM. Using the term QBR or top-to-top meeting instead of BAM can lead to confusion internally. The VMI may say to the business unit, procurement, or another department, "We're going to start running some QBRs for our strategic vendors." The typical response is, "There's no need; we already run QBRs/top-to-top meetings with our important vendors." This may be accompanied by an invitation to join their meeting, where you may be an afterthought, have no influence, and get five minutes at the end to talk about your agenda items. Keep your BAM separate so that it meets your needs.
As previously noted, using the term BAM more accurately depicts the nature of the VMI meeting and prevents confusion internally with other meetings already occurring. In addition, hosting the BAM yourself rather than piggybacking onto another meeting ensures that the VMI's needs are met. The VMI will set and control the BAM agenda and determine the invite list for internal personnel and vendor personnel. As you may have figured out by now, having the right customer and vendor personnel attend will be essential.
BAMs are conducted at the vendor level, not the contract level. As a result, the frequency of the BAMs will depend on the vendor's classification category (see Steps 2.1 and 3.1). General frequency guidelines are provided below, but they can be modified to meet your goals:
BAMs can help you achieve some additional benefits not previously mentioned:
As with any meeting, building the proper agenda will be one of the keys to an effective and efficient meeting. A high-level BAM agenda with sample topics is set out below:
BAM Agenda
Download the Info-Tech Phase 2 Tools and Templates Compendium
Throughout this blueprint, alignment is mentioned directly (e.g. business alignment meetings [Steps 2.4 and 3.3]) or indirectly implied. Ensuring you and your vendors are on the same page, have clear and transparent communication, and understand each other's expectations is critical to fostering strong relationships. One component of gaining and maintaining alignment with your vendors is the Relationship Alignment Document (RAD). Depending upon the Scope of your VMI and what your organization already has in place, your RAD will fill in the gaps on various topics.
Early in the VMI's maturation, the easiest approach is to develop a short document (1 one page) or a pamphlet (i.e. the classic trifold) describing the rules of engagement when doing business with your organization. The RAD can convey expectations, policies, guidelines, and other items. The scope of the document will depend on:
The first step to drafting a RAD is to identify what information vendors need to know to stay on your good side. You may want vendors to know about your gift policy (e.g. employees may not accept vendor gifts above a nominal value, such as a pen or mousepad). Next, compare your list of what vendors need to know and determine if the content is covered in other vendor-facing documents such as a vendor code of conduct or your website's vendor portal. Lastly, create your RAD to bridge the gap between what you want and what is already in place. In some instances, you may want to include items from other documents to reemphasize them with the vendor community.
The RAD can be used with all vendors regardless of classification category. It can be sent directly to the vendors or given to them during vendor orientation (see Step 3.3)
Download the Info-Tech Phase 2 Tools and Templates Compendium
Your organization is unique. It may have many similarities with other organizations, but your culture, risk tolerance, mission, vision, and goals, finances, employees, and "customers" (those that depend on you) make it different. The same is true of your VMI. It may have similar principles, objectives, and processes to other organizations' VMIs, but yours is still unique. As a result, your vendors may not fully understand your organization and what vendor management means to you.
Vendor orientation is another means to helping you gain and maintain alignment with your important vendors, educate them on what is important to you, and provide closure when/if the relationship with the vendor ends. Vendor orientation is comprised of three components, each with a different function:
Vendor orientation focuses on the vendor management pieces of the puzzle (e.g. the scorecard process) rather than the operational pieces (e.g. setting up a new vendor in the system to ensure invoices are processed smoothly).
To continue the analogy from orientation, debrief is like an exit interview for an employee when their employment is terminated. In this case, debrief occurs when the vendor is no longer an active vendor with your organization - all contracts have terminated or expired, and no new business with the vendor is anticipated within the next three months.
Similar to orientation and reorientation, debrief activities will be based on the vendor's classification category within the COST model. Strategic vendors don't go away very often; usually, they transition to operational or tactical vendors first. However, if a strategic vendor is no longer providing products or services to you, dig a little deeper into their experiences and allocate extra time for the debrief meeting.
The debrief should provide you with feedback on the vendor's experience with your organization and their participation in your VMI. Additionally, it can provide closure for both parties since the relationship is ending. Be careful that the debrief does not turn into a finger-pointing meeting or therapy session for the vendor. It should be professional and productive; if it is going off the rails, terminate the meeting before more damage can occur.
