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Page 6 of 8
A Vendor Management Office (VMO) is a management organization put in
place to oversee vendor relationships, to establish equitable contracts, and
to ensure that vendors remain in compliance with SLAs. The VMO can be
established as an ad hoc committee, but in most cases will be a permanent
entity absorbing responsibilities that would previously have been assigned to a
number of different department heads. By centralizing vendor management, a
number of different goals can be achieved:
- Rationalization of contracts for easier management.
- Lower costs by arranging for services across an enterprise in bulk.
- Simplification of access for smaller vendors.
A VMO may be situated in different areas of the organization, depending upon
its responsibility areas. It may be within the Information Technology department,
operate as a part of purchasing, or operate as a separate department within
executive-level management. Because it typically evolves from consolidation
rather than as a separate initiative, the VMO may go by a variety of different
names, including Sourcing Office, Central Sourcing Management, Outsourcing
Management, and Strategic Contracting. The responsibilities can also vary from
a relatively simple ad hoc committee approach to a full-blown centralized
management facility.
The advantages of centralization are to provide standardization, consolidation,
and control. However, it is important to note that these attributes may not always
be beneficial. Too much standardization can reduce flexibility in negotiations e.g.
consolidation may impede regional managers from taking advantage of local
contracting advantages. Too much control can diminish the capabilities and
powers of functional managers.
One important aspect of this form of centralization is that it will provide extensive
experience over time that is likely to enhance negotiation skills and hone
procedures to a fine edge. The VMO handles contracts on a constant basis. As its
role grows, it is likely to become increasingly effective in management and cost
containment.
One of the advantages of using a VMO approach is to develop standard
operating procedures for handing vendor contracts and providing a standard
interface for vendors. This standardization simplifies the management process
and helps to ensure that expectations are met on both sides. Internally, it should
reduce the amount of time spent by functional managers in setting up and
approving contracts, as well as managing them afterwards. It is important to note
here that it is probably undesirable to eliminate functional managers from the
loop entirely—they have valuable expertise that needs to be employed in the
selection process. But their input does need to be formalized. One way to do this
is to begin with a project brief provided by functional managers.
Next: Management Best Practices
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