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Driving the Deal

Vendor-management programs can pay off

By Joe Auer A small but growing number of companies are implementing programs to assertively manage relationships with key vendors. With the ever-increasing influence that technology vendors and their products exert on business capabilities, customers see the need to manage these resources more carefully to ensure they accomplish their strategies.

Such vendor-management programs vary in structure but usually include a designated "vendor/manager" from the customer side. This vendor/manager's interaction with other customer stakeholders in the vendor relationship is key, as is coordination with the customer's information technology architecture and standards organizations.

Managing vendors and all facets of the relationships -- from controlling sales contacts to ensuring contractual compliance -- takes time and effort, so it also costs money. But you can more than make up for that because the program saves more than it costs.

Two cases in point: A major insurance company reports an average savings of $300,000 per month just by cross-checking all vendors' invoices with what their contracts allowed.

More remarkable, a major telephone company saves an average of $1 million per month by catching overbilling by vendors.

But what about other benefits? Companies with these programs cite the following benefits from key operational and strategic/tactical components of vendor management:

At an operational level, the goal is to establish focal points for monitoring compliance, problem resolution, vendor product introduction and negotiation control. Benefits include:

On a strategic and tactical level, the goal is to establish alliances with vendors to mutually plan, set requirements and establish measurement. Benefits include:

With these improvements, both sides can save money, and the vendor can be ensured a given level of business in the long run. The customer is assured a consistent, high-quality supply of product.

There are mutual benefits from such programs. While some vendors will undoubtedly perceive these programs as threats, they can actually represent significant opportunities for additional business and process improvement for vendors who are willing to play by these rules.

And there's always a chance the vendor will become a better vendor because of them.

Copyright 1999 by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.