As organizations continue to adopt a more formalized vendor management program, one of the big questions they face is whether or not they should establish a formal vendor management office.
This is a question that comes up frequently with our clients because starting a vendor management office (VMO) can be quite challenging. The ‘right’ answer really depends on how much risk the organization is exposed to with its vendors, and how committed they are to establishing a formal, disciplined approach to managing that vendor risk.
If you’re looking to mature your vendor management program by establishing a formal vendor management office, here’s a four-step plan you can follow to get yours up and running.
Step #1 — Know the Business
A vendor management office won’t be successful unless it is designed to coordinate and collaborate with other business units. So the first place to start is to spend some time talking to your different business units and understanding how their current vendor relationships are managed. Some of the questions you might ask include:
- How do you identify the ‘business owner’ of the vendor relationship?
- What vendor management responsibilities does the business owner typically perform?
- Who performs vendor risk and performance reviews?
- Who currently negotiates contracts?
- Where do you store important documents like contracts, NDAs, attestation agreements, audit reports and insurance certificates?
- Who reviews and submits invoices?
- What are your current challenges with vendor relationships?
The best way to answer these and other important questions is to create an interview questionnaire and use it to meet face-to-face with key stakeholders from each line of business. It’s a great opportunity to not only learn more about the unique aspects of their vendor relationships, but also to build rapport and begin setting expectations.
You’ll need buy in from all key stakeholders to make the vendor management office a success. This is a good first step in that process.
Step #2 — Design the Roles & Responsibilities for the Vendor Management Office
The feedback you collect from the business units is important to helping you establish a baseline for how vendors are currently being managed. However, the level of maturity you want from your vendor management program will ultimately drive the design of your vendor management office.
Your ultimate goal should be to right-size the roles and responsibilities of the VMO to best manage the unique activities and vendor risks your organization needs to manage. As a starting point, here are some of the more important vendor management activities you should consider for your VMO.
- Gathering business and technical requirements
- Identifying and building a pool of potential vendors
- Creating and managing solicitations and requests for proposal (RFPs)
- Executing non-disclosure agreements (NDAs)
- Evaluating and scoring proposals
- Performing site reviews and due diligence on finalists
- Negotiating contractual terms and conditions
- Creating contract documents
- Facilitating the contract approval process
- Onboarding vendors
- Segmenting vendors
- Establishing vendor risk profiles
- Establishing vendor oversight plans
- Managing contract renewals
- Performing or managing vendor reviews related to risk, compliance and performance
- Terminating vendors
- Maintaining vendor documents
- Managing vendor profiles
- Tracking and resolving vendor incidents and problems
- Performing vendor contract audits
- Maintaining vendor management systems
- Maintaining vendor management policy and procedure documentation
- Providing vendor management training
Keep in mind the functions you commit to may require additional staff depending on the goals of your vendor management program, and the activities you want your VMO to undertake. Among the roles you may consider are a contract administrator, a vendor analyst and a vendor auditor. Some of the more typical responsibilities for these positions include:
- Develop vendor profiles
- Assist with the RFP process
- Support the Business Owner in reviewing and negotiating contract terms and pricing
- Coordinating with the Legal Department to ensure vendor contracts are reviewed and proper approvals are obtained on all documents
- Maintain and update, as needed, company standard blanket contracts
- Manage select vendors
- Assist with administering vendor action plans as needed
- Conduct vendor business reviews
- Perform other activities as assigned by the Vendor Manager
- Research, collection, tracking and reporting of vendor service level agreements (SLAs)
- Maintain information in the vendor management system
- Track escalated issues and reporting of root cause analysis
- Manage the archive and cataloging processes for all VMO documents
- Track agreement renewal dates
- Assist the team in the collection and analysis of vendor information
- Perform invoice tracking against purchase orders as directed by the Vendor Manager
- Perform daily activities related to managing regulatory compliance and performance of the company’s vendors
- Partner with the Compliance Department to review changes in regulation that may apply to the company’s vendors
- Maintain an overall vendor scorecard that relates to vendor risk and performance as related to the review analysis
- Conduct vendor contract audits and performance reviews
- Conduct due diligence reviews during the vendor onboarding process
- Conduct vendor risk reviews as directed by company guidelines
- Perform vendor on-site reviews as directed by the Vendor Manager
Being clear on these roles and responsibilities is critical regardless of the size of your vendor management office. Be sure to get executive buy-in on your design, and also socialize this with some of the key stakeholders you met with in step #1.
Step #3 — Select a Vendor Management System
Another important decision you’ll need to make is how to efficiently manage the workflow of the VMO. In most organizations, vendor activities and documents are spread across a variety of systems, spreadsheets and email accounts. This creates challenges for your vendor management program by making it extremely difficult, if not impossible, to efficiently manage tasks and understand what’s truly happening with your vendor relationships.
Vendor management software helps to organize, automate and provide visibility into the process. Any organization with a formal VMO should also maintain a vendor management system. Some of the things you’ll want to look for include:
Workflow management related to:
- Vendor profile development
- Exclusion list screening
- Competitive solicitation requests for proposals and quotes
- Due diligence and document collection
- Contracting and contract management
- New vendor onboarding
- Risk assessments
- Incident tracking
- Software and asset tracking
- Vendor offboarding
Storing documents such as:
- Contracts and contractual amendments
- Insurance certificates
- Vendor certifications
- Audit reports
- Attestation agreement
- Risk and performance review results
Receiving notifications for:
- Upcoming risk, performance and due diligence reviews
- Contract renewals and expirations
- Insurance expirations
- Vendor certification and attestation renewals
Many vendor management systems are now cloud-based and can be purchased in modules that support one or more aspects of workflow management, document storage and oversight.
Step #4 — Roll Out the VMO
Now that you’ve laid all of the groundwork for maturing your vendor management program with a VMO, it’s time to put everything together. If you’ve been building buy-in along the way then this part is all about execution.
Before you go out to the masses, make sure you first have your VMO house in order. This includes:
- Updated vendor management policies and procedures
- Updated forms and templates used to support vendor management activities
- Functioning vendor management system
- Frequently asked questions (FAQs) and clear instructions on how to get help
Depending on your company culture, you may wish to do a roadshow with your business units or even hold a VMO open house. This allows you to set the stage and start engaging with your stakeholders early in the process. It’s also important to provide those same stakeholders with regular updates to share successes, answer common questions and continue building engagement so that all of your hard work results in tremendous success!
Author: Tom Rogers
Job Title: CEO
Organization: Vendor Centric
Tom is the founder and CEO of Vendor Centric, he has been a trusted advisor to nonprofit organizations for 30 years, with a focus on helping them align the right people, processes and systems to mitigate third-party risk and drive more value from third-party contracts and relationships.