3 CIO Strategies to Improve Supplier Management
Editor’s Note: The following is a guest post by Gordon Wong, Partner, Consulting and Transformation at West Monroe and Nikhil Pujari, Director, Consulting and Transformation at West Monroe.
Technology investments are key business drivers and vendor management teams have a critical role to play in supporting the CIO and their digital transformation vision.
Global IT spending is expected to reach $4.5 trillion in 2022, an increase of almost 8% from 2021. Naturally, almost half of CIO in a Harvey Nash/KPMG survey, said the pandemic had accelerated digital transformation efforts, new ways of working, and increased IT budgets accordingly.
The growing role of digital technologies calls for a change in supplier management. Today, purchasing and supplier management should be seen as an integral part of an organization’s overall business strategy. However, that is easier said than done.
Companies work with a multitude of suppliers, all with different pay rates, contract terms and touchpoints. IT vendor management teams are managing more IT vendors than ever before. However, most of the work is devoted to day-to-day tactical management.
Here are 3 key findings on how new technologies can support the vendor management function and help CIOs achieve their digital goals with greater speed to market.
1. Increase bandwidth through automation
Leveraging process automation technologies can play a huge role in freeing up vendor bandwidth and management capacity.
Today, the vendor management function is mired in day-to-day tactical efforts that limit their ability to focus on more forward-looking, strategic operations. They are tied up with laborious manual tasks involving supplier onboarding, ongoing performance reporting, portfolio analysis and invoicing. According to SpendMatters, between 50% and 70% of the supplier relationship management efforts of large global companies are spent on internal coordination and management activities.
It’s no wonder, then, according to APQC and Supply Chain Management Review, that 38% of organizations said lack of time was a top challenge in improving supplier management functions. Without timely and accurate visibility into supplier performance, technologists cannot know which performance criteria to focus on and are therefore too scattered.
Bots can help with data management and integration by moving supplier data from contract and legal forms to a central repository and generating reports. Bots can also be used to pull data from each supplier dashboard or report to create an overall health status of supplier portfolios.
Converting this valuable data into a real-time dashboard will provide much-needed transparency into overall vendor performance and allow IT managers to compare vendor results for more informed decision-making.
Implementing automation and delegating tasks will free up capacity for higher impact services while delivering better service and enhancing vendor accountability, realizing efficiencies through streamlined workflows and improving process controls and metrics for ongoing decision making.
2. Scale current capabilities with vendor software and innovation clauses
Instead of the vendor relationship manager being burdened with service reports, CIOs should consider ways to allow vendors to drive this process.
Suppliers who develop and present reports to business stakeholders can drive supplier buy-in, giving the supplier management team more time to generate specific information and analysis (such as performance , problem resolution and customer satisfaction dashboards).
Vendor management teams today choose vendors based on price and cost reduction. However, this tunnel vision overshadows a longer-term value orientation.
Instead of seeing price and cost as primary goals, how can vendor relationship managers reorient themselves to view service providers as partners who can add value to the company’s broader strategic business goals? organization?
Adopt IT vendors as innovation partners. Deloitte data reveals that while 79% of supplier contracts include an innovation clause, only 39% of organizations actively pursue innovation opportunities with their suppliers.
Encouraging vendors to recommend other automation opportunities based on gain-sharing principles can unlock significant value for both parties. This gap represents a huge opportunity to actively engage with suppliers on strategic projects that will drive future value.
3. Develop new capabilities to drive value creation
Once bandwidth is freed up through automation and delegation, and vendor relationships are strengthened into more strategic partnerships, vendor management teams can focus on developing the new capabilities they need. need to be successful.
Teams should develop better protocols to assess vendor ROI calculated in the original business case/benefits by leveraging effort/cost metrics – e.g. staffing report to validate pricing, pool resource and availability plan to validate skill set, experience, or location of resources and track optimization benefits.
Contract compliance and more proactive risk management is another area where building new capabilities will add value. Consider how contractual obligations such as cybersecurity requirements or innovation clauses can be monitored more carefully and enforced more effectively.
Suppliers introduce new complexity and potential risk into this equation — and supplier management teams can play an important role in understanding potential risks and addressing them before an actual threat is introduced.
The future of supplier management has immense strategic value. To achieve this, CIOs need to start thinking about how leveraging new technologies can help free up bandwidth, improve vendor relationships, and proactively manage vendors and contracts to gain better business results and improve the customer experience.