Please update me on the role of an IT recruiter for a vendor management system, because most of the software companies have a different process of outsourcing..
how to manage a vendor management in a large IT firm.
From India, Pune
how to manage a vendor management in a large IT firm.
From India, Pune
AMRITA,
Here are some useful tips on the subject.
I am not aware of your set up, as the structure/process/procedure
varies with the policies/ practices of the organizations.
Once you know the
-whats
-hows
of the vendor management system in any organization,
you should be able to position yourself.
THE POSITIONING IS CRITICAL FOR SUCCESS.
BELOW IS A LIST OF FACTORS THAT AFFECTS THE
FUNCTIONING OF THE VENDOR MANAGEMENT SYSTEM.
IF YOU HAVE DEVELOP AN UNDERSTANDING OF THESE,
IT WILL DEFINITELY HELP YOUR BUSINESS.
ALSO SOME OF THE FEATURES MAY NOT BE APPLICABLE
TO THE INDIAN CONDITION, BUT THEN YOU ARE BETTER
PLACED TO MAKE THE JUDGEMENTS.
============================
The Vendor Management
In essence, a vendor management office facilitates the procurement process away from the organization or takes the weight of choosing the perfect vendor (with the best package) off CIOs and IT managers.
Here’s how they typically operate:
A client puts out a request for a project to the vendor management office (be it a request for recruitment or other service), usually through a Web-based system providing a full work flow for the participation of both parties (clients and vendors). The participating vendors then receive indication of the request and have a chance to respond with their resumes and rate particulars. The vendor with the highest score wins the project and provides the client with the best quality at the best rate.
A vendor management office seeks higher levels of service and tracks metrics and vendor performance. It also negotiates appropriate discounts for all projects, products, and services. In a nutshell, a vendor management office ultimately has better control over the buying process. Although they can exist in-house, vendor management offices can also be virtual offices made up of people in various geographical locations. But if CIOs want to maintain control over technology procurement, the office should remain within the organization.
Vendor management offices are structured differently depending on the client’s size, but most have a similar organization structure. “Every vendor management office is going to have a program manager who is responsible for implementing the company’s business rules and policies which govern the acquisition of project or contingent labor services. The program manager is someone who can skillfully manage dual relationships between both clients and vendors, utilizing vendor management software which manages all business processes from the procurement to automated payment of all service suppliers.”
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Vendor management system is Web-based and closely mapped to the organization's business processes,
systems with its Centralized Vendor Management and Resource and Portfolio Management tools, which facilitate the entire vendor management system process.
When launching a vendor management office, most organizations begin by appointing a senior manager with superb communication skills and an ability to manage relationships between vendors, business leaders, and the IT department. Managers then pick a few IT managers (or office administrators) who have experience dealing with specific vendor types and are skilled in negotiating contracts and overseeing SLAs. Due to the automated nature of the vendor management system, vendor management offices only need three or four people involved in the process, as the need for people to have contact and resolve any issues is minimal.
Vendor management office’s objectives are twofold:
first, to get people and products at a better rate, and
second, to get a lower cost of procurement, which can be achieved by a preselected group of vendors and close rate card management.
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Ideal Members Of A Vendor Management Office
The traditional vendor management office model jibes with companies that comprise complex vendor relationships. The following human resources may be found in a typical vendor management office.
Contract executive: A member of senior management responsible for the executive oversight of the vendor contract and ultimately responsible for the program’s success.
Vendor manager: Under the direction of the contract executive, the vendor manager works closely with vendors and is responsible for the quality and cost effectiveness of vendor’s services.
Financial analyst*: Provides financial analysis and audit work in support of service contracts.
Performance analyst*: Analyzes vendor performance in order to assure compliance with service-level agreements and the continuous improvement of services.
Administrative support*: Ensures that all changes to contracts are made in accordance with base agreements and the interests of the company.
* Reports to the vendor manager
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Setting Up A Vendor Management Office
According to business PRACTICES, any company wanting to set up a vendor management office would want to consider the following:
• When choosing someone to run the office, look for a proven leader who understands technology, business issues, and vendor requirements.
• Don’t be afraid to use consulting resources to get the office started.
• Establish criteria for identifying your top vendors.
• Put vendor scorecards in an existing system so that it’s easy for IT managers to rate vendors.
• Give the vendor management power. If the vendors know they’re dealing with decision-makers, they’ll pay attention. If they think they’re dealing with low-level workers, the office will probably fail.
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These IT managers offer advice for driving the best deal with vendors while ensuring a mutually successful relationship.
SOME HIGHLIGHTS OF THE BEHAVIORS OF THE VENDOR MANAGEMENT TEAM.
*Don't be afraid to share your priorities with a vendor. If the vendor can help, they will find a way to provide the best solution. If they can't help, they know they are not part of the priorities at the time. Let them know you will continue to share with them what you need and how they may play a role down the road.
*Create a competitive environment (at least in the eyes of the vendor) by seeking credible alternatives.
Vendors that know they have secured your business are better able to seize control of the negotiations. Be wary of "partnerships." They are vendor's way of making sure you are going to use them.
*Use vendors to help you build a business case or persuade reluctant members of your team. Vendors often have white papers and ROI analyses that can help you build a business case and are very willing to help persuade your team. Using them to help you build support also helps them understand your business and refine their proposal so it better meets your needs. In the best cases, you become partners where success makes both parties look good.
*Treat your potential partners and partners as such -- not as vendors. There is a real need to drive contract terms and legal conditions, but in the end, no contract in the world will adequately cover your long-term goals and expectations. Build a solid, true collaborative partnership with your vendors. It will pay off in the long run. When things go bad, and they most certainly will, who would you rather have at the table? A vendor or a partner?
*Find a way to build a relationship. Price isn't the only aspect of the relationship. Find creative ways to go beyond the transaction.
*Ask for ongoing responsibility. To be a partner, both parties must act like partners, which means helping each other beyond the cash exchange. Will the vendor continue to help you succeed after the sale? How and where have they done this before? What can you do to help them be successful beyond just buying their products? If they cannot think of ways for you to help them, then the only value they will get is money, and this means you will spend more for their products or services.
*Always get competitive bids. From the outset, be clear that they have to put their best price on the table. No one will get a second chance to rebid. And never, ever give one vendor's bid to another to beat.
*Be respectful to your vendors. If you have no intention of giving them your business, don't ask them to participate.
*Look to the long term. If the vendor staff at the table are here to stay, ensure that it is a win-win opportunity. If not, go for the max for your company. If they are here to stay, you'll just pay later for any aggressive short-term gains.
*Negotiate with the top two. After evaluating a number of vendors, conduct contract negotiations with the final two, not just the final one. That enhances competition, and you may discover a deal-breaker with the top choice.
*See the other side. Make sure you understand the value at the other side of the table of each negotiation point. Sometimes you'll learn that something you find of minimal value is of major value to the vendor, and often this learning comes away from the negotiating table.
*Make it a win-win. I have found that when vendors commit to a result rather than a sale, their success is directly tied to my organization's success. This improves the chemistry of the relationship. It's not just about selling me the best SERVICES, or about a vendor getting the best margin. It's about two organizations getting into a collaborative and mutually beneficial business outcome. If both partners cannot get value from the investment (no matter the scale), then it is the wrong investment or partner.
