IT Vendor Management: Why it doesn’t work in 2023
As enterprises grow, the complexity of their IT issues increases. That's why most organizations turn to third-party vendors and partners for solutions. However, relying on an extended network of vendors also increases the risks of data breaches and insecure exposure.
If you're in the IT industry, outsourcing is a common practice, but you need to ensure that your vendors are trustworthy and reliable. Usually, the IT vendor management process follows 7 to 10 steps, but there are new tools on the market that can significantly reduce the length and complexity of this process and mitigate risks.
In this article, we will discuss the basics of IT vendor management, the challenges and flaws of the traditional vendor management process for procurement, the advantages of centralizing your IT equipment vendors with a single vendor management software, and why the IT vendor management is outdated in 2023.
What is IT Vendor Management: The basics
IT vendor management is the process of effectively overseeing and coordinating external providers in alignment with an organization's objectives and standards. This approach encompasses setting clear expectations, defining roles and responsibilities, monitoring performance, and meticulously managing contractual agreements.
The overarching goal of IT vendor management is to ensure that service providers consistently meet or surpass the expectations established by the organization while maintaining cost-effectiveness. The five essential aspects of an IT vendor management strategy include:
Vendor selection: Managing vendor relationships starts by choosing the right partners. This involves the careful and strategic selection of third-party vendors that align with the organization's business objectives, meeting both short-term needs and long-term strategy.
Contract management: The goal is to create a mutually beneficial agreement that acknowledges your organization’s requirements and the vendor’s services.
Vendor performance monitoring: Tracking and assessing supplier performance against a defined set of key performance indicators (KPIs) ensures that third-party suppliers will deliver high-quality services. An ongoing part of the vendor management process is setting expectations for performance enhancement so both parties always know what to expect.
Relationship management: Effective vendor management relies on strong vendor relationships. To achieve this, you must establish and maintain robust communication channels and promote collaborative efforts.
Risk management: Managing risk includes taking the necessary measures to safeguard against data breaches and other liabilities that could impact the organization.
The challenges of vendor management in IT
Data from Gartner show that 60% of organizations work with more than 1,000 third parties. Although companies must have various strong relationships with IT vendors to support their IT teams, it can also bring concerns regarding risk management and data security issues.
Managing multiple vendors also means your information is available to more stakeholders, opening up more vulnerabilities. Gartner Director Chris Audet explains that third parties have greater access to organizational data assets and, in turn, are working with an increasing number of third parties themselves. If there ever was a data breach, your sensitive information could be more exposed than you think.
While there are strategies for effective vendor management, not all companies have them in place. Research from ISG states that 92% of Forbes Global 2000 companies use IT outsourcing, but only a few have an IT vendor management strategy.
A robust IT vendor management plan can assist businesses in selecting the most appropriate vendor based on affordability, availability, security, compliance regulations, and necessary features. But even with a strategy in place, challenges may arise.
One of the main challenges of vendor management is nurturing the relationship between your company and each vendor. This particular task can be difficult due to the following factors:
Ineffective contract process
Often, contracts are drawn up without a deep understanding of the rapidly evolving IT landscape. Additionally, there’s constant back and forth between you and the vendor, leading to loose ends in the agreement. This misalignment can cause discrepancies and inefficiencies when drafting those contracts, potentially binding organizations to outdated technologies or unsuitable terms.
The IT vendor only has their best interest in mind
Much like any organization, vendors want the best deal for themselves. As much as you want reasonable prices and conditions, vendors want their profit. While you can prevent this by having clear service level agreements (SLAs) and expectations, there’s still a possibility for poor vendor performance, missed SLAs, delays, or falling short on other deliverables.
Inability to meet expectations
You are not your vendor’s only client, so it’s common for them to struggle to keep pace with every need in your organization. Remember that they are doing the same for many others. If something goes wrong on there's a supply chain disruption their end, it affects your business as well. If you don’t nurture your relationship with vendors, you end up with disruptions, delays, or misalignments in customer service and internal operations.
Lack of organization in large global organizations
Global organizations have large teams with long bureaucratic processes. A single contract needs to be reviewed by different teams and stakeholders, making the overall process slow and sometimes disorganized. With so many vendors and contracts to oversee, keeping track of everything can be challenging. This task becomes even more daunting when you factor in geographical, regulatory, and cultural differences, which is the norm for global enterprises.
