Editor's note: The following is a guest article from Gordon Wong, partner, advisory & transformation at West Monroe and Nikhil Pujari, manager, advisory & transformation at West Monroe.
Technology investments are key business drivers and vendor management teams have a critical role to play in supporting the CIO and their digital transformation vision.
Global spending on IT is expected to reach $4.5 trillion in 2022, an almost 8% increase from 2021. Understandably, nearly half of CIOs in a Harvey Nash / KPMG survey said the pandemic accelerated digital transformation efforts, new ways of working, and expanded IT budgets to match.
The expanding role of digital technologies calls for a change in vendor management. By now, procurement and vendor management should be considered an integral part of an organization's overall business strategy. However, this is easier said than done.
Companies work with a multitude of vendors, all with varying pay rates, contract terms and points of contact. IT vendor management teams are managing more IT vendors than ever before. However, the bulk of the job is consumed with tactical day-to-day management.
Here are 3 key findings on how new technology can support the vendor management function and help CIOs achieve their digital goals with greater speed to market.
1. Increase bandwidth through automation
Leveraging process automation technologies can play a huge role in freeing up vendor management bandwidth and capacity.
Today, the vendor management function is mired in tactical day-to-day efforts that curtail their capacity to focus on more forward-looking, strategic operations. They are consumed with laborious, manual tasks involving vendor onboarding, ongoing performance reporting, portfolio analysis, and invoicing. According to SpendMatters, between 50% and 70% of major global companies' vendor relationship management efforts are spent on internal coordination and management activities.
It's no wonder, then, according to APQC and Supply Chain Management Review, that 38% of organizations reported that lack of time was a key challenge in improving vendor management functions. Without timely and accurate visibility into vendor performance, technologists cannot know which performance criteria to focus on and are thus spread too thin.
Bots can help with data management and integration by moving vendor data from contractual and legal forms into a central repository and generate reports. Bots can also be used to extract data from each vendor scorecard or report to create a holistic health status of vendor portfolios.
Converting this valuable data into a real-time dashboard will provide much-needed transparency into overall vendor performance and allow IT leaders to compare vendor results for more informed decision-making.
Implementing automation and delegating tasks will free up capacity for higher-impact services while providing better service and driving accountability from vendors, achieving efficiencies through streamlined workflows, and improving process controls and metrics for ongoing decision-making.
2. Evolve current capabilities with vendor software and innovation clauses
Instead of the vendor relationship manager burdened by service reporting, CIOs should consider ways to enable vendors to drive this process.
Vendors developing and presenting reports to business stakeholders can spur vendor buy-in, providing more time for the vendor management team to drive insights and specific analysis (such as performance, issue resolution and customer satisfaction dashboards).
Vendor management teams today choose vendors by price and cost reduction. However, this narrow view eclipses a longer-term, value-driven orientation.
Instead of thinking of price and cost as the primary objectives, how can supplier relationship managers re-orient themselves to seeing service providers as partners who can add value to the larger strategic business objectives of the organization?
Embrace IT providers as innovation partners. Deloitte data reveals that while 79% of vendor contracts include an innovation clause, only 39% of organizations actively pursue innovation opportunities with their vendors.
Encouraging vendors to recommend further automation opportunities on gain-sharing principles can unlock significant value for both parties. This gap represents a huge opportunity to actively engage with vendors on strategic projects that will drive future value.
3. Build new capabilities to drive value creation
Once bandwidth is freed up through automation and delegation, and vendor relationships are strengthened into more strategic partnerships, vendor management teams can focus on building the new capabilities they need to succeed.
Teams need to develop better protocols for evaluating vendor ROI calculated in the original business/benefits case by leveraging effort/cost metrics – e.g., a staffing report to validate rates, resource pool and availability plan to validate resource skill set, experience or location and track optimization benefits.
Contract compliance and more proactive risk management is another area where building new capabilities will add value. Consider how contractual obligations like cybersecurity requirements or innovation clauses can be more carefully monitored and more effectively enforced.
Vendors introduce new complexity and possible risk into this equation — and vendor management teams can play a big role in understanding potential risks and addressing them before a real threat is introduced.
The future of vendor management has immense strategic value. To get there, CIOs must start thinking about how leveraging new technologies can help free up bandwidth, improve vendor relationships, and proactively manage vendors and contracts to drive better business outcomes and improve customer experience.