End the debrief on a high note if possible. Thank the vendor, highlight its key contributions, and single out any personnel who went above and beyond. You never know when you will be doing business with this vendor again – don't burn bridges!
As you create your vendor orientation materials, focus on the message you want to convey.
The level of detail you provide strategic vendors during orientation and reorientation may be different from the information you provide tactical and operational vendors. Commodity vendors are not typically involved in the vendor orientation process. The orientation meetings can be conducted on a one-to-one basis for strategic vendors and a one-to-many basis for operational and tactical vendors; reorientation and debrief are best conducted on a one-to-one basis. Lastly, face-to-face or video meetings work best for vendor orientation; voice-only meetings, recorded videos, or distributing only written materials seldom hit their mark or achieve the desired results.
It focuses on different timelines or horizons (e.g., the past, the present, and the future). Creating a three-year roadmap facilitates the VMI's ability to function effectively across these multiple landscapes.
The VMI roadmap will be influenced by many factors. The work product from Phase 1 – Plan, input from executives, stakeholders, and internal clients, and the direction of the organization are great sources of information as you begin to build your roadmap.
To start, identify what you would like to accomplish in year 1. This is arguably the easiest year to complete: budgets are set (or you have a good idea what the budget will look like), personnel decisions have been made, resources have been allocated, and other issues impacting the VMI are known with a higher degree of certainty than any other year. This does not mean things won't change during the first year of the VMI, but expectations are usually lower, and the short event horizon makes things more predictable during the year-1 ramp-up period.
Years 2 and 3 are more tenuous, but the process is the same: identify what you would like to accomplish or roll out in each year. Typically, the VMI maintains the year-1 plan into subsequent years and adds to the scope or maturity. For example, you may start year 1 with BAMs and scorecards for three of your strategic vendors; during year 2, you may increase that to five vendors; and during year 3, you may increase that to nine vendors. Or, you may not conduct any market research during year 1, waiting to add it to your roadmap in year 2 or 3 as you mature.
Breaking things down by year helps you identify what is important and the timing associated with your priorities. A conservative approach is recommended. It is easy to overcommit, but the results can be disastrous and painful.
Download the Info-Tech Phase 2 Tools and Templates Compendium
Now that you have prepared a three-year roadmap, it's time to take the most significant elements from the first year and create action plans for each three-month period. Your first 90-day plan may be longer or shorter if you want to sync to your fiscal or calendar quarters. Aligning with your fiscal year can make it easier for tracking and reporting purposes; however, the more critical item is to make sure you have a rolling series of four 90-day plans to keep you focused on the important activities and tasks throughout the year.
The 90-day plan is a simple project plan that will help you measure, monitor, and report your progress. Use the Info-Tech tool to help you track:
Activities.
The first 90-day plan will have the greatest level of detail and should be as thorough as possible; the remaining three 90-day plans will each have less detail for now. As you approach the middle of the first 90-day plan, start adding details to the next 90-day plan; toward the end of the first quarter add a high-level 90-day plan to the end of the chain. Continue repeating this cycle each quarter and consult the three-year roadmap and the leadership team, as necessary.
Download the Info-Tech Phase 2 Tools and Templates Compendium
As the final step in the timeline trilogy, you are ready to identify some quick wins for the VMI. Using the first 90-day plan and a brainstorming activity, create a list of things you can do in 15 to 30 days that add value to your initiative and build momentum.
As you evaluate your list of potential candidates, look for things that:
As you look for quick wins, you may find that everything you identify does not meet the criteria. That's okay; don't force the issue. Return your focus to the 90-day plan and three-year roadmap and update those documents if the brainstorming activity associated with Step 2.9 identified anything new.
Download the Info-Tech Phase 2 Tools and Templates Compendium
Issuing reports is a critical piece of the VMI since the VMI is a conduit of information for the organization. It may be aggregating risk data from internal areas, conducting vendor research, compiling performance data, reviewing market intelligence, or obtaining relevant statistics, feedback, comments, facts, and figures from other sources. Holding onto this information minimizes the impact a VMI can have on the organization; however, the VMI's internal clients, stakeholders, and executives can drown in raw data and ignore it completely if it is not transformed into meaningful, easily-digested information.