*Offer to help. If you don't buy from the vendor, help them build relationships with the people you know that may face the issues their products address. This also builds the relationship without a transaction involved. When you go to negotiate with them, they will be more amenable because of all the help you have provided in the past.
Dollars & Cents
*Don't pay for features you won't use. Offer to pay for them later, if and when you grow into them.
*Start by defining what the "best deal" means. There are business objectives associated with every technology-related acquisition. There are lots of techniques for driving toward lowest cost, but you need other approaches when the requirements involve tight time frames, continued support or total value. In most cases, metrics with contractual remedies should be included to be sure the goals are clear and measurable and that the deal was, in fact, the right one.
*Tie guarantees to money. Guarantees aren't worth anything unless there are monetary penalties. They must be spelled out in the contract.
*Focus on value, not price. Before a negotiation, determine what is of value to your firm -- for example, the successful implementation of the system, with users gaining 20% improvement in time reductions. Use this value analysis to drive the discussions with the vendor -- can they deliver this value and then align their price to this?
*Demand proof of concept. If you are seeking value, then you need to see it firsthand. So make the vendor prove it can be done, hopefully by implementing something at your location with your people and data.
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A VENDOR MANAGEMENT PROGRAM can help you not only find out who you’re doing business with, but help you do business with them more efficiently and effectively.
Here’s an outline of a five-point vendor management program that will help you save significant dollars:
1. Identify your vendors - This may seem obvious, but many companies lack basic information about their vendors. Information in your purchasing and accounts payable files may be inaccurate, redundant, out of date or incomplete. Review your files to eliminate redundant vendors. Link related vendors to enable meaningful reporting.
These activities can take a lot of effort but are critical to achieving significant payoffs. Some direct immediate benefits are fewer duplicate payments, fewer checks, and lower postage.
2. Beef up vendor information - Augment your vendor files with information that’s useful for analysis. Basic information you may want to add includes SIC codes, taxpayer identifiers, telephone numbers, type of organization, types of products or services, how long vendors have been in business, and size. More important, find out if vendors are EDI capable, are ISO 9000 compliant and take Procurement Cards.
This additional information is a starting point for the financial planning and analysis that leads to smart decisions.
3. Analyze your expenditures - Determine where money is spent - by vendor, type of vendor, areas of your organization, trends over time. Build databases and analyze data to better understand how you’re doing. Benchmark against others. Find where savings and opportunities exist.
4. Buy, spend and pay smarter - Here’s where you begin to reap the dividends. With better information about spending, you can negotiate better deals.
5. Make life easier for vendors (and yourself) - Develop a vendor setup and verification process. Where appropriate, get electronic inputs from vendors using EDI or Procurement Cards. Approve, pay and reconcile electronically. Provide online access to vendors to reduce phone inquiries.
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VENDOR MANAGEMENT --GETTING THE BEST DEALS
These IT managers offer advice
From how to prepare to how to perform at the bargaining table, here are the most effective tips for driving a hard bargain with vendors.
Do Your Homework
Know your vendors. Doing some background research on your vendors will not only allow you to assess their strengths; it will help you pinpoint their weaknesses. You want to know exactly how hungry they are for your business. Ask for a list of recent contracts won and lost by the vendor in your RFP.
Use the accounts payable master to identify all of your vendors. Few IT organizations have a master list of vendors, their products, contract terms and how much is spent. Although it cannot help you determine what you buy, accounts payable can help you identify all of your vendors.
Manage the overall relationship with each vendor. Start by consolidating all contracts .Next estimate (just as vendors do) how much you are going to spend with each vendor.
Start every vendor selection with a clear understanding of why you want to undertake this project. Clearly articulated motivations form the foundation for vendor selection, performance metrics and contract terms. Increase your probability of success, by getting the stakeholders together to articulate and weight the motivations.
Step into the vendor's shoes. See yourself and the opportunity offered by your organization to the vendor from the vendor's perspective. This must be done as a formal exercise and should be supported by a role-play or simulation. You will gather more useful information from doing this than from almost any other preparation activity.
Metrics are the foundation of your vendor management program. You get what you measure, not what is in the contract. Choose metrics that support your goals and reward the behavior you want to encourage.
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Get the Price Right
Set goals. Approach negotiations with a target price in mind. Set this price by comparing the per-unit costs paid by your industry's top competitors to the price you're currently paying. Your vendors should be aiming for that top price.
Never offer to split the difference. Instead, try to get the other side to offer to split the difference. "How far apart on this are we? We're not that far apart. There must be some middle ground on which we can both agree." When they offer to split the difference, you can reluctantly agree to their proposal, which serves their perception that they won.
Danger point: If you offer to split the difference, they could get you to split the difference again.
Solution: Get the other side to offer to split the difference. You may be able to get them to split the difference again. Even if you don't, you still make them feel that they won.
More for your money. If your vendor refuses to budge on price, ask them if they'd be willing to provide extra services or support for that price. Give special consideration to services that will save you time and money.
The lowest price is not always the best price for the buyer. While aggressive negotiating makes sense, don't squeeze your supplier so hard that they lose money. If your contract is not profitable to them, you won't get good service and even worse, you may drive smaller vendors out of business.
The power of money. Is your vendor willing to come down on price if you pay cash? If you pay now? Oftentimes vendors are more than happy to lower prices in order to have the use of your money immediately. This tactic is particularly effective if vendors are in a poor cash flow position.
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Bargaining-Table Tips
Kill them with kindness. The best negotiators are calm, polite and personable. Work on building a relationship with your vendors, so that they feel good about going the extra mile on your behalf. Losing your temper or making threats alienates the very people you want on your side.
You make the first offer. Most people wait for their counterpart to make an offer and then try to negotiate the terms. In the vast majority of cases, this is an enormous mistake (especially if you are the buyer). By throwing out the first offer, you set the "anchor" for the conversation and force the other side to justify any changes to what you are proposing. Moreover, a substantial percentage of the time, you will find that if you stick to your initial terms, you will often get what you ask for because the vendor wants to keep your business.
Never say yes to their first offer. When you say yes to the first offer, you automatically trigger two reactions in the other person's mind: Reaction 1: We could have done better. If they are eager to accept our first proposal, we could have gotten more. Reaction 2: Something must be wrong. If they are saying yes to a proposal that we didn't think they would agree to, there must be something going on that we don't understand.
Danger point: You have formed an opinion of what their proposal will be. When it's better than you expected, you are so relieved that you make the mistake of saying yes too quickly.
Solution: Determine in your mind that you cannot say yes to the first proposal because you must get the approval of a higher authority.
