Striving for excellence

From the December 2019 print edition

A quick Google search offers a definition of a vendor management office (VMO) as a department within the organization responsible for supervising vendors during the lifecycle of the contract, and ensuring that they are compliant with their contractual obligations.

While this definition might have been accurate 15 or 20 years ago, I’ll argue that the VMO concept is ripe for disruption and transformation into the Vendor Management Centre of Excellence (VM CoE).

In an article published in Supply Professional last February, I wrote about the fourth industrial revolution (4IR), and the importance of having corporate culture powered by innovation and diversity of thought. Both are required to ride this wave successfully. We are at a tipping point—the gig economy is bringing new perspectives and technology, and while much of the 4IR is driven by the transformative power of technology, the people component of business will never go away. Understanding the landscape in front of us, it’s obvious the traditional VMO concept is no longer relevant, and its evolution into the VM CoE is not just a recommendation, but a necessity to address business delivery, reliability, quality, customer experience and the bottom line.

Fixing the basics, elevating the scope
As a first step, I would encourage taking stock of current VMO practices to understand the state, gaps and a vision of what “good” looks like. With this knowledge, you can establish the VM CoE as a core competency with a consistent set of capabilities, tools, interaction models and enterprise framework/methodology that ensure the organization is maximizing value and mitigating risk across the supplier lifecycle.

Create a comprehensive view of the key enterprise supplier/vendor partner relationships across the organization to understand the state and begin assessing, evolving and standardizing vendor partner management practices inclusive of performance management, strategic roadmaps, risk management as well as relationship management.

Ensure that you have a pool of high performing talent focused on:

Relationship management and oversight

  • VM CoE needs to be a trusted partner and advisor to the organization. Building and maintaining executive-level relationships with internal partners and vendor partners can build that brand.
  • Manage and administer vendor contracts in accordance with internal policies that meet internal legal, control, audit, compliance, risk and privacy mandates and security requirements.
  • Strengthen the oversight of vendor partner performance, ensuring adherence to all contracted service levels, while evaluating the merits of contracts regularly.
  • Develop, maintain and evolve vendor partner scorecards and dashboards. Having the penalties and awards attached to the scorecard ensures everyone has skin in the game. Money speaks volumes, and financial incentives are a sure way to ensure that everyone is highly motivated to perform during the lifecycle of the contract. As such, the VMO CoE needs to be an active participant in contract renewal negotiations and negotiations of vendor scorecards.
  • Act as the ultimate escalation point for internal business partners in resolving vendor partner issues and lead the implementation of solutions.
  • VMO CoE should, in partnership with procurement, lead the annual vendor planning sessions to identify and plan contract renewals and market strategies factoring in growth, market trends and vendor partner performance.

Change management and leadership

  • Fostering a culture of innovation and continuous improvement is important. The VM CoE has a responsibility to empower vendors and the internal teams to identify opportunities for change; support the implementation of best practices and implement changes required to standardize processes and achieve consistency and efficiencies.

Financial management

  • Ownership of the vendor invoice/billing ensures procedures are followed and cost expectations are monitored to identify and resolve discrepancies.
  • Involvement in internal financial planning, including budget forecast, ensuring a proactive view of changes to the contract or vendor partner performance.

Business performance management

  • The VM CoE owns the vendor scorecards; including measuring, monitoring, managing and reporting on delivery performance and quality against SLAs, MSAs, KPIs and evolving business needs.
  • Collaborate with vendor partners to align on opportunities for quality and efficiency improvements and action plan to address gaps; implement solutions and manage costs.

Risk management

  • Be accountable for supplier risk and performance management by monitoring and ensuring vendor partner compliance to contractual and regulatory requirements.
  • Maintain knowledge of business risks to identify controls that reduce residual risk levels and ensure action plans to address them.
  • Have a “paper trail” (digital trail is preferred), and ensure there’s a robust documentation, tracking, monitoring and reporting system to capture trends, risks and exposures related to the services provided (including due diligence, customer impacts, and so on).

Leadership and talent development

Your team is your biggest strength. Technological advancements will never replace meaningful human interactions within business relationships. Foster the growth of a high-performance culture within your team so that they can pass the same on to the vendor partners.

Supplier engagement is vital, so building a relationship where vendor partners are informed, excited, engaged and committed to delivering the best talent is key.

Culture of innovation
We must remove the stigma around procurement and vendor management as a department where sales and new innovations go to die. A great way to do this, while driving the bottom line, is to establish a reciprocity program to identify revenue opportunities across business lines with existing and potential vendor partners.

  • For existing vendor partners, ensure transparency in communications and strategize across the supplier lifecycle on new opportunities. Vendor partners can also be customers which can positively change the dynamic of your relationships, moving those relationships from one of vendor management to partnership management.
  • For prospective vendors, develop an expectation that your organization is to be considered for the needs within the vendors’ organization that you can deliver. Make introductions between your sales teams and the prospective vendors. Build relationships and engagement across your organization and vendors!

Foster a culture of innovation, not just within your VM CoE team, but with your vendor partners as well. Trust that your vendor partners are subject matter experts—if you empower them to try new things they’ll often produce solutions to problems you didn’t even know you had.

Create a platform for vendor ideation; this can be part of your monthly business reviews, where vendors can share or try new ideas without fear of failure or the need to ask for permission. Your participation, feedback and support is required for this to work.

Celebrate small wins and even failures that resulted in valuable lessons. Encourage innovative thinking and an agile approach to implementation – fail small, fail fast, learn from it, improve and then try again. Embrace managed risk when innovating. Total risk avoidance is no longer a viable option for you.

Most important, recognize your most innovative vendor partners. Establish a vendor-partner innovation awards program to recognize top vendor partners whose innovative ideas have had a positive impact. Have a dedicated team managing this program’s framework, categories, evaluation criteria and so on. A program like this will create a culture of innovation and engagement through recognition, but it will also serve as an incentive for other vendors to start sharing their own ideas!

Diversity of thought
Diversity of thought propels new ideas, innovation and business forward. More often, organizations recognize the value of supplier diversity. Doing business with companies that share the same values and building a portfolio of diverse suppliers lets organizations create healthier communities and differentiate themselves with consumers.

Establishing a supplier diversity program not only strengthens brand, business and community recognition but also drives innovation and provides further opportunities to identify competitive suppliers.
Although supplier diversity may be “the right thing to do”, there is something to be said for having a diverse and inclusive environment that facilitates a broader exchange of perspectives and better reflects the true makeup of our society and customer base.

But complacency is a trap. We don’t have the luxury of time, money or resources to continue getting the same thing we were getting over a decade ago. What we knew back then is no longer relevant.
The traditional concept of VM is ripe for disruption, and organizations interested in letting go of the old ideas, habits, values, beliefs and ways of doing business, are the only ones who will come up on top.

The above points are a good start to successful relationship management. But they are not the only ones and they are not static. Be open to evolve, not just from VM to the VM CoE, but even past that. Change is the only constant in life, and those willing to embrace change will prosper.

Sanja Cancar-Todorovic is director—strategic relationships, global real estate asset management, at Manulife.