Spend Matters welcomes another guest post from Jon Winsett of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom and shipping.
More enterprises are taking a look at establishing a vendor management office (VMO) to make IT sourcing more effective. Companies are creating IT VMOs for reasons including the rapid growth of IT spending within the business, the decentralization of technology purchasing, and increased complexity in vendor pricing and licensing.
There are no hard and fast rules for creating a VMO. Some companies have a very formalized approach with dedicated staffing and clearly defined roles and responsibilities. Others are more loosely organized. In both scenarios, the VMO’s effectiveness relies on the adherence to eight guiding principles. They are as follows:
- Manage VMO as a business within a business
- Leverage consolidated purchasing power
- Continuously manage contractual relationships with suppliers
- Treat suppliers as an extension of internal resources
- Use the minimum number of suppliers possible
- Select the highest value supplier, not the lowest purchase price
- Negotiate win/win deals with all suppliers that balance risk, speed and performance
- Actively monitor, manage and improve supplier performance
Regardless of how formally the VMO is executed, these principles act as guideposts to decreasing the IT cost risks within the business and improving vendor performance. Observance enables today’s IT sourcing function to become less transaction-oriented and more strategic; less price-focused and more value-driven. Lastly, it transforms IT sourcing from a reactive function into an advisor function that facilitates the attainment of business and IT goals through strong supplier relationship management.