Frame negotiations appropriately. We know that individuals are more likely to make decisions and take action when faced with a potential loss than when faced with a potential gain. Be sure to point out what your vendors stand to lose by not doing business with you as well as pointing out the benefits of doing business with your organization. -- Jan Potgieter
Your greatest source of power: alternatives. The biggest fear of any vendor is always that you will walk away and choose one of their competitors. As a consequence, when negotiating any contract (whether it's a new relationship or a renewal of an old one), always have alternatives to the party you are negotiating with ready. If you feel like your counterpart is not offering you the best possible deal, bring up the possibility that you might go elsewhere and watch their offer improve. -- Shahzad Bhatti
Project that you're prepared to walk away. The No. 1 pressure point in negotiations is your ability to project that you are prepared to walk away if you can't get what you want.
Danger point: You have fallen in love with the car or home for which you're negotiating and the seller knows it.
Solution: Before you go into negotiations, research your options and let the other know that you have options. It doesn't mean that you won't get the one that you want. It does mean that you'll be a more powerful negotiator, because the other person will sense that you have options, and that gives you power.
Do not lie -- ever. When we conduct negotiation training, some of our clients ask when its a good idea to lie in negotiations. From a moral perspective, this question is obviously shocking. Even from a practical point of view, however, its not a good thing. Consider your best case scenario if you lie: You get away with it, they sign the deal and then they hate you. During the following weeks, months and years, you will find that your reputation will take a dramatic hit -- costing you far more on a personal and financial level then you will ever gain by virtue of the initial lie. To make matters worse, more often than not, you won't even get the initial deal because they find out you lied before signing the contract which, of course, does serious harm to your credibility within the negotiation itself. Lying is never worth the cost.
Patience is a virtue to a negotiator. The longer that you can keep the other side in a negotiation, the more chance you have of getting what you want. When you're beginning to think that the other side will never come around to your point of view, think of the tiny tug boats that can move those huge ocean liners around -- if they do it a little bit at a time.
Danger point: The longer you are in a negotiation, the more likely you are to make concessions. Because your subconscious mind is saying to you, "I can't walk away from this empty-handed after all the time I've spent on this."
Solution: When faced with the temptation to make concessions to the other side, forget about what you have invested in getting to this point. You cannot recoup that whatever you do. Your only consideration should be, "Is it smart to move forward from here?"
Silence. In negotiation, it's often what you don't say that makes the biggest impact, especially when dealing with "hard" issues like numbers or risk allocation. It will take no more than 15 seconds of silence (and usually less) before your counterpart gets uncomfortable with the silence and starts giving you more information or, if you are already discussing the deal, improves his offer. Why does this work? There are many complex reasons but, ultimately, it boils down to a couple of things: First, most people interpret silence as unhappiness (think of the "silent treatment" punishment some give to kids); and second, if someone is in a position of selling something, they are most nervous about someone saying no. When people don't get information back fast enough, they get nervous and start filling the "gaps" by speaking themselves.
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VENDOR MANAGEMENT --BUILDING RELATIONSHIP
These IT managers offer advice for driving the best deal with vendors while ensuring a mutually successful relationship.
Don't be afraid to share your priorities with a vendor. If the vendor can help, they will find a way to provide the best solution. If they can't help, they know they are not part of the priorities at the time. Let them know you will continue to share with them what you need and how they may play a role down the road.
Create a competitive environment (at least in the eyes of the vendor) by seeking credible alternatives.
Vendors that know they have secured your business are better able to seize control of the negotiations. Be wary of "partnerships." They are vendor's way of making sure you are going to use them.
Use vendors to help you build a business case or persuade reluctant members of your team. Vendors often have white papers and ROI analyses that can help you build a business case and are very willing to help persuade your team. Using them to help you build support also helps them understand your business and refine their proposal so it better meets your needs. In the best cases, you become partners where success makes both parties look good.
Treat your potential partners and partners as such -- not as vendors. There is a real need to drive contract terms and legal conditions, but in the end, no contract in the world will adequately cover your long-term goals and expectations. Build a solid, true collaborative partnership with your vendors. It will pay off in the long run. When things go bad, and they most certainly will, who would you rather have at the table? A vendor or a partner?
Find a way to build a relationship. Price isn't the only aspect of the relationship. Find creative ways to go beyond the transaction. At the university, we involve vendors with the students via executive speaking events, scholarships, internships and recruitment. Further, the faculty seek sponsored research with the vendor.
Ask for ongoing responsibility. To be a partner, both parties must act like partners, which means helping each other beyond the cash exchange. Will the vendor continue to help you succeed after the sale? How and where have they done this before? What can you do to help them be successful beyond just buying their products? If they cannot think of ways for you to help them, then the only value they will get is money, and this means you will spend more for their products or services.
Always get competitive bids. From the outset, be clear that they have to put their best price on the table. No one will get a second chance to rebid. And never, ever give one vendor's bid to another to beat.
Be respectful to your vendors. If you have no intention of giving them your business, don't ask them to participate.
Look to the long term. If the vendor staff at the table are here to stay, ensure that it is a win-win opportunity. If not, go for the max for your company. If they are here to stay, you'll just pay later for any aggressive short-term gains.
Negotiate with the top two. After evaluating a number of vendors, conduct contract negotiations with the final two, not just the final one. That enhances competition, and you may discover a deal-breaker with the top choice.
See the other side. Make sure you understand the value at the other side of the table of each negotiation point. Sometimes you'll learn that something you find of minimal value is of major value to the vendor, and often this learning comes away from the negotiating table.
Make it a win-win. I have found that when technology vendors commit to a result rather than a sale, their success is directly tied to my organization's success. This improves the chemistry of the relationship. It's not just about selling me the best software or hardware, or about a vendor getting the best margin. It's about two organizations getting into a collaborative and mutually beneficial business outcome. If both partners cannot get value from the investment (no matter the scale), then it is the wrong investment or partner. For example, if I am buying an upgrade of software from a vendor, I may ask the vendor to participate in my payback. Instead of paying the reseller upfront, I have metrics of my ROI which I share with them; they get paid when certain targets are met. -
Offer to help. If you don't buy from the vendor, help them build relationships with the people you know that may face the issues their products address. This also builds the relationship without a transaction involved. When you go to negotiate with them, they will be more amenable because of all the help you have provided in the past.
=================================
Dollars & Cents
Don't pay for features you won't use. Offer to pay for them later, if and when you grow into them.
Start by defining what the "best deal" means. There are business objectives associated with every technology-related acquisition. There are lots of techniques for driving toward lowest cost, but you need other approaches when the requirements involve tight time frames, continued support or total value. In most cases, metrics with contractual remedies should be included to be sure the goals are clear and measurable and that the deal was, in fact, the right one.
Tie guarantees to money. Guarantees aren't worth anything unless there are monetary penalties. They must be spelled out in the contract.
Focus on value, not price. Before a negotiation, determine what is of value to your firm -- for example, the successful implementation of the system, with users gaining 20% improvement in time reductions. Use this value analysis to drive the discussions with the vendor -- can they deliver this value and then align their price to this?
Demand proof of concept. If you are seeking value, then you need to see it firsthand. So make the vendor prove it can be done, hopefully by implementing something at your location with your people and data. Often this works with appliance-type systems or infrastructure. If the situation is for something more complex, then you must meet with users of the firm's products and really do due diligence to see if they are getting the values you seek.
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VENDOR MANAGEMENT ----TIPS
The devil's in the details when it comes to vendor management. Don't forget a step with these tips from IT managers on planning, pricing and contracts.
