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Ask the Pro: Managing outsourcing vendor management

Ajay Bolina, principal, Deloitte Consulting LLP

Question: 

We split off our vendor management group from procurement about a year ago. Since then, we’ve been able to renegotiate a few contracts to get better terms, but we haven’t seen substantive improvement on our vendors’ performance metrics. Yet some executives from other companies tell me that creating a dedicated vendor management group did help their outsourcers perform better. Why aren’t we getting the same results?

Answer: 

From what you’ve said, I’d guess that when you “split off” your vendor management program office (VMPO), you staffed it with reassigned procurement professionals. But effective vendor management takes a different mindset and skills than what procurement professionals usually possess. Procurement professionals’ skills lie mostly in pre-contract execution activities such as creating the business case, writing requests for proposals, evaluating responses, and drafting contracts. Vendor management (VM) professionals, in contrast, should be proficient in post-contract activities such as managing adherence to service-level agreements (SLAs), identifying and resolving issues and disputes, tracking and reporting on savings, planning and executing the outsourcing transition, and providing overall governance. If your VMPO staff is weak in these areas, it likely won’t be able to provide appropriate structure around the way your company utilizes, measures, and rewards its outsourcers, making it difficult even to determine – let alone improve – outsourcers’ performance.

Another issue could be a lack of specialized technology support. Companies are often tempted to leverage existing sourcing tools for VM. However, in our experience, VM is much more effective when supported with specific tools, models, systems, and processes to track, measure, manage, and report on vendor performance, as well as to escalate issues to appropriate stakeholders in a prompt manner.

Also, are you gathering the right information to drive enhanced vendor performance? Besides measuring adherence to SLAs, consider adopting metrics around service performance innovation, thought leadership, continuous improvement, staff attrition, and other factors that can affect outsourcing value.

Finally, the broader corporate culture can have a huge impact on vendor performance, regardless of anything a VMPO does. Does your company have an appropriate internal model for outsourcing? Have specific internal stakeholders “bought in” to the outsourcing strategy? Are they engaging in appropriate “partner-like” behaviors? Does your company mandate training on how to use outsourced services? Do metrics exist to measure the performance of business-unit relationship managers? If you answered “no” to any of these, then your VMPO’s ability to influence vendor performance will likely be limited.

Ajay Bolina, principal, Deloitte Consulting LLP

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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