Poor coordination between different departments and leaders
Your IT team might want a specific product or service, but the Procurement team might struggle to see its value. For IT Vendor Management to be successful, it requires close collaboration among different departments and leaders within an organization. If coordination is lacking with the vendor management office, there can be misunderstandings, miscommunication, and conflicting priorities that hinder the achievement of common project objectives.
Why the IT vendor management process is flawed for procurement
Most vendor and supplier relationship management processes include 7 to 10 steps that involve developing a strategy, identifying vendor selection criteria, writing bid documents, evaluating suppliers, negotiating contracts, and managing relationships with third parties.
In recent years, companies have created a specific role within their team dedicated to managing those relationships. Vendor management enables companies to establish and maintain vendor management relationships for the long term, but it is still a long and complex process.
The traditional IT vendor management process is unsuitable for large enterprises, as it is time-consuming, requires extra staff to manage vendor relationships, and is complicated overall. Let’s break down the main reasons why the IT vendor relationship management process is flawed for procurement:
1. Not all strategies are effective
Nowadays, companies manage hundreds of third-party vendors, so it’s hard to develop a strategy that meets the organization’s every exact need. Technology changes every day, and so do the needs of enterprises. That’s why it’s incredibly challenging to manage vendors and establish a strategy that is up-to-date and comprehensively covers business needs.
2. Constant bid document revisions
Setting ideal selection criteria is essential, but in practice, not all criteria may be met by potential vendors. As a result, the bid document may require constant revisions, which can be time-consuming and lead to delays.
3. Vendor research and selection is lengthy
When managing international teams, researching and selecting vendors can be highly time-consuming. Especially for organizations with distributed and global workforces, the IT or procurement teams must look for and establish trustworthy partners in each region where they operate. Not to mention the challenges of organizing and categorizing vendors and reviewing every need and every contract while also considering potential risks associated with each option.
4. Negotiating multiple contracts can lead to bad deals
As the saying goes, you can’t bite off more than you can chew. Negotiating contracts with various vendors can be a long and intricate task. You need to review each contract and make sure it is beneficial for your company, and often, you have to do it all at the same time so you can secure a good deal. If you take too long to review an offer, you can lose your initial deal and end up with a deal that doesn’t benefit you entirely.
5. Onboarding vendors is time-consuming
Every time you close a deal with a new third party, they have to follow your onboarding process to understand workflows and expectations from your side. Getting your supplier up to speed with your internal way of doing things can require a few days, if not weeks. Vendor onboarding demands time and resources for integration and compliance checks to ensure a smooth start to the partnership.
6. Performance monitoring can hinder the relationship
Establishing working relationships with vendors is hard when you have to constantly monitor their performance to ensure that they are meeting your expectations. This involves setting up SLAs and regularly reviewing KPIs against agreed-upon benchmarks. In the long run, the need for constant performance monitoring can strain the relationship if any issues arise.
7. Vendor relationships need to be continually optimized
To effectively optimize vendor relationships, it is crucial to seek out and evaluate potential new partners constantly. However, given that business needs and priorities are constantly evolving, this process may need to be restarted periodically to ensure that vendor relationships remain aligned with business objectives.
The advantages of centralizing your IT equipment vendors
Organizations rely mostly on IT vendor management because it’s the way it’s always been done, but we’ve already discussed how challenging the effective vendor management process is and the flaws it exhibits. One way of overcoming these challenges and flaws is by centralizing your IT equipment vendors.
Canadian company Orium faced this exact problem a few years ago in the middle of the Pandemic. Tim Fernihough, Cofounder and Standards and Compliance Director, needed to ship computers to his new hires in Latin America but found many obstacles along the way.
Tim researched services that would export and import their existing equipment in Canada but found it cost-prohibitive. He then looked at building relationships with vendors in other countries personally, but that was not a scalable solution and required navigating language barriers.
Tim found in GroWrk a solution to his fulfillment and procurement challenges without having to build relationships with vendors whenever they hired someone in a new country.
“I can trust GroWrk to have those relationships for me. I have one central place where I can come and say I need a laptop in Brazil, Peru, Chile, or Uruguay, and trust that GroWrk has the relationships to find those fulfillment partners quickly.”
Here are the six main reasons why our vendor management software solved Orium’s pain points, but also why it makes sense to centralize your IT equipment vendors:
1. It saves you money:
Vendor management systems are complex but with a single solution for saving on IT procurement services, you can achieve cost savings time and human resources. Instead of having a team dedicated to managing vendor relationships and relationship building, you only have to rely on one service to procure and manage your IT equipment, eliminating the need to traverse the conditions of vendor management and improving cost control.