Start with a pilot to minimize initial spend. See how flexible the vendor can be.
Develop and follow a strategic IT plan before making any long-term decisions on hardware, software, maintenance and/or consulting services. Decisions such as lease or buy, in-house or outsourced, single- or multiyear agreements, upgrade or replace can only be properly assessed in the context of a strategic plan. --
On larger purchases we frequently quote several vendors, as well as make the vendor aware they are not the only bidder. This assures us that we are getting the best deal possible. If a vendor is not in line with the other quotes, we bring it to their attention in case they misquoted and allow a requote.
Keep them in the loop. Make sure the vendor knows you are also looking at strong, legitimate competition.
Network with peers in your industry to understand pricing models and trends. Develop and propose your own pricing models (for example, "per business process" or "volume-based" versus "per seat" or "per server") that fit your situation. Another angle, while only suitable for certain types of systems, is value-based pricing -- paying only for the benefits achieved. Let the vendor react to those proposals.
Don't let the vendor manage the project. Make sure that someone in your organization is responsible and accountable for organizing the project and delivering results within time, scope and budget.
Prohibit your technical staff from negotiating with a vendor. Your organization's technical staff is vital in providing technical guidance through the negotiation process, but your negotiating team is better able to interact with the vendor's sales representative. Also, technical staff are normally concerned with things other than finances.
Hire a good project manager. A professionally certified and experienced project manager will be accountable to your organization, possess the right skills and be familiar with the tools and techniques for successful vendor negotiation.
Consider establishing a biyearly IT budget review process with vendors, and advise your vendors of the review dates in advance. Ask them to provide you with two or three cost optimization proposals (I don't like "cost savings" -- use "cost optimization" instead). Those should convince you and your business that future cooperation with the vendor will fit within your financial model and budget. Ask key vendors to attend a short meeting and present this strategy to you and another member of the senior staff. Usually, vendors will be able to work out some good deals to impress you, on every meeting. Good proposals received from some vendors may be implemented for others.
Think big. Put together the biggest deal you can from the outset. The bigger the deal, the more attention you will get from the most qualified people on the vendor's staff. You can always scale back the deal depending on how well their terms fit your needs, but you will have the advantage of "volume" pricing from the start.
Setup is key. Site preparation and doing an orientation (making sure everyone has the hardware/software needed and knows how to use it) and co-locating vendors with your own staff is imperative. Having vendors in close proximity to your staff (technical and users) working on a project is very beneficial and can help assure that both sides have the advantage and opportunity to develop a faster and usually better orientation (to how we do our business) and working relationship. Sometimes the informal communications this offers is more important than the formal reports and briefings. It also affords a nonthreatening way to monitor vendors and how hard they are working and it allows you to know who their real stars are.
Timing is everything. It's amazing how aggressive public companies become at the end of the quarter. Use that to your advantage.
Balance the assignments. On large complex projects you need to make sure there is a conscious effort to balance the work assignments (long/short, good/bad, hard/easy) between the assigned staff (vendor and our business and technical staff) so that everyone is given a balanced and varied workload. Partnering with vendor staff can be a great learning experience but if one group feels they are consistently given the toughest assignments you run the risk of burning people out and increasing your absenteeism and turnover to say nothing of generating bad blood between your staff and the vendor.
Try EAI. In tackling legacy application conversions, look at enterprise application integration (EAI) tools as a possible solution, especially versions of the Enterprise Service Bus technology. Though originally intended as app-to-app connectivity tools, many EAI tools work as well for intra-app processes. By implementing EAI and Web services linking the legacy application to new modular development, you can offload bite-sized programming rewrites a module at a time, gradually turning off legacy functionality. You control the pace of conversion, avoiding typical all-or-nothing conversion nightmares and preventing vendors from painting you into corners too early in development.
Do your homework. Agree on operating principles or pre-existing standards to base negotiations around with the vendor.
Have a starting point. Get to an agreed price (the first quote is always a "starting point") then agree to negotiate.
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Concrete Contracts
Make sure they stay on. It's important that you get the best qualified vendor staff bid to do your project, but it's even more important that you keep them for as long as they are needed. Many vendors bid their best personnel only to roll them off a project as soon as possible and rebid them on another upcoming project. Incorporate penalties that protect you from this practice and make sure you identify the key personnel that have to remain on your project unless you agree to release them. -- Mark Mazza
Make sure your vendor contract includes payment after services are rendered and accepted. If possible, leave at least 20% for payment after the last phase of the project.
Separate out the specifications and procurement process from the implementation process. Ideally, separate vendors should assist in developing specifications and in implementing the solution.
Check renewal statements. When a contract contains an autorenewal provision, send a letter immediately after signing that terminates the contract at the end of the current term, adding a statement about discussing a renewal prior to the end of the current term. This strategy prevents a forced continuation should you forget to give timely notice later and it provides a better negotiating position at renewal time.
Include usage rates. When writing a contract with baseline price, credit for nonusage and overage for excess usage, work with multiple business scenarios to model and see what rates for credit and excess usage will result in optimal contract.
On-time delivery. Based on the project completion success experience (on-time delivery), write a longer-term contract to get lower cost and negotiate hard on early termination.
Watch the line items. When vendors quote "project management" as a line item for small professional services projects done on your site, don't pay them. And don't let them mark back up the professional services fees after the quote. Remind them at the hourly rate you are paying for professionals, any back-office "project management" from vendors should already be embedded in professional fees.
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Legal Eagles
Contract renewal tips. Make sure you have at least a 90-day window prior to contract renewal to use exploring alternatives, competitors and pricing. This allows you to negotiate from an informed position. The volume of sales calls and e-mails requires you to focus on only those solutions that appear on your advance planning goals and business requirements. Reading trade publications and analyst reports helps focus your attention to the leaders in the space. I depend very much on peer-to-peer feedback to weed out hype and identify reputable vendors. This includes attending local IT gatherings and networking opportunities. One unique resource is to develop a good relationship with professional technology salespeople. They tend to move often and choose vendors whose solutions are superior. This provides me with a higher level of trust when I'm dealing with someone with whom I've had a positive history of purchases and deployments.
Get legal sign-off. Be sure to include your purchasing and legal functions in the review of any agreements and ask them to review product master agreements, hosting agreements, master services agreements and statements of work for conflicting terms and conditions, maintenance provisions and vendor audit provisions.
Everything in writing. Remember the mantra that "If it's not in the contract, it's not part of the deal." Don't rely on verbal promises.
Look at contract terms early. Salespeople will promise you the world. Get a contract early in the negotiation process and make sure it says the same thing your salesperson promised you. During the actual contract negotiation process, read each version carefully to make sure that your terms were not changed in successive versions during the negotiation.
Use the advice of good counsel. A contract is not only about how to get a project or service started but also about how to handle a divorce if relations should deteriorate and require either party to leave the deal.
regards
LEO LINGHAM
From India, Mumbai
260Here are some useful tips on the subject.
I am not aware of your set up, as the structure/process/procedure
varies with the policies/ practices of the organizations.
