All organizations need to buy goods and services from external vendors to ensure proper functioning. Therefore, organizations must maintain sustainable relationships with their vendors. ITIL Vendor Management, which talks about the supply of IT services, is an essential component of the ITIL foundation certification course. So, what is vendor management, and what is a vendor in project management? Before starting an Information Technology Infrastructure Library certification, read the following article to understand the basics of ITIL Supplier Management.
What is Vendor Management in ITIL?
Vendor management in ITIL is a term used to describe how an organization manages its vendor. It involves the following aspects:
- Selecting vendors,
- Contract negotiation,
- Vendor onboarding,
- Monitoring vendor performance,
- Monitoring and managing risk, and
- Payment.
The primary focus of the Vendor Management process is to ensure maximum returns for the capital spent on the vendors and to offer quality IT services to the organization. If you are wondering what a vendor is in project management, you are in the right place. The organization selects the vendors depending on its requirement, the review of the vendors by other companies, the prices they quote, etc. The vendors can also vary, from individual to large IT companies.
Importance and Benefits of Vendor Management
Vendor management is especially important when an organization selects a vendor to supply a specific requirement. It can also maintain a long-term relationship with vendors, ensuring superior quality and better supply rates. ITIL Vendor Relationship Management provides smooth and faster onboarding of new vendors.
The benefits of the vendor management process are as follows:
- Better selection of vendors
- Manage cost savings.
- Faster vendor onboarding
- Reduction in risk of disruption in the supply chain
- Better vendor relationship
- Better rates of supplies
The Objective of Vendor Management
The main objectives of vendor management are as follows:
- It ensures that the money spent on obtaining materials from all vendors brings maximum value.
- It ensures that the agreement with the vendors and the underpinning contracts (UCs) are synchronized with the business requirements and targets of the organization.
- It helps in the management of relationships with all the vendors and also in maintaining records to monitor their performance.
- It aids in negotiations with the vendors, finalizing the contracts, and managing the vendors throughout their tenure.
- It helps in the establishment and maintenance of vendor policies.
- It aids in the maintenance of a Supplier Contract Management Information System.
Scope of Vendor Management
Vendor Management includes the management of various vendors and contracts required to bolster the IT services team. The process identifies the importance of the contribution of the vendors and promotes building and managing relationships with the relevant vendors to sustain their contribution. The vendor management process also focuses on reviewing and managing the relationship with each vendor.
Vendor Management Process Activities
Here are the steps that the vendor management process entails:
Selecting Vendors
The selection process of vendors includes a lot of subtasks like making a list of potential vendors and seeking quotes from vendors via requests for quotation (RFQs) and requests for proposal (RFPs), etc. Finally, a suitable vendor is shortlisted from the list and selected. The organization considers several factors when choosing a vendor, like the price quotations, the vendor's market reputation, capacity, track record, and responsiveness.
Contract Negotiation
The hiring organization and the vendor need to negotiate a contract before supplying IT services. They need to make sure that the contract is legally correct and that the terms of the agreement are agreeable to both parties. The negotiation process is time-consuming and requires information like details of IT services required, the start date & end date of the agreement, and all the other important terms and conditions. Both parties must pay close attention to the confidentiality clause and the contract's non-compete clause to avoid future disagreements.
Vendor Onboarding
The vendor onboarding process requires the vendor to submit all documentation requested by the hiring organization. Then the hiring organization will have to review all the documentation provided by the vendor, and if everything goes well, the vendor will be approved. The documents requested can include tax forms, relevant licenses, insurance details, contact & payment information, etc. In certain cases, the vendor can also request specific documents from the hiring organization to ensure the company's authenticity.
Monitoring Vendor Performance
The vendor management process includes monitoring and evaluation of the vendors. This might require the organization to evaluate the performance of the vendor against the Key Performance Indicators (KPIs) like volume, timeline, quality, etc. Suppose the vendors or the IT services they supply are not satisfactory. In that case, the organization reserves the right to reject the IT services and get a replacement or even change vendors in the worst cases.
Monitoring and Managing Risk
The organizations should monitor the vendors for risks that could impact the whole company, like the risk of ongoing lawsuits, compliance breaches, loss of intellectual property, cybersecurity issues, etc. These risks also include the possibility of the vendor's failure to provide IT services with agreed quality or timeline, which may lead to disruption in the organization's operation.
Payment
The last activity ensures that the vendors are paid on time for all the IT services they have delivered.
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Vendor Management Challenges
Below are some of the common challenges faced in Vendor Management:
- Big organizations have a large database of vendors or have a large geographical footprint. This type of organization might have difficulty gaining a complete overview of all the vendors used.
- Several challenges might arise in the various stages of the vendor management process—for example, difficulty obtaining documentation or untimely payments to vendors.
- The requirements of industries and businesses are constantly changing. Sometimes, it is difficult to accommodate these changes and supply the IT services with agreed quality and under the agreed timeline.
- Sometimes, the company loses the strategic perspective and focuses on the operational aspect of the business, which leads to the failure of strategic relationship objectives.
- Sometimes, companies work with a contract with poor targets, or the supplier performance targets are not well defined. These reasons can also pose challenges to the process of vendor management.
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Best Practices for Vendor Management
Following are some of the best practices to note for vendor management:
- You should set up a clear Vendor Management policy that keeps the senior project managers and the company executives informed of the vendor management activities. Some activities include forming a purchasing team, designating the responsible parties, aligning the company's purchasing strategy with the overall strategy, etc.
- You should ensure that the Vendor Contracts specify all the necessary information like Payment terms, insurance and liability requirements, service level agreements (SLAs), policy document guidelines, etc.
- You should utilize Key Performance Indicators (KPIs) to support the continuous improvement of the overall process. The KPI (Key Performance Indicator) chart should include KPI expectations & limits, an explanation of the metrics, data visualization, etc.
- You should mitigate the risks and protect your assets by managing outsourced service providers. The company can face financial, cybersecurity, and legal risks while outsourcing IT services. You should also appoint a Subject Matter Expert (SME) to conduct due diligence analysis.
- One of the best practices in vendor management is to maintain close partnerships with all your vendors. You should ensure formal onboarding of vendors, create agreeable contracts for both parties, and build trust & flexibility to foster vendor collaboration.
- Sometimes, things do not work out between a vendor and the hiring organization. You should plan for a clean exit to tackle such a situation. To ensure this, you should include your exit plan in the contract, provide straightforward clarifications, keep relevant records of data, etc. An exit plan is an important aspect of the vendor lifecycle.
Conclusion
Many of us ponder the importance of vendors and raise questions like what depends on a vendor for project management. Vendors in ITIL are external service providers who offer IT services to organizations, and the organization manages vendors by applying the principles of Vendor Management. Enroll in the KnowledgeHut’s Information Technology Infrastructure Library certification to strengthen your knowledge and advance your career in Vendor management and IT service management.