Before building a report, think about your intended audience:
Use the following guidelines to create reports that will resonate with your audience:
Download the Info-Tech Phase 2 Tools and Templates Compendium
Phase 1 | Phase 2 | Phase 3 | Phase 4 |
---|---|---|---|
1.1 Mission Statement and Goals 1.2 Scope 1.3 Strengths and Obstacles 1.4 Roles and Responsibilities | 2.1 Classification Model 2.2 Risk Assessment Tool 2.3 Scorecards and Feedback 2.4 Business Alignment Meeting Agenda 2.5 Relationship Alignment Document 2.6 Vendor Orientation 2.7 3-Year Roadmap 2.8 90-Day Plan 2.9 Quick Wins 2.10 Reports | 3.1 Classify Vendors 3.2 Compile Scorecards 3.3 Conduct Business Alignment Meetings 3.4 Work the 90-Day Plan 3.5 Manage the 3-Year Roadmap 3.6 Develop/Improve Vendor Relationships | 4.1 Incorporate Leading Practices 4.2 Leverage Lessons Learned 4.3 Maintain Internal Alignment |
All the hard work invested in Phase 1 – Plan and Phase 2 – Build begins to pay off in Phase 3 – Run. It's time to stand up your VMI and ensure that the proper level of resources is devoted to your vendors and the VMI itself. There's more hard work ahead, but the foundational elements are in place. This doesn't mean there won't be adjustments and modifications along the way, but you are ready to use the tools and templates in the real world; you are ready to begin reaping the fruits of your labor.
Phase 3 – Run guides you through the process of collecting data, monitoring trends, issuing reports, and conducting effective meetings to:
Step 3.1 sets the table for many of the subsequent steps in Phase 3 – Run. The results of your classification process will determine which vendors go through the scorecarding process (Step 3.2); which vendors participate in BAMs (Step 3.3), and which vendors you will devote relationship-building resources to (Step 3.6).
As you begin classifying your vendors, Info-Tech recommends using an iterative approach initially to validate the results from the classification model you configured in Step 2.1.
Additional classification considerations:
As your VMI matures, additional vendors will be part of the VMI. Review the table below and incorporate the applicable strategies into your deployment of vendor management principles over time. Stay true to your mission, goals, and scope, and remember that not all your vendors are of equal importance.
Operational | Strategic |
---|---|
|
|
Commodity | Tactical |
|
|
For decades, vendors have used the term "partner" to refer to the relationship they have with their clients and customers. This is often an emotional ploy used by the vendors to get the upper hand. To fully understand the terms "partner" and "partnership", let's evaluate them through two more objective, less cynical lenses.
If you were to talk to your in-house or outside legal counsel, you may be told that partners share in profits and losses, and they have a fiduciary obligation to each other. Unless there is a joint venture between the parties, you are unlikely to have a partnership with a vendor from this perspective.
What about a "business" partnership — one that doesn't involve sharing profits and losses? What would that look like? Here are some indicators of a business partnership (or preferably a strategic alliance):
By now you might be thinking, "What's all the fuss? Why does it matter?" At Info-Tech, we've seen firsthand how referring to the vendor as a partner can have the following impact:
Proceed with caution when using partner or partnership with your vendors. Understand how your organization benefits from using these terms and mitigate the negatives outlined above by raising awareness internally to ensure people understand the psychology behind the terms. Finally, use the term to your advantage when warranted by referring to the vendor as a partner when you want or need something that the vendor is reluctant to provide. Bottom line: be strategic in how you refer to vendors and know the risks.
Begin scoring your top vendors
The scorecard process typically is owned and operated by the VMI, but the actual rating of the criteria within the measurement categories is conducted by those with day-to-day interactions with the vendors, those using or impacted by the services and products provided by the vendors, and those with the skills to research other information on the scorecard (e.g. risk). Chances are one person will not be able to complete an entire scorecard by themselves. As a result, the scorecard process is a team sport comprised of sub-teams where necessary.