Once you know the
-whats
-hows
of the vendor management system in any organization,
you should be able to position yourself.
THE POSITIONING IS CRITICAL FOR SUCCESS.
BELOW IS A LIST OF FACTORS THAT AFFECTS THE
FUNCTIONING OF THE VENDOR MANAGEMENT SYSTEM.
IF YOU HAVE DEVELOP AN UNDERSTANDING OF THESE,
IT WILL DEFINITELY HELP YOUR BUSINESS.
ALSO SOME OF THE FEATURES MAY NOT BE APPLICABLE
TO THE INDIAN CONDITION, BUT THEN YOU ARE BETTER
PLACED TO MAKE THE JUDGEMENTS.
============================
The Vendor Management
In essence, a vendor management office facilitates the procurement process away from the organization or takes the weight of choosing the perfect vendor (with the best package) off CIOs and IT managers.
Here’s how they typically operate:
A client puts out a request for a project to the vendor management office (be it a request for recruitment or other service), usually through a Web-based system providing a full work flow for the participation of both parties (clients and vendors). The participating vendors then receive indication of the request and have a chance to respond with their resumes and rate particulars. The vendor with the highest score wins the project and provides the client with the best quality at the best rate.
A vendor management office seeks higher levels of service and tracks metrics and vendor performance. It also negotiates appropriate discounts for all projects, products, and services. In a nutshell, a vendor management office ultimately has better control over the buying process. Although they can exist in-house, vendor management offices can also be virtual offices made up of people in various geographical locations. But if CIOs want to maintain control over technology procurement, the office should remain within the organization.
Vendor management offices are structured differently depending on the client’s size, but most have a similar organization structure. “Every vendor management office is going to have a program manager who is responsible for implementing the company’s business rules and policies which govern the acquisition of project or contingent labor services. The program manager is someone who can skillfully manage dual relationships between both clients and vendors, utilizing vendor management software which manages all business processes from the procurement to automated payment of all service suppliers.”
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Vendor management system is Web-based and closely mapped to the organization's business processes,
systems with its Centralized Vendor Management and Resource and Portfolio Management tools, which facilitate the entire vendor management system process.
When launching a vendor management office, most organizations begin by appointing a senior manager with superb communication skills and an ability to manage relationships between vendors, business leaders, and the IT department. Managers then pick a few IT managers (or office administrators) who have experience dealing with specific vendor types and are skilled in negotiating contracts and overseeing SLAs. Due to the automated nature of the vendor management system, vendor management offices only need three or four people involved in the process, as the need for people to have contact and resolve any issues is minimal.
Vendor management office’s objectives are twofold:
first, to get people and products at a better rate, and
second, to get a lower cost of procurement, which can be achieved by a preselected group of vendors and close rate card management.
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Ideal Members Of A Vendor Management Office
The traditional vendor management office model jibes with companies that comprise complex vendor relationships. The following human resources may be found in a typical vendor management office.
Contract executive: A member of senior management responsible for the executive oversight of the vendor contract and ultimately responsible for the program’s success.
Vendor manager: Under the direction of the contract executive, the vendor manager works closely with vendors and is responsible for the quality and cost effectiveness of vendor’s services.
Financial analyst*: Provides financial analysis and audit work in support of service contracts.
Performance analyst*: Analyzes vendor performance in order to assure compliance with service-level agreements and the continuous improvement of services.
Administrative support*: Ensures that all changes to contracts are made in accordance with base agreements and the interests of the company.
* Reports to the vendor manager
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Setting Up A Vendor Management Office
According to business PRACTICES, any company wanting to set up a vendor management office would want to consider the following:
• When choosing someone to run the office, look for a proven leader who understands technology, business issues, and vendor requirements.
• Don’t be afraid to use consulting resources to get the office started.
• Establish criteria for identifying your top vendors.
• Put vendor scorecards in an existing system so that it’s easy for IT managers to rate vendors.
• Give the vendor management power. If the vendors know they’re dealing with decision-makers, they’ll pay attention. If they think they’re dealing with low-level workers, the office will probably fail.
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These IT managers offer advice for driving the best deal with vendors while ensuring a mutually successful relationship.
SOME HIGHLIGHTS OF THE BEHAVIORS OF THE VENDOR MANAGEMENT TEAM.
*Don't be afraid to share your priorities with a vendor. If the vendor can help, they will find a way to provide the best solution. If they can't help, they know they are not part of the priorities at the time. Let them know you will continue to share with them what you need and how they may play a role down the road.
*Create a competitive environment (at least in the eyes of the vendor) by seeking credible alternatives.
Vendors that know they have secured your business are better able to seize control of the negotiations. Be wary of "partnerships." They are vendor's way of making sure you are going to use them.
*Use vendors to help you build a business case or persuade reluctant members of your team. Vendors often have white papers and ROI analyses that can help you build a business case and are very willing to help persuade your team. Using them to help you build support also helps them understand your business and refine their proposal so it better meets your needs. In the best cases, you become partners where success makes both parties look good.
*Treat your potential partners and partners as such -- not as vendors. There is a real need to drive contract terms and legal conditions, but in the end, no contract in the world will adequately cover your long-term goals and expectations. Build a solid, true collaborative partnership with your vendors. It will pay off in the long run. When things go bad, and they most certainly will, who would you rather have at the table? A vendor or a partner?
*Find a way to build a relationship. Price isn't the only aspect of the relationship. Find creative ways to go beyond the transaction.
*Ask for ongoing responsibility. To be a partner, both parties must act like partners, which means helping each other beyond the cash exchange. Will the vendor continue to help you succeed after the sale? How and where have they done this before? What can you do to help them be successful beyond just buying their products? If they cannot think of ways for you to help them, then the only value they will get is money, and this means you will spend more for their products or services.
*Always get competitive bids. From the outset, be clear that they have to put their best price on the table. No one will get a second chance to rebid. And never, ever give one vendor's bid to another to beat.
*Be respectful to your vendors. If you have no intention of giving them your business, don't ask them to participate.
*Look to the long term. If the vendor staff at the table are here to stay, ensure that it is a win-win opportunity. If not, go for the max for your company. If they are here to stay, you'll just pay later for any aggressive short-term gains.
*Negotiate with the top two. After evaluating a number of vendors, conduct contract negotiations with the final two, not just the final one. That enhances competition, and you may discover a deal-breaker with the top choice.
*See the other side. Make sure you understand the value at the other side of the table of each negotiation point. Sometimes you'll learn that something you find of minimal value is of major value to the vendor, and often this learning comes away from the negotiating table.
*Make it a win-win. I have found that when vendors commit to a result rather than a sale, their success is directly tied to my organization's success. This improves the chemistry of the relationship. It's not just about selling me the best SERVICES, or about a vendor getting the best margin. It's about two organizations getting into a collaborative and mutually beneficial business outcome. If both partners cannot get value from the investment (no matter the scale), then it is the wrong investment or partner.
*Offer to help. If you don't buy from the vendor, help them build relationships with the people you know that may face the issues their products address. This also builds the relationship without a transaction involved. When you go to negotiate with them, they will be more amenable because of all the help you have provided in the past.
