The second quarter of 2020 launched a lot of digital transformation projects that didn’t necessarily happen at the behest of chief innovation officers, but rather, because of the wrecking ball of disruption known as COVID-19.
Even if companies did succeed at rapidly orienting operations and services to digital, the transformation journey is far from over — and that means procurement and vendor management professionals now need to work some IT budgeting magic.
The reality is, you can’t invest in innovation without first optimizing procurement.
While organizations are trying to go lean during challenging economic times, a bloated vendor portfolio conceals a lot of opportunity to get more with less.
Why is vendor management so difficult?
Business IT ecosystems today are highly sophisticated and ever-increasing in complexity in order to realize the Return on Investment (ROI) promised by digital transformation. Events of 2020 have further emphasized the critical need for modern infrastructure and digital experiences. However, a robust IT ecosystem can also be expensive to maintain, resource-intensive to manage and inefficient to operate.
On average, organizations are trying to manage more than 10 vendor relationships for a single initiative — and may have upwards of hundreds of vendor relationships to fulfill the vast array of needs across the organization.
Adding to the complexity is the reality that IT solutions and technology-related decisions are actually happening outside of IT.
SPVM professionals are all too familiar with the painful and time-intensive coordination required to purchase across numerous vendors and their disparate fulfillment operations. Stack on top of that disparate software licensing agreements and rogue employee IT purchasing. This creates an obscured view over the organization’s supply chain and IT lifecycles, leaving little opportunity to surface key insights for improvements.
Top challenges with vendor sprawl:
- Increased costs
- Shadow IT
- Compromised security
- Inefficient procurement processes
But costs and processes aside, perhaps the most damaging result of vendor sprawl is the threat to successful business transformation. Disparate solutions and partners can lead to siloed communications, integration challenges, security gaps and a growing landscape of one-off solutions. Visibility over the whole IT environment becomes obscured.
What is strategic vendor management?
Vendor consolidation isn’t as simple as reducing the number of IT vendors from which you purchase products and services from — it’s a strategic partnership.
While it’s unrealistic to consolidate down to a single vendor, establishing stronger relationships with a short list of key partners can lead to efficiency gains, optimized costs and enduring business outcomes. That’s because working with fewer vendors helps to optimize the entire supply chain — driving efficiency across procurement, delivery, deployment, asset management and services. The IT lifecycle becomes much easier to manage and enables automated procurement tasks and fewer SLAs.
A common misconception about vendor consolidation is that working with fewer vendors will dissolve a company’s ability to negotiate SLAs and pricing against a vendor’s competitors. However, the opposite is true. Rationalizing spend across a few vendors allows businesses to take advantage of scale or volume pricing, as well as potential preferential pricing and priority customer service.
Top benefits of vendor consolidation
- Ability to automate procurement and increase business agility
- Access to data analytics to optimize purchasing
- Reduced costs associated with IT support for vendor management
- Increased discounts due to preferential, scale or volume pricing
- Simplified view that enables effective IT governance and compliance
When it comes to vendors, less really can give you more.
An optimal vendor portfolio will provide end-to-end IT solutions and services. But more than that, the right partner should feel like an extension of your IT team. This is especially important today with increasing demand for hybrid IT, or a combination of internal and external IT talent. This is particularly helpful for offloading low level IT support or for more complex work where specialized IT talent is needed to fill knowledge-gaps.
As IT further intensifies its role within organizations, technology service and solution providers are also evolving to offer more comprehensive support.
A compelling reason for organizations to trim the vendor list is due to a rising breed of Super Solution Integrators (SSIs). An SSI is a single team, or organization, with expertise and capabilities that span the entire IT ecosystem and can architect, manage and execute IT initiatives from end-to-end. That means they’ve got you covered from procurement to asset management and beyond — empowering SPVM professionals to meet both cost optimization and innovation objectives.