The VMI will compile the scores, calculate the final results, and aggregate all the comments into one scorecard. There are two common ways to approach this task:
Since multiple people will be involved in the scorecarding process or have information to contribute, the VMI will have to work with the reviewers to ensure he right mix of data is provided. For example:
Where one person is contributing exclusively to limited criteria, make it easy for them to identify the criteria they are to evaluate. When multiple people from the same functional area will provide insights, they can contribute individually (and the VMI will average their responses) or they can respond collectively after reaching consensus as a group.
After the VMI has compiled, calculated, and aggregated, share the results with executives, impacted stakeholders, and others who will be attending the BAM for that vendor. Depending upon the comments provided by internal personnel, you may need to create a sanitized version of the scorecard for the vendor.
Make sure your process timeline has a buffer built in. You'll be sending the final scorecard to the vendor three to five days before the BAM, and you'll need some time to assemble the results. The scorecarding process can be perceived as a low-priority activity for people outside of the VMI, and other "priorities" will arise for them. Without a timeline buffer, the VMI may find itself behind schedule and unprepared, due to things beyond its control.
At their core, BAMs aren't that different from any other meeting. The basics of running a meeting still apply, but there are a few nuances that apply to BAMs. Set out below are leading practices for conducing your BAMs; adapt them to meet your needs and suit your environment.
Initially, BAMs are conducted with the strategic vendors in your pilot program. Over time you'll add vendors until all your strategic vendors are meeting with you quarterly. After that, roll out the BAMs to those tactical and operational vendors located close to the strategic quadrant in the classification model (Steps 2.1 and 3.1) and as VMI resources allow. It may take several years before you are holding regular BAMs with all your strategic, tactical, and operational vendors.
Keep the length of your meetings reasonable. The first few with a vendor may need to be 60 to 90 minutes long. After that, you should be able to trim them to 45 minutes to 60 minutes. The BAM does not have to fill the entire time. When you are done, you are done.
Set up a recurring meeting whenever possible. Changes will be inevitable but keeping the timeline regular works to your advantage. Also, the vendors included in your initial BAMs won't change for twelve months. For the first BAM with a vendor, provide adequate notice; four weeks is usually sufficient, but calendars will fill up quickly for the main attendees from the vendor. Treat the meeting as significant and make sure your invitation reflects this. A simple meeting request will often be rejected, treated as optional, or ignored completely by the vendor's leadership team (and maybe yours as well!).
Internal invitees should include those with a vested interest in the vendor's performance and the relationship. Other functional areas may be invited based on need or interest. Be careful the attendee list doesn't get too big. Based on this, internal BAM attendees often include representatives from IT, Sourcing/Procurement, and the applicable business units. At times, Finance and Legal are included.
From the vendor's side, strive to have decision makers and key leaders attend. The salesperson/account manager is often included for continuity, but a director or vice president of sales will have more insights and influence. The project manager is not needed at this meeting due to the nature of the meeting and its agenda; however, a director or vice president from the product or service delivery area is a good choice. Bottom line: get as high into the vendor's organization as possible whenever possible; look at the types of contracts you have with that vendor to provide guidance on the type of people to invite.
Send the scorecard and agenda to the vendor five days prior to the BAM. The vendor should provide you with any information you require for the meeting five days prior, as well.
Decide who will run the meeting. Some customers like to lead, and others let the vendor present. How you craft the agenda and your preferences will dictate who runs the show.
Make sure the vendor knows what materials they should bring to the meeting or have access to. This will relate to the agenda and any specific requests listed under the discussion points. You don't want the vendor to be caught off guard and unable to discuss a matter of importance to you.
Regardless of which party leads, make sure you manage the agenda to stay on topic. This is your meeting – not the vendor's, not IT's, not Procurement's or Sourcing's. Don't let anyone hijack it.
Make sure someone is taking notes. If you are running this virtually, consider recording the meeting. Check with your legal department first for any concerns, notices, or prohibitions that may impact your recording the session.
Remember, this is not a sales call, and it is not a social activity. Innovation discussions are allowed and encouraged, but that can quickly devolve into a sales presentation. People can be friendly toward one another, but the relationship building should not overwhelm the other purposes.
Having a 90-day plan is a good start, but assuming the tasks on the plan will be accomplished magically or without any oversight can lead to failure. While it won't take a lot of time to work the plan, following a few basic guidelines will help ensure the 90-day plan gets results and wasn't created in vain.
