Lessons for Procurement from IT Vendor Management: Audits, Inputs, and Competitive Spirit

I’ll conclude my coverage of lessons learned for procurement from Lisa Erickson-Harris’s insightful article in Nearshore Americas, Vendor Management Heads Speak Out: The Trouble With IT Service Quality, by suggesting three final areas where supply management professionals can learn from IT and vendor management: “audits, inputs and competitive spirit.”

Starting with audits, Erickson-Harris suggests that vendor management organizations “incorporate the right to conduct audits to gain a first-hand look at operations periodically” in part because “showing up tells the service provider that you take the relationship seriously.”

Such a clause should be nothing new for procurement teams in the direct materials sourcing and manufacturing area (especially those with far flung supply chains, especially suppliers in Asia). But for other areas, such as marketing spend, consulting, facilities maintenance, printing, and logistics, audit rights can change the basis upon which suppliers treat customers. These audit rights should include contract penalty clauses that have teeth.

Regarding the next area of garnering inputs for suppliers, Erickson-Harris suggests: “Asking vendors what measures they can put in place to ensure quality. The vendor response tells a lot about how they do business. Are they willing to put a stake in the ground?” In a broader procurement context, inputs should extend beyond quality to include feedback based on a range of buying and supply chain activities, including:

  • Is the procurement organization (and the company) easy to do business with in comparison to the suppliers’ other customers? What could be enhanced or improved?
  • What additional feedback, data, or metrics could be shared to make it easier for the supplier to do business – and/or partner in new ways – with the organization?
  • What are the profiles of the supplier’s top/ideal customers and what elements do or do not match in the current relationship? What could be done to change this? Or is the customer not a good fit?

Encouraging the final lesson learned from IT vendor management for procurement should be music to the ears of purchasing and supply chain teams: Keep up the competitive spirit. To wit, “keep the vendor on its toes and the situation competitive. Your business is not a guarantee and it is possible to switch providers as necessary.” I might suggest tempering this recommendation, especially the spirit of it, for those true “partner” categories in a classic sourcing 2/2 matrix. After all, you don’t want to find yourself using the threat of leverage or competition with a critical supplier when the vendor knows that you don’t really have other options.

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