Project Management Assignment

On
IT Vendor Management – Overview

Submitted By: Submitted To:

Jatin Dang Dr. Neelam Tondon
18
PGDM VII A
Literature Review:
IT Vendor Management has been around for decades. However, the foundation for IT
vendor Management was led by R Heckman in the article Managing the IT Procurement
Process", Information Systems Management published in year 1999 this article presents
a process model of IT procurement, which was developed by a group of senior
managers who make up the Society for Information Management (SIM) Working Group
on IT Procurement. The model systematically describes the processes involved in IT
procurement and is a useful tool for bringing managerial discipline to the increasingly
important activity of IT procurement.
Followed by an article published by Natlia Levina and Jeanne W. Ross which explains
as to how vendors can offer benefits that cannot be readily replicated internally by client
firms.

Introduction:
Information Technology Vendor Management is a sub-component of the Information
Technology (IT) Resource Management dealing with the intelligent sourcing of IT goods
(procurement) and services (contracting/consulting). Vendor management requires
familiarity with business needs and transforming those needs to goods and services
from qualified and accredited suppliers. It also involves the implementation of
technologies, processes, policies and procedures that support the effective running of
the sourcing process and function. In investing in vendor management, organizations
would look for the best way to get value out of the investment. This is in addition to
protecting the valuable corporate and customer data, reducing or eliminating disruptions
in customer service and internal operations, as well as reacting quickly and effectively to
issues that might arise in the process. These issues cannot be properly addressed
without a properly maintained historical record of vendor services and critical events.
Understanding IT Procurement

IT goods and services today are purchased at a sub-component level. Increasingly, IT is

being purchased as a solution which involves the bundling of these sub components.
The IT Procurement is now moving to shared, managed and outsourced services.

The Chief Information Officer and the Chief Technology Officer have to consider a
number of things when dealing with IT and IS procurement including:

 The total cost of ownership which might influence the decision to lease or buy-
major cost / investment implications
 View of IT / IS in the business: Commodity vs. Solutions vs. Competitive edge
view
 Availability of IT / IS providers who meet the requirements of the business.

There are two main factors to consider in the procurement process:

  Risk - The risk arises because of the complexity and configurations available for
the IT resources, the impact of potential failure of an IS implementation as well
as availability / reliability of suppliers.
 Cost - the cost arises because of the scale of most IT / IS projects, the resource
or capital constraints that most organizations face and the lack of quantifiable
guaranteed benefits that could arise from an IS implementation.

All costs and risk factors must be considered carefully for any IS implementation and
deployment to be effective and successful.

Case Study:
Problem:
Large MNC Service Provider dealing with multiple clients and vendors across EMEA.
Large vendor spend in excess of $400m in EMEA with no structured framework for
management and governance of vendors.
Objective:
Define and establish central group for Vendor Management. Create a platform for more
efficient delivery of products/services to MNC and its customers. Improve visibility
across the vendors, product lines and accounts across EMEA. Take control of Vendor
management space and be pro-active in highlighting and obtaining improvements in
third party supplier performance. Provide in-depth operational management of third
party suppliers. Establish framework for vendor rationalization and consolidation.
Execution:
Central group established to execute on three key elements: Performance, Finance and
Process with focus on compliance, control costs, maintain quality and explore new
opportunities. Relationships established across key account groups, procurement group
and vendors. Agreed interaction of groups with roles & responsibilities. Work in
partnership with Procurement to ensure supplier compliance with required SLA`s and to
continue to develop new SLA`s and supplier measurement techniques. Team
developed best practice framework for Vendor Management with consistent policies,
standards and best practices. Defined categorization of vendor base to distinguish
between tactical and strategic. Reduce supplier-related risk and increase the qualified
base of global/regional vendors. Defined and implemented key metrics/reports for
supplier management & performance measurement for internal and external review to
bring consistency to supplier measurement throughout the organization. Documented
vendor processes and procedures with regular operational performance reviews,
continuous improvement plans and regular financial reviews – revenue/cost plans,
invoice accuracy and payments. Initiated Vendor Reduction project, brought forward the
discussion of which vendors are Strategic, Preferred and Specialist and what these
classifications mean for the use of those vendors. Undertook a review with all accounts
to understand what vendors were used for and why; identified vendors who could be
replaced with Strategic/Preferred vendors.
Results:
Operational Management Team established and an organization structure created to
enable management focus to be given to Vendors operating in the Hardware and
Services, Software and Networks areas. Operational Vendor Management Strategy
developed to provide a framework for managing all of MNC Vendors and Accounts. The
classification of vendors ensures focus on providing improved pro-active management
for all key vendors and that we manage our suppliers consistently. Introduction of a
tighter governance model saw a reduction of vendor escalations. Operational Vendor
Management Service Model created which defines the level of vendor management
service to be provided for Gold, Silver and Bronze Vendors and Accounts. This model
sets out the standard that is expected to be followed for the governance of suppliers
and what meetings, reports and communications are expected. Roles & Responsibilities
for the Operational Vendor management team defined which provide the key objectives
for a Vendor Manager for the allocated Accounts and Vendors. Financial savings of
over $20m USD achieved in second year of vendor group establishment. 80% of the
spending is with the top 21 vendors, 6% of the total; 5% of spend is with bottom 260
vendors.