Keep an eye on the future since it will feed the present
The three-year roadmap is a great planning tool, but it is not 100% reliable. There are inherent flaws and challenges. Essentially, the roadmap is a set of three "crystal balls" attempting to tell you what the future holds. The vision for year 1 may be clear, but for each subsequent year, the crystal ball becomes foggier. In addition, the timeline is constantly changing; before you know it, tomorrow becomes today and year 2 becomes year 1.
To help navigate through the roadmap and maximize its potential, follow these principles:
One of the key components of a VMI is relationship management. Good relationships with your vendors provide many benefits for both parties, but they don't happen by accident. Do not assume the relationship will be good or is good merely because your organization is buying products and services from a vendor.
In many respects, the VMI should mirror a vendor's sales organization by establishing relationships at multiple levels within the vendor organizations, not just with the salesperson or account manager. Building and maintaining relationships is hard work, but the return on investment makes it worthwhile.
Business relationships are comprised of many components, not all of which must be present to have a great relationship. However, there are some essential components. Whether you are trying to develop, improve, or maintain a relationship with a vendor, make sure you are conscious of the following:
Phase 1 | Phase 2 | Phase 3 | Phase 4 |
---|---|---|---|
1.1 Mission Statement and Goals 1.2 Scope 1.3 Strengths and Obstacles 1.4 Roles and Responsibilities | 2.1 Classification Model 2.2 Risk Assessment Tool 2.3 Scorecards and Feedback 2.4 Business Alignment Meeting Agenda 2.5 Relationship Alignment Document 2.6 Vendor Orientation 2.7 3-Year Roadmap 2.8 90-Day Plan 2.9 Quick Wins 2.10 Reports | 3.1 Classify Vendors 3.2 Compile Scorecards 3.3 Conduct Business Alignment Meetings 3.4 Work the 90-Day Plan 3.5 Manage the 3-Year Roadmap 3.6 Develop/Improve Vendor Relationships | 4.1 Incorporate Leading Practices 4.2 Leverage Lessons Learned 4.3 Maintain Internal Alignment |
As the adage says, "The only thing constant in life is change." This is particularly true for your VMI. It will continue to mature, people inside and outside of the VMI will change, resources will expand or contract from year to year, your vendor base will change. As a result, your VMI needs the equivalent of a physical every year. In place of bloodwork, x-rays, and the other paces your physician may put you through, you'll assess compliance with your policies and procedures, incorporate leading practices, leverage lessons learned, maintain internal alignment, and update governances.
Be thorough in your actions during this Phase to get the most out of it. It requires more than the equivalent of gauging a person's health by taking their temperature, measuring their blood pressure, and determining their body mass index. Keeping your VMI up-to-date and running smoothly takes hard work.
Some of the items presented in this Phase require an annual review; others may require quarterly review or timely review (i.e. when things are top of mind and current). For example, collecting lessons learned should happen on a timely basis rather than annually, and classifying your vendors should occur annually rather than every time a new vendor enters the fold.
Ultimately, the goal is to improve over time and stay aligned with other areas internally. This won't happen by accident. Being proactive in the review of your VMI further reinforces the nature of the VMI itself – proactive vendor management, not reactive!
The VMI's world is constantly shifting and evolving. Some changes will take place slowly, while others will occur quickly. Think about how quickly the cloud environment has changed over the past five years versus the 15 years before that; or think about issues that have popped up and instantly altered the landscape (we're looking at you COVID and ransomware). As a result, the VMI needs to keep pace, and one of the best ways to do that is to incorporate leading practices.
At a high level, a leading practice is a way of doing something that is better at producing a particular outcome or result or performing a task or activity than other ways of proceeding. The leading practice can be based on methodologies, tools, processes, procedures, and other items. Leading practices change periodically due to innovation, new ways of thinking, research, and other factors. Consequently, a leading practice is to identify and evaluate leading practices each year.
Remember: Leading practices or best practices may not be what is best for you. In some instances, you will have to modify them to fit in your culture and environment; in other instances, you will elect not to implement them at all (in any form).