Dollars & Cents
*Don't pay for features you won't use. Offer to pay for them later, if and when you grow into them.
*Start by defining what the "best deal" means. There are business objectives associated with every technology-related acquisition. There are lots of techniques for driving toward lowest cost, but you need other approaches when the requirements involve tight time frames, continued support or total value. In most cases, metrics with contractual remedies should be included to be sure the goals are clear and measurable and that the deal was, in fact, the right one.
*Tie guarantees to money. Guarantees aren't worth anything unless there are monetary penalties. They must be spelled out in the contract.
*Focus on value, not price. Before a negotiation, determine what is of value to your firm -- for example, the successful implementation of the system, with users gaining 20% improvement in time reductions. Use this value analysis to drive the discussions with the vendor -- can they deliver this value and then align their price to this?
*Demand proof of concept. If you are seeking value, then you need to see it firsthand. So make the vendor prove it can be done, hopefully by implementing something at your location with your people and data.
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A VENDOR MANAGEMENT PROGRAM can help you not only find out who you’re doing business with, but help you do business with them more efficiently and effectively.
Here’s an outline of a five-point vendor management program that will help you save significant dollars:
1. Identify your vendors - This may seem obvious, but many companies lack basic information about their vendors. Information in your purchasing and accounts payable files may be inaccurate, redundant, out of date or incomplete. Review your files to eliminate redundant vendors. Link related vendors to enable meaningful reporting.
These activities can take a lot of effort but are critical to achieving significant payoffs. Some direct immediate benefits are fewer duplicate payments, fewer checks, and lower postage.
2. Beef up vendor information - Augment your vendor files with information that’s useful for analysis. Basic information you may want to add includes SIC codes, taxpayer identifiers, telephone numbers, type of organization, types of products or services, how long vendors have been in business, and size. More important, find out if vendors are EDI capable, are ISO 9000 compliant and take Procurement Cards.
This additional information is a starting point for the financial planning and analysis that leads to smart decisions.
3. Analyze your expenditures - Determine where money is spent - by vendor, type of vendor, areas of your organization, trends over time. Build databases and analyze data to better understand how you’re doing. Benchmark against others. Find where savings and opportunities exist.
4. Buy, spend and pay smarter - Here’s where you begin to reap the dividends. With better information about spending, you can negotiate better deals.
5. Make life easier for vendors (and yourself) - Develop a vendor setup and verification process. Where appropriate, get electronic inputs from vendors using EDI or Procurement Cards. Approve, pay and reconcile electronically. Provide online access to vendors to reduce phone inquiries.
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VENDOR MANAGEMENT --GETTING THE BEST DEALS
These IT managers offer advice
From how to prepare to how to perform at the bargaining table, here are the most effective tips for driving a hard bargain with vendors.
Do Your Homework
Know your vendors. Doing some background research on your vendors will not only allow you to assess their strengths; it will help you pinpoint their weaknesses. You want to know exactly how hungry they are for your business. Ask for a list of recent contracts won and lost by the vendor in your RFP.
Use the accounts payable master to identify all of your vendors. Few IT organizations have a master list of vendors, their products, contract terms and how much is spent. Although it cannot help you determine what you buy, accounts payable can help you identify all of your vendors.
Manage the overall relationship with each vendor. Start by consolidating all contracts .Next estimate (just as vendors do) how much you are going to spend with each vendor.
Start every vendor selection with a clear understanding of why you want to undertake this project. Clearly articulated motivations form the foundation for vendor selection, performance metrics and contract terms. Increase your probability of success, by getting the stakeholders together to articulate and weight the motivations.
Step into the vendor's shoes. See yourself and the opportunity offered by your organization to the vendor from the vendor's perspective. This must be done as a formal exercise and should be supported by a role-play or simulation. You will gather more useful information from doing this than from almost any other preparation activity.
Metrics are the foundation of your vendor management program. You get what you measure, not what is in the contract. Choose metrics that support your goals and reward the behavior you want to encourage.
=======================================
Get the Price Right
Set goals. Approach negotiations with a target price in mind. Set this price by comparing the per-unit costs paid by your industry's top competitors to the price you're currently paying. Your vendors should be aiming for that top price.
Never offer to split the difference. Instead, try to get the other side to offer to split the difference. "How far apart on this are we? We're not that far apart. There must be some middle ground on which we can both agree." When they offer to split the difference, you can reluctantly agree to their proposal, which serves their perception that they won.
Danger point: If you offer to split the difference, they could get you to split the difference again.
Solution: Get the other side to offer to split the difference. You may be able to get them to split the difference again. Even if you don't, you still make them feel that they won.
More for your money. If your vendor refuses to budge on price, ask them if they'd be willing to provide extra services or support for that price. Give special consideration to services that will save you time and money.
The lowest price is not always the best price for the buyer. While aggressive negotiating makes sense, don't squeeze your supplier so hard that they lose money. If your contract is not profitable to them, you won't get good service and even worse, you may drive smaller vendors out of business.
The power of money. Is your vendor willing to come down on price if you pay cash? If you pay now? Oftentimes vendors are more than happy to lower prices in order to have the use of your money immediately. This tactic is particularly effective if vendors are in a poor cash flow position.
====================================
Bargaining-Table Tips
Kill them with kindness. The best negotiators are calm, polite and personable. Work on building a relationship with your vendors, so that they feel good about going the extra mile on your behalf. Losing your temper or making threats alienates the very people you want on your side.
You make the first offer. Most people wait for their counterpart to make an offer and then try to negotiate the terms. In the vast majority of cases, this is an enormous mistake (especially if you are the buyer). By throwing out the first offer, you set the "anchor" for the conversation and force the other side to justify any changes to what you are proposing. Moreover, a substantial percentage of the time, you will find that if you stick to your initial terms, you will often get what you ask for because the vendor wants to keep your business.
Never say yes to their first offer. When you say yes to the first offer, you automatically trigger two reactions in the other person's mind: Reaction 1: We could have done better. If they are eager to accept our first proposal, we could have gotten more. Reaction 2: Something must be wrong. If they are saying yes to a proposal that we didn't think they would agree to, there must be something going on that we don't understand.
Danger point: You have formed an opinion of what their proposal will be. When it's better than you expected, you are so relieved that you make the mistake of saying yes too quickly.
Solution: Determine in your mind that you cannot say yes to the first proposal because you must get the approval of a higher authority.
Frame negotiations appropriately. We know that individuals are more likely to make decisions and take action when faced with a potential loss than when faced with a potential gain. Be sure to point out what your vendors stand to lose by not doing business with you as well as pointing out the benefits of doing business with your organization. -- Jan Potgieter
Your greatest source of power: alternatives. The biggest fear of any vendor is always that you will walk away and choose one of their competitors. As a consequence, when negotiating any contract (whether it's a new relationship or a renewal of an old one), always have alternatives to the party you are negotiating with ready. If you feel like your counterpart is not offering you the best possible deal, bring up the possibility that you might go elsewhere and watch their offer improve. -- Shahzad Bhatti
Project that you're prepared to walk away. The No. 1 pressure point in negotiations is your ability to project that you are prepared to walk away if you can't get what you want.
