Vendor Management Key Initiative Overview


Archived Published: 09 April 2014 ID: G00263404

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Summary

This report provides a high-level description of the Vendor Management Key Initiative. CIOs and IT vendor management leaders can use it to understand the skills needed to support this discipline, and to expand their focus to include strategic business outcomes and vendor risk management.

Analysis

Figure 1. Vendor Management Key Initiative Overview
Research image courtesy of Gartner, Inc.

Source: Gartner (April 2014)

Vendor management is the discipline of managing, administering, and guiding product and service vendors in an organized way to drive vendor behavior in order to optimize IT or business outcomes.

The vendor management discipline focuses on best practices for managing vendors in four key areas: contracts, performance, relationships and risk. Good vendor management prompts vendors to deliver you products and services at the optimal level of quality and risk, at the required time and place, and at the best price. Gartner's research starts with establishing governance and the appropriate organizational structure for vendor management. We provide research to help you align with stakeholders to achieve business outcomes, manage and improve vendor performance, monitor and mitigate vendor risks, manage vendor contracts and manage ongoing vendor relationships. We also provide tools to assess and advance your vendor management program maturity.

Although the tools, human resources and departments that organizations engage to achieve these objectives will vary significantly across businesses, all personnel who perform these functions must coordinate vendor information and interactions across departments to ensure that the organization maximizes each vendor's strategic value, while minimizing risks.

Consider These Factors to Determine Your Readiness

What Vendor Management Means to CIOs

Because CIOs are responsible for the overall efficient and effective use of third parties to deliver business outcomes, they should consider doing the following as part of their vendor management oversight:

  • Recognize that IT's commitment to the business is essential to ensuring that the use of external third-party vendors delivers solutions that bring favorable business outcomes. Reach out to counterparts in marketing, sales, HR and operations to ensure a consistent approach to vendor management is adopted across the organization.

  • Invest in vendor management skills using an evolving approach as vendor management methods grow in sophistication. Clearly assign and define roles and responsibilities to address ownership and overlaps with other departments, such as procurement.

  • Regularly assess short- and long-term financial, operational and compliance risk in the vendor portfolio. This helps the organization avoid being blindsided by a vendor's financial, business continuity and/or performance failures.

What Vendor Management Means to IT Leaders

IT leaders must establish the vendor management discipline and execute its day-to-day operation. They should consider Gartner's recommendations before embarking on the journey of building a vendor management discipline:

  • Establish internal and external policies, standards, processes and templates for working with vendors.

  • Understand IT vendor spending by category, cost center, region and vendor.

  • Classify, rationalize and optimize the vendor portfolio and concentrate efforts on managing the most strategic vendors.

  • Focus vendor performance metrics on business outcomes such as innovation, competitive advantage and increased revenue. Hold strategic suppliers to higher standards and drive continuous performance improvement.

  • Mitigate, monitor and manage vendor risks as an ongoing discipline. Go beyond financial viability to include business continuity and corporate and regulatory compliance.

  • Aggregate and communicate key vendor data to stakeholders. Foster analytics-driven decisions based on this data.

Conduct Your Vendor Management Initiative Using This Structured Approach

Gartner recommends that IT leaders and vendor managers follow these four organizing principles to start managing vendors effectively:

  • Strategize and Plan: Define the structure, roles/responsibilities and resources to put a formal vendor management discipline in place and drive the right behaviors (product or service elements) to IT or business outcomes for all the collective third-party relationships.

  • Develop Governance: Establish an optimal process for making decisions and assigning decision rights related to vendor management. Agree on authority and flow for decision making. Implement and set up feedback mechanisms.

  • Execute: Ensure optimal management of the vendor contract life cycle and the commercial parts of the vendor relationship. Other responsibilities include managing and improving vendor performance, and monitoring and mitigating vendor risks.

  • Measure and Improve: Use assessment and industry data to track vendor management operations and success. Responsibilities include managing and improving vendor performance, and monitoring and mitigating vendor risks.

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