There are many ways to keep your VMI running smoothly, and creating a lessons learned library is a great complement to the other ways covered in this Phase 4 - Review. By tapping into the collective wisdom of the team and creating a safe feedback loop, the VMI gains the following benefits:
Many of the processes raised in this Phase can be performed annually, but a lessons learned library works best when the information is deposited in a timely manner. How you choose to set up your lessons learned process will depend on the tools you select and your culture. You may want to have regular input meetings to share the lessons as they are being deposited, or you may require team members to deposit lessons learned on a regular basis (within a week after they happen, monthly, or quarterly). Waiting too long can lead to vague or lost memories and specifics; timeliness of the deposits is a crucial element.
Lessons learned are not confined to identifying mistakes or dissecting bad outcomes. You want to reinforce good outcomes, as well. When an opportunity for a lessons-learned deposit arises, identify the following basic elements:
The lessons learned library needs to be maintained. Irrelevant material needs to be culled periodically, and older or duplicate material may need to be archived.
the lessons learned process should be blameless. The goal is to share insightful information, not to reward or punish people based on outcomes or results.
Review the plans of other internal areas to stay in sync
Maintaining internal alignment is essential for the ongoing success of the VMI. Over time, it is easy to lose sight of the fact that the VMI does not operate in a vacuum; it is an integral component of a larger organization whose parts must work well together to function optimally. Focusing annually on the VMI's alignment within the enterprise helps reduce any breakdowns that could derail the organization.
To ensure internal alignment:
Vendor management is a broad, often overwhelming, comprehensive spectrum that encompasses many disciplines. By now, you should have a great idea of what vendor management can or will look like in your organization. Focus on the basics first: Why does the VMI exist and what does it hope to achieve? What is it's scope? What are the strengths you can leverage, and what obstacles must you manage? How will the VMI work with others? From there, the spectrum of vendor management will begin to clarify and narrow.
Leverage the tools and templates from this blueprint and adapt them to your needs. They will help you concentrate your energies in the right areas and on the right vendors to maximize the return on your organization's investment in the VMI of time, money, personnel, and other resources. You may have to lead by example internally and with your vendors at first, but they will eventually join you on your path if you stay true to your course.
At the heart of a good VMI is the relationship component. Don't overlook its value in helping you achieve your vendor management goals. The VMI does not operate in a vacuum, and relationships (internal and external) will be critical.
Lastly, seek continual improvement from the VMI and from your vendors. Both parties should be held accountable, and both parties should work together to get better. Be proactive in your efforts, and you, the VMI, and the organization will be rewarded.
Contact your account representative for more information
workshops@infotech.com
1-888-670-8889
Prepare for Negotiations More Effectively
Don't leave negotiation preparations and outcomes to chance. Learn how to prepare for negotiations more effectively and improve your results.
Understand Common IT Contract Provisions to Negotiate More Effectively
Info-Tech's guidance and insights will help you navigate the complex process of contract review and identify the key details necessary to maximize the protections for your organization.
Capture and Market the ROI of Your VMO
Calculating the impact or value of a vendor management office (VMO) can be difficult without the right framework and tools. Let Info-Tech's tools and templates help you account for the contributions made by your VMO.
Slide 5 – ISG Index 4Q 2021, Information Services Group, Inc., 2022.
Slide 6 – ISG Index 4Q 2021, Information Services Group, Inc., 2022.
Slide 7 – Geller & Company. "World-Class Procurement — Increasing Profitability and Quality." Spend Matters. 2003. Web. Accessed 4 Mar. 2019.
Slide 26 – Guth, Stephen. The Vendor Management Office: Unleashing the Power of Strategic Sourcing. Lulu.com, 2007. Print. Protiviti. Enterprise Risk Management. Web. 16 Feb. 2017.
Slide 34 – "Why Do We Perform Better When Someone Has High Expectations of Us?" The Decision Lab. Accessed January 31, 2022.
Slide 56 - Top 10 Tips for Creating Compelling Reports," October 11, 2019, Design Eclectic. Accessed March 29, 2022.
Slide 56 – "Six Tips for Making a Quality Report Appealing and Easy To Skim," Agency for Health Research and Quality. Accessed March 29, 2022.
Slide 56 –Tucker, Davis. Marketing Reporting: Tips to Create Compelling Reports, March 28, 2020, 60 Second Marketer. Accessed March 29, 2022.