Right Sizing Your Vendors

One concern most CIOs share is how to identify the best way to use outside vendor resources. Left unmanaged, this situation will almost always result in companies paying too much for their services as well as increasing the internal cost of managing vendors.

Once the problem has been identified, there are some fairly well-defined steps to follow that will help remedy the situation:

Develop the process. Contact all your company’s stakeholders and assemble representatives to discuss and catalogue the processes, in writing, to cover such issues as bids, payment terms, review processes and other terms and conditions.

This meeting can also include more creative elements, such as discussing best-practices currently being used by individual departments. Such a meeting is typically convened by the CIO, CFO or even CEO of smaller organizations, or a procurement manager in larger organizations.

Once an agreement is reached on some or all of these steps, the new standardized procurement processes should be communicated throughout the organization, defining expectations for all departments and divisions.

Oversight is often provided by accounts payable in smaller organizations, and a headquarters’ procurement staff person in larger organizations.

Limit the number of approved vendors. Although this is always a challenge, the process of establishing limitations is relatively easy:

  • Categorize by price and/or terms they are willing to work under.
  • Identify “best-of-breed” in each category.
  • Establish a list of approved vendors or use an RFP system to develop such a list.
  • Utilize only approved vendors. Even though a vendor is added to your list of approved vendors, they have no guarantee that you will use their services. However, there may be other considerations you should define, such as whether you will allow them to solicit your managers directly (this may actually be a positive step if it is not disruptive, as vendors may gain a better understanding of specific needs) and how you will retain vendors from year to year.

    Often the top five vendors, ranked by head count on-site, will automatically be carried over, while others further down the list may be dropped. In this case, the burden for performance is on the vendor to make themselves a valuable member of your team.

    Most companies find it difficult to establish standards and come to an agreement on approved vendors, particularly the first time they conduct the process. In addition, RFPs can be an extremely tedious process.

    However, the real challenge is getting departments in the company to abide by the standards once they have been defined. And you can be sure that vendors will always be on the alert for ways to circumvent your process, perhaps by redefining their scope of work so the project is considered an exception to the approved task/vendor list.

    Why is it so difficult to maintain control over who is providing work within your organization? There are a lot of reasons, including multiple locations, extremely narrow requirements, and just plain human nature.

    It happens in small and large companies, but one effective response is centralizing vendor payments to create an ultimate control point; a mechanism that can be difficult in large, decentralized operations.

    Developing and implementing a vendor selection process fulfills two significant objectives. First, it allows your company to work with consultants who have a track record of solid, proven and measurable service. Second, it provides cost control.

    Through leveraging the purchasing power of organization-wide requirements, your company will be able to negotiate better rates with lower overhead, while gaining the clout to demand the best of service.

    Dan Cobb, a former CIO, is vice president of National Sales for Kforce Professional Staffing. He can be reached at [email protected].