2. It improves performance management:
With just one solution to oversee, it’s easier to manage expectations and SLAs since you’re only dealing with one platform. Besides, that platform provides visibility over all your IT assets through tracking and reporting capabilities. This way it becomes easier to manage performance, compliance and transparency throughout the vendor management lifecycle.
3. It reduces risk:
When you deal with a limited number of key partners it becomes easier to assess and mitigate potential risks. Your data is not available for multiple vendors, so there are fewer chances for breaches. With a single supplier who has high-security standards in place, you minimize risk.
4. It saves you time:
Managing numerous vendor contracts can be time-consuming and complex. Having a centralized platform streamlines the process, allowing you to concentrate your efforts on negotiating contract terms for a single agreement. This approach enhances the effectiveness of contract management while minimizing administrative burdens.
5. It doesn't require managing and maintaining multiple vendor relationships:
Building and maintaining vendor relationships can be resource-intensive. With a centralized solution, you minimize the need to cultivate and nurture multiple relationships. Instead, you get visibility over your IT assets through a Dashboard where everything is always up-to-date.
6. It can scale with your growing business needs:
A centralized approach to IT equipment vendors can easily scale with your organization's growth. Since you’re managing a platform and not individual vendors, the service adapts to your needs regardless of geography. This way, you don’t have to look for vendors every time you expand to a new region because the platform is already available in that location.
How to improve your vendor management strategy with GroWrk
Centralized solutions like GroWrk, can help your vendor management strategy become more efficient by leveraging a single platform for procurement and asset management. You don’t have to deal with multiple third-party vendor relationships. Instead, you have a single Dashboard where you can access a marketplace and keep track of each item from the moment you purchase until it reaches the end of its lifecycle.
The traditional 7 to 10-step vendor management methodology is outdated for global business operations. The process can easily be replaced by a single Dashboard where you streamline the whole procurement process into a simple checkout and eliminate the need for multiple vendor management.
In the GroWrk Dashboard, you only need to decide whether you want to stock up your inventory or make a direct purchase for an employee. In the first case, you select the region and type of device. In the second, you just select the employee who will receive the equipment. After that, for both cases, you choose the device, add it to your cart, go to checkout, and place the order. We take care of everything else, so you can rest assured that items will arrive in your employees’ hands at the right time.
Additionally, the GroWrk Dashboard integrates with popular HR and IT systems, making it easier to transition from your current vendors into a simplified platform. With GroWrk, you have control and transparency for the entirety of the equipment's usage, with no added strain on your resources.
If you're ready to upgrade your strategy, explore how GroWrk’s solution can streamline IT vendor management for your organization. Our team is ready to show you how to centralize your vendor management. Book a demo today to learn more.
What are the goals of IT vendor management?
IT vendor management serves several critical objectives. Firstly, it aims to control costs by ensuring that IT services remain cost-effective and within budget. It also focuses on risk mitigation, where potential risks associated with vendor relationships, such as service disruptions and security vulnerabilities, are identified and addressed. Another goal is to optimize performance by monitoring and improving vendor performance to meet or exceed service level agreements (SLAs).
What is a vendor management strategy?
A vendor management strategy is a structured plan that outlines how an organization will oversee and optimize its relationships with third-party vendors. This approach includes defining objectives and business requirements, selecting vendors, negotiating contracts, monitoring performance, and managing risks. It is the blueprint that guides how the organization collaborates with vendors to efficiently and cost-effectively achieve business goals, mitigate risk, and meet its operational requirements.
What does an IT vendor manager do?
An IT vendor manager has a multifaceted role in managing vendor relationships. Their responsibilities encompass vendor selection, where they identify suitable vendors based on the organization's specific requirements. They negotiate contracts, aiming to secure favorable contract terms and pricing. Continuous performance monitoring is another critical duty involving the assessment of vendor performance and the tracking of KPIs. Vendor managers also focus on building productive relationships with vendors through effective communication, collaboration, strategic planning and risk assessment.
How do you choose an IT vendor?
To choose an IT vendor, organizations should consider factors such as the vendor's capabilities, pricing, service quality, compatibility with the organization's needs and goals, the vendor's reputation, and commitment to customer satisfaction.