Vendor management—the discipline of managing supplier relationships for value—determines whether organizations get expected results from technology investments. Poor vendor management leads to cost overruns, service failures, and unfavorable terms.
This guide provides a framework for effective technology vendor management.
Understanding Vendor Management
Why Vendor Management Matters
Business impact:
Cost control: Getting fair value.
Service quality: Receiving what was promised.
Risk management: Controlling vendor-related risks.
Innovation access: Benefiting from vendor capabilities.
Strategic alignment: Vendors supporting strategy.
Vendor Management Challenges
What makes it difficult:
Complexity: Multiple vendors with different models.
Information asymmetry: Vendors know more about their products.
Relationship dynamics: Power balances shift.
Organizational fragmentation: Different groups managing different vendors.
Change management: Vendor markets evolve.
Vendor Strategy
Vendor Segmentation
Not all vendors are equal:
Strategic vendors: Critical, high-spend, partnership potential.
Operational vendors: Important but replaceable.
Commodity vendors: Easily substituted.
Niche vendors: Specialized capabilities.
Relationship Strategy
How to engage different vendors:
Partnership: Deep collaboration with strategic vendors.
Active management: Regular engagement with operational vendors.
Efficient transactions: Streamlined processes for commodity vendors.
Specialist engagement: Targeted relationship with niche vendors.
Performance Management
Define Expectations
Setting clear expectations:
Service levels: Measurable performance commitments.
Deliverables: Specific outputs expected.
Quality standards: Acceptable quality definitions.
Reporting requirements: Information to be provided.
Measure Performance
Tracking vendor delivery:
SLA monitoring: Tracking against commitments.
Quality assessment: Evaluating output quality.
Survey feedback: User satisfaction input.
Issue tracking: Recording problems.
Manage Performance
Acting on performance data:
Regular reviews: Scheduled performance discussions.
Issue resolution: Addressing problems.
Escalation: Moving issues up when needed.
Improvement planning: Driving better performance.
Contract Management
Contract Governance
Managing contract compliance:
Obligation tracking: Who owes what.
Compliance monitoring: Verifying fulfillment.
Change management: Handling contract changes.
Renewal management: Planning for renewals.
Commercial Management
Managing cost and value:
Cost monitoring: Tracking against budget.
Value assessment: Ensuring fair value.
Optimization: Improving commercial terms.
Benchmarking: Comparing to market.
Risk Management
Managing vendor risks:
Vendor viability: Monitoring vendor health.
Concentration risk: Managing dependency.
Security risk: Vendor security posture.
Compliance risk: Regulatory compliance.
Operational Excellence
Service Integration
Managing multiple vendors together:
Integration requirements: How vendors work together.
Accountability clarity: Who's responsible for what.
Handoff management: Managing boundaries.
End-to-end view: Holistic service perspective.
Issue Management
Handling vendor problems:
Issue identification: Recognizing problems.
Root cause analysis: Understanding causes.
Resolution tracking: Driving closure.
Trend analysis: Identifying patterns.
Change and Transition
Managing vendor changes:
Vendor changes: When vendors change.
Scope changes: When requirements change.
Exit management: When relationships end.
Knowledge transfer: Ensuring continuity.
Governance Structure
Organization
How vendor management is organized:
Vendor management office: Central function.
Relationship owners: Accountable individuals.
Supporting functions: Legal, finance, procurement.
Executive oversight: Strategic vendor governance.
Processes
How vendor management works:
Standard processes: Consistent approaches.
Review cadences: Regular rhythms.
Escalation paths: Issue elevation.
Documentation: Record keeping.
Key Takeaways
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Segment and prioritize: Different vendors need different approaches.
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Clear expectations enable management: Define what you want.
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Measure and act: Data without action is waste.
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Relationships matter: Beyond contract compliance.
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Risk requires attention: Vendor risk is your risk.
Frequently Asked Questions
How should we organize vendor management? Central coordination with distributed relationship ownership. Scale depends on organization size.
How often should we review vendors? Strategic vendors quarterly; operational annually; issues as needed.
How do we handle underperforming vendors? Clear communication, improvement plans, escalation, and termination if necessary.
What about single-source dependencies? Address through risk management: alternative identification, transition planning, contract protections.
How do we benchmark costs? Industry data, RFP processes, advisor input. Regular benchmarking for strategic vendors.
How do we balance cost and relationship? Both matter. Partnership on value; firmness on commercial terms.