Findings:
It was found that there were probable benefits associated with IT Vendor Management
such as Reduction in cost, Better Management of Vendors, Increased Vendor
Performance, increase in efficiency and proper identification and management of
vendor risk which provides better value to the organization.
Advantages of IT Vendor Management:

1. Increase Efficiency with a Centralized Information Base

With a vendor management solution, you’ll have access to a centralized repository for
all of your vendor information. Financials, security policies, contracts, insurance
certificates and other key data you need to understand the vendors you work with can
be collected, stored, and used in a meaningful way, all in one place. This simplifies the
process of managing multiple relationships in order to increase efficiencies, reduce
wasted time, and cut costs associated with vendor management.
Performance data, reports, and information will always be readily available and can be
used in order to make informed decisions about vendors. Additionally, the software will
allow you to reduce the amount of employees devoted to the vendor management
process, which will generate additional cost savings. You’ll be able to do more with
fewer resources.
2. Identify and Manage Vendor Risk
With a vendor management solution, you’ll be able to perform your due diligence and
rate your risk based on the data you have from your vendors versus the data you need.
For example, you’ll know immediately if a certain vendor doesn’t have an insurance
certificate on file. This can help you mitigate your risks by handling vendors with
different risk ratings appropriately.
Furthermore, when performance is tracked and measured, your company can know
about problems right away and can take action to correct them before they harm your
bottom line. A sudden drop in quality, for example, can mean that the vendor is cutting
corners, and late shipments could indicate raw material problems or financial issues.
With management software, you have access to trends and advanced signals that can
identify risks before they adversely affect your business operations.
Financial metrics can also allow you to track the financial health of your suppliers so you
don’t have to risk losing a lot of money or having a disruption of supply. You can capture
vital financial data, such as a supplier’s profitability, growth, and revenues, or changes
such as divestments, acquisitions, or mergers, in order to predict future risks.
3. Increase Vendor Performance with Metrics
Without proper management, it can be difficult for your company to determine whether a
supplier is meeting its quality standards. You don’t have the metrics in place to measure
and track performance. But with a vendor management solution, you’ll always get the
quality you deserve because you’ll be able to perform objective assessments of
deliverables. You’ll be able to help develop suppliers with specific and actionable
feedback that encourage them to increase their quality control and standards and
achieve the high performance goals that you need.
Additionally you’ll be able to ensure contract compliance when you have proper
management software. Depending on the terms of a contract and the vendor’s category,
you can use the program’s metrics to measure contract compliance. You’ll be able to
quickly see whether your vendors are keeping up with their end of the deal. This will
allow you to enhance received output for both current and future projects.