Why Effective Vendor Management is Key to IT Procurement

To succeed in the new normal, IT businesses must look beyond investing in a new software or services. They must streamline processes and strategies to manage vendors and contracts for an optimal cost-benefit.

IT procurement is a strategic sourcing practice that aligns organizations with vendors who have delivered in the past and a proven track record. Therefore, organizations need to employ methods and tools that can help them manage their vendors effectively while also achieving maximum value from their IT spend.

This article will provide you with a comprehensive guide on how to select and manage your IT vendors as well as some great tips for effective procurement.

Why IT Procurement is Important for CIOs

Even with all the advantages of digital transformation, organizations are still facing challenges when it comes to managing their vendors. In fact, many vendors are not meeting their expectations.

Here are some reasons why IT procurement is important for CIOs:

• Understand Vendor Challenges 

It is important for CIOs to understand vendor challenges and how their organization can help them. For example, complex contracts are a major challenge in the software industry.

• Create the Right Environment for Vendors 

Vendors need to be able to provide high-quality services and products. An organization can help create the right environment for vendors through effective procurement practices.

• Get the Best from Your Vendors 

Providers also need to understand how to get the best from customers. CIOs can help them by establishing the right expectations.

• Reduce the Risk of Vendor Fraud 

Investment in procurement practices can also help to reduce the risk of vendor fraud.

Tips for Effective IT Procurement

• Conduct a Gap Analysis

Before starting with procurement activities, you need to conduct a gap analysis to understand your current suppliers, contracts, and spend. This will help you to identify the issues and areas that need to be improved.

• Develop a Procurement Plan 

Once you know your procurement plan, you can develop a strategy to select the right vendors. You can also establish the terms and conditions for procurement.

• Optimize Your Spend 

To optimize your spend, you need to understand the spending patterns of your organization. You can also employ analytics to make intelligent sourcing decisions.

• Establish the Right Expectations 

Expectations from procurement depend on the procurement method used. Therefore, you need to establish the right expectations for your vendors.

How to Select the Right Vendor

• Understand Your Business Requirements

First, you need to identify your business pain points and understand your business requirements. This will help you to find the right vendors. You can employ frameworks such as the “The Five Forces Analysis” or “The Value Chain Analysis” to understand your business requirements.

• Define Your Procurement Strategy 

Once you have understood your business requirements, you should define your procurement strategy. You can employ four different procurement strategies that are commonly used by organizations. These are as follows:

1. The Break-fix model
2. The build-buy model
3. The buy-as-you-go model
4. The continuous procurement model

Managing Your Vendors After Selection

Once you have selected the right vendors, you need to manage them effectively to get the best results out of the partnership. This means that you need to put in place a vendor management strategy that helps you to address the following key areas:

• Contract Management

You need to ensure that contracts are appropriate for your vendors and their services and products. You can use frameworks such as the “Service Level Agreement” or “Contract Lifecycle” to manage your contracts.

• Vendor Management 

Vendor management includes managing your partnerships with vendors as well as vendor capacity. You can put in place frameworks such as the “Vendor Management Framework” or “Vendor Risk Management Framework” to manage your vendors effectively.

• Vendor Performance 

Managing vendor performance is an important part of vendor management. You can employ frameworks such as the “Vendor Performance Index” or “Vendor Performance Assessment” to measure and manage vendor performance.

• Vendor Risk Management 

Managing vendor risk is critical when dealing with third-party vendors. You can employ frameworks such as the “Vendor Risk Management Framework” or “Third-Party Risk Management Framework” for managing vendor risk.

Conclusion

Third-party procurement is all about finding the right partners for your business. To succeed in this, you need to understand your business requirements and put in place a procurement strategy.

Once you have selected the right vendors, you need to manage them effectively to get the best results out of the partnership.