The percentage of IT budget being allocated to vendors is growing—Seven out of 10 (71 percent) IT leaders state they spend up to half of their total budget on vendors. Without a centralized vendor portfolio view, a large (and increasing) part of the IT budget is a black box with very little governance around it.
The bottom line: lack of visibility and control of your vendor portfolio is costing you money.
Vendor managers need a solution with two views—contract data from a vendor management system (VMS) and purchase order and payment details from an enterprise resource planning (ERP) system. This lifecycle view of the vendor portfolio drives better decisions over the life of each contract.
Traditional VMS fall short
Vendor Managers struggle to track a vendor lifecycle with existing solutions. Procurement teams use VMS to focus on automated workflow for acquiring and managing contracts. They are not usually integrated with ERP systems that track purchase orders and payments to vendors.
This leaves service owners and vendor managers in a bind. Again, you need a solution with two views—contract data from a VMS and purchase order and payments details from an ERP.
Organizations that do not track a vendor lifecycle pay an opportunity cost. Siloed vendor contracts can’t leverage economies of scale through vendor rationalization. Shadow IT, purchased without buy-in or governance from corporate IT, asks vendor managers to be accountable for a portfolio they aren’t fully aware of.
Consequences of fragmented vendor management
- Decisions are made based on an incomplete view of vendor spend and contracts
- Vendor spend occurring outside of the purchase order (PO) process is not captured during planning process
- Surprise renewals and extensions lead to overpaying for outsourced services, locking up spend that could be used for innovation
- Failure to meet minimum contracted spend commitments leads to surprise reconciliations or true-ups
A leaner, more precise approach to optimizing vendor spend
Managing vendor relationships is no longer a one-and-done activity. Getting the most value out of your spend requires a lifecycle-based approach with a centralized view of your vendor portfolio that can be optimized on an ongoing basis.
A lifecycle approach to IT vendor management aligns spend, performance, and contract terms with your IT strategy. It captures aggregated spend, flags upcoming contract renewals and shows shadow IT vendor spend.
5 key functions for a lifecycle approach
- Analyze total vendor portfolio spending across vendor types
- Analyze additional resource charge (ARC) and reduced resource credit (RRC) contract terms based on resource unit quantities and price
- Measure and assess vendor spend across IT portfolio
- Analyze contract business terms and service level agreements (SLAs)
- Proactively analyze contracts prior to expiration and renewals
The vendor management function is asked to deliver oversight, strategy, and performance analysis. With the right tools to deliver these capabilities, IT leadership can make fact-based decisions on vendor spend and applications. Service owners can measure performance across their portfolios, and IT finance and vendor managers can optimize vendor spend and negotiate better contract terms.
Download A Lifecycle Approach to IT Vendor Portfolios to find out more about the capabilities you need for vendor lifecycle management.