Danger point: You have fallen in love with the car or home for which you're negotiating and the seller knows it.
Solution: Before you go into negotiations, research your options and let the other know that you have options. It doesn't mean that you won't get the one that you want. It does mean that you'll be a more powerful negotiator, because the other person will sense that you have options, and that gives you power.
Do not lie -- ever. When we conduct negotiation training, some of our clients ask when its a good idea to lie in negotiations. From a moral perspective, this question is obviously shocking. Even from a practical point of view, however, its not a good thing. Consider your best case scenario if you lie: You get away with it, they sign the deal and then they hate you. During the following weeks, months and years, you will find that your reputation will take a dramatic hit -- costing you far more on a personal and financial level then you will ever gain by virtue of the initial lie. To make matters worse, more often than not, you won't even get the initial deal because they find out you lied before signing the contract which, of course, does serious harm to your credibility within the negotiation itself. Lying is never worth the cost.
Patience is a virtue to a negotiator. The longer that you can keep the other side in a negotiation, the more chance you have of getting what you want. When you're beginning to think that the other side will never come around to your point of view, think of the tiny tug boats that can move those huge ocean liners around -- if they do it a little bit at a time.
Danger point: The longer you are in a negotiation, the more likely you are to make concessions. Because your subconscious mind is saying to you, "I can't walk away from this empty-handed after all the time I've spent on this."
Solution: When faced with the temptation to make concessions to the other side, forget about what you have invested in getting to this point. You cannot recoup that whatever you do. Your only consideration should be, "Is it smart to move forward from here?"
Silence. In negotiation, it's often what you don't say that makes the biggest impact, especially when dealing with "hard" issues like numbers or risk allocation. It will take no more than 15 seconds of silence (and usually less) before your counterpart gets uncomfortable with the silence and starts giving you more information or, if you are already discussing the deal, improves his offer. Why does this work? There are many complex reasons but, ultimately, it boils down to a couple of things: First, most people interpret silence as unhappiness (think of the "silent treatment" punishment some give to kids); and second, if someone is in a position of selling something, they are most nervous about someone saying no. When people don't get information back fast enough, they get nervous and start filling the "gaps" by speaking themselves.
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VENDOR MANAGEMENT --BUILDING RELATIONSHIP
These IT managers offer advice for driving the best deal with vendors while ensuring a mutually successful relationship.
Don't be afraid to share your priorities with a vendor. If the vendor can help, they will find a way to provide the best solution. If they can't help, they know they are not part of the priorities at the time. Let them know you will continue to share with them what you need and how they may play a role down the road.
Create a competitive environment (at least in the eyes of the vendor) by seeking credible alternatives.
Vendors that know they have secured your business are better able to seize control of the negotiations. Be wary of "partnerships." They are vendor's way of making sure you are going to use them.
Use vendors to help you build a business case or persuade reluctant members of your team. Vendors often have white papers and ROI analyses that can help you build a business case and are very willing to help persuade your team. Using them to help you build support also helps them understand your business and refine their proposal so it better meets your needs. In the best cases, you become partners where success makes both parties look good.
Treat your potential partners and partners as such -- not as vendors. There is a real need to drive contract terms and legal conditions, but in the end, no contract in the world will adequately cover your long-term goals and expectations. Build a solid, true collaborative partnership with your vendors. It will pay off in the long run. When things go bad, and they most certainly will, who would you rather have at the table? A vendor or a partner?
Find a way to build a relationship. Price isn't the only aspect of the relationship. Find creative ways to go beyond the transaction. At the university, we involve vendors with the students via executive speaking events, scholarships, internships and recruitment. Further, the faculty seek sponsored research with the vendor.
Ask for ongoing responsibility. To be a partner, both parties must act like partners, which means helping each other beyond the cash exchange. Will the vendor continue to help you succeed after the sale? How and where have they done this before? What can you do to help them be successful beyond just buying their products? If they cannot think of ways for you to help them, then the only value they will get is money, and this means you will spend more for their products or services.
Always get competitive bids. From the outset, be clear that they have to put their best price on the table. No one will get a second chance to rebid. And never, ever give one vendor's bid to another to beat.
Be respectful to your vendors. If you have no intention of giving them your business, don't ask them to participate.
Look to the long term. If the vendor staff at the table are here to stay, ensure that it is a win-win opportunity. If not, go for the max for your company. If they are here to stay, you'll just pay later for any aggressive short-term gains.
Negotiate with the top two. After evaluating a number of vendors, conduct contract negotiations with the final two, not just the final one. That enhances competition, and you may discover a deal-breaker with the top choice.
See the other side. Make sure you understand the value at the other side of the table of each negotiation point. Sometimes you'll learn that something you find of minimal value is of major value to the vendor, and often this learning comes away from the negotiating table.
Make it a win-win. I have found that when technology vendors commit to a result rather than a sale, their success is directly tied to my organization's success. This improves the chemistry of the relationship. It's not just about selling me the best software or hardware, or about a vendor getting the best margin. It's about two organizations getting into a collaborative and mutually beneficial business outcome. If both partners cannot get value from the investment (no matter the scale), then it is the wrong investment or partner. For example, if I am buying an upgrade of software from a vendor, I may ask the vendor to participate in my payback. Instead of paying the reseller upfront, I have metrics of my ROI which I share with them; they get paid when certain targets are met. -
Offer to help. If you don't buy from the vendor, help them build relationships with the people you know that may face the issues their products address. This also builds the relationship without a transaction involved. When you go to negotiate with them, they will be more amenable because of all the help you have provided in the past.
=================================
Dollars & Cents
Don't pay for features you won't use. Offer to pay for them later, if and when you grow into them.
Start by defining what the "best deal" means. There are business objectives associated with every technology-related acquisition. There are lots of techniques for driving toward lowest cost, but you need other approaches when the requirements involve tight time frames, continued support or total value. In most cases, metrics with contractual remedies should be included to be sure the goals are clear and measurable and that the deal was, in fact, the right one.
Tie guarantees to money. Guarantees aren't worth anything unless there are monetary penalties. They must be spelled out in the contract.
Focus on value, not price. Before a negotiation, determine what is of value to your firm -- for example, the successful implementation of the system, with users gaining 20% improvement in time reductions. Use this value analysis to drive the discussions with the vendor -- can they deliver this value and then align their price to this?
Demand proof of concept. If you are seeking value, then you need to see it firsthand. So make the vendor prove it can be done, hopefully by implementing something at your location with your people and data. Often this works with appliance-type systems or infrastructure. If the situation is for something more complex, then you must meet with users of the firm's products and really do due diligence to see if they are getting the values you seek.
======================
VENDOR MANAGEMENT ----TIPS
The devil's in the details when it comes to vendor management. Don't forget a step with these tips from IT managers on planning, pricing and contracts.
Start with a pilot to minimize initial spend. See how flexible the vendor can be.
Develop and follow a strategic IT plan before making any long-term decisions on hardware, software, maintenance and/or consulting services. Decisions such as lease or buy, in-house or outsourced, single- or multiyear agreements, upgrade or replace can only be properly assessed in the context of a strategic plan. --
On larger purchases we frequently quote several vendors, as well as make the vendor aware they are not the only bidder. This assures us that we are getting the best deal possible. If a vendor is not in line with the other quotes, we bring it to their attention in case they misquoted and allow a requote.
Keep them in the loop. Make sure the vendor knows you are also looking at strong, legitimate competition.
Network with peers in your industry to understand pricing models and trends. Develop and propose your own pricing models (for example, "per business process" or "volume-based" versus "per seat" or "per server") that fit your situation. Another angle, while only suitable for certain types of systems, is value-based pricing -- paying only for the benefits achieved. Let the vendor react to those proposals.
Don't let the vendor manage the project. Make sure that someone in your organization is responsible and accountable for organizing the project and delivering results within time, scope and budget.
Prohibit your technical staff from negotiating with a vendor. Your organization's technical staff is vital in providing technical guidance through the negotiation process, but your negotiating team is better able to interact with the vendor's sales representative. Also, technical staff are normally concerned with things other than finances.
Hire a good project manager. A professionally certified and experienced project manager will be accountable to your organization, possess the right skills and be familiar with the tools and techniques for successful vendor negotiation.
Consider establishing a biyearly IT budget review process with vendors, and advise your vendors of the review dates in advance. Ask them to provide you with two or three cost optimization proposals (I don't like "cost savings" -- use "cost optimization" instead). Those should convince you and your business that future cooperation with the vendor will fit within your financial model and budget. Ask key vendors to attend a short meeting and present this strategy to you and another member of the senior staff. Usually, vendors will be able to work out some good deals to impress you, on every meeting. Good proposals received from some vendors may be implemented for others.
Think big. Put together the biggest deal you can from the outset. The bigger the deal, the more attention you will get from the most qualified people on the vendor's staff. You can always scale back the deal depending on how well their terms fit your needs, but you will have the advantage of "volume" pricing from the start.
Setup is key. Site preparation and doing an orientation (making sure everyone has the hardware/software needed and knows how to use it) and co-locating vendors with your own staff is imperative. Having vendors in close proximity to your staff (technical and users) working on a project is very beneficial and can help assure that both sides have the advantage and opportunity to develop a faster and usually better orientation (to how we do our business) and working relationship. Sometimes the informal communications this offers is more important than the formal reports and briefings. It also affords a nonthreatening way to monitor vendors and how hard they are working and it allows you to know who their real stars are.
Timing is everything. It's amazing how aggressive public companies become at the end of the quarter. Use that to your advantage.
Balance the assignments. On large complex projects you need to make sure there is a conscious effort to balance the work assignments (long/short, good/bad, hard/easy) between the assigned staff (vendor and our business and technical staff) so that everyone is given a balanced and varied workload. Partnering with vendor staff can be a great learning experience but if one group feels they are consistently given the toughest assignments you run the risk of burning people out and increasing your absenteeism and turnover to say nothing of generating bad blood between your staff and the vendor.
Try EAI. In tackling legacy application conversions, look at enterprise application integration (EAI) tools as a possible solution, especially versions of the Enterprise Service Bus technology. Though originally intended as app-to-app connectivity tools, many EAI tools work as well for intra-app processes. By implementing EAI and Web services linking the legacy application to new modular development, you can offload bite-sized programming rewrites a module at a time, gradually turning off legacy functionality. You control the pace of conversion, avoiding typical all-or-nothing conversion nightmares and preventing vendors from painting you into corners too early in development.
Do your homework. Agree on operating principles or pre-existing standards to base negotiations around with the vendor.
Have a starting point. Get to an agreed price (the first quote is always a "starting point") then agree to negotiate.
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Concrete Contracts
Make sure they stay on. It's important that you get the best qualified vendor staff bid to do your project, but it's even more important that you keep them for as long as they are needed. Many vendors bid their best personnel only to roll them off a project as soon as possible and rebid them on another upcoming project. Incorporate penalties that protect you from this practice and make sure you identify the key personnel that have to remain on your project unless you agree to release them. -- Mark Mazza
Make sure your vendor contract includes payment after services are rendered and accepted. If possible, leave at least 20% for payment after the last phase of the project.
Separate out the specifications and procurement process from the implementation process. Ideally, separate vendors should assist in developing specifications and in implementing the solution.
Check renewal statements. When a contract contains an autorenewal provision, send a letter immediately after signing that terminates the contract at the end of the current term, adding a statement about discussing a renewal prior to the end of the current term. This strategy prevents a forced continuation should you forget to give timely notice later and it provides a better negotiating position at renewal time.
Include usage rates. When writing a contract with baseline price, credit for nonusage and overage for excess usage, work with multiple business scenarios to model and see what rates for credit and excess usage will result in optimal contract.
On-time delivery. Based on the project completion success experience (on-time delivery), write a longer-term contract to get lower cost and negotiate hard on early termination.
Watch the line items. When vendors quote "project management" as a line item for small professional services projects done on your site, don't pay them. And don't let them mark back up the professional services fees after the quote. Remind them at the hourly rate you are paying for professionals, any back-office "project management" from vendors should already be embedded in professional fees.
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Legal Eagles
Contract renewal tips. Make sure you have at least a 90-day window prior to contract renewal to use exploring alternatives, competitors and pricing. This allows you to negotiate from an informed position. The volume of sales calls and e-mails requires you to focus on only those solutions that appear on your advance planning goals and business requirements. Reading trade publications and analyst reports helps focus your attention to the leaders in the space. I depend very much on peer-to-peer feedback to weed out hype and identify reputable vendors. This includes attending local IT gatherings and networking opportunities. One unique resource is to develop a good relationship with professional technology salespeople. They tend to move often and choose vendors whose solutions are superior. This provides me with a higher level of trust when I'm dealing with someone with whom I've had a positive history of purchases and deployments.
Get legal sign-off. Be sure to include your purchasing and legal functions in the review of any agreements and ask them to review product master agreements, hosting agreements, master services agreements and statements of work for conflicting terms and conditions, maintenance provisions and vendor audit provisions.
Everything in writing. Remember the mantra that "If it's not in the contract, it's not part of the deal." Don't rely on verbal promises.
Look at contract terms early. Salespeople will promise you the world. Get a contract early in the negotiation process and make sure it says the same thing your salesperson promised you. During the actual contract negotiation process, read each version carefully to make sure that your terms were not changed in successive versions during the negotiation.
Use the advice of good counsel. A contract is not only about how to get a project or service started but also about how to handle a divorce if relations should deteriorate and require either party to leave the deal.
regards
LEO LINGHAM
From India, Mumbai
Hi Leo,
I have experienced VM Function thr' this!! Eventhough it does covers all aspects. To get more clarity on the points could you able to post some important points of a person does working under vendor manager and does supports on evry activity. Hope you will give somepoints for the same.
Thanks,
Venhadesh.R
From India, Madras
I have experienced VM Function thr' this!! Eventhough it does covers all aspects. To get more clarity on the points could you able to post some important points of a person does working under vendor manager and does supports on evry activity. Hope you will give somepoints for the same.
Thanks,
Venhadesh.R
From India, Madras
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