Vendor Management

Many organizations save a tremendous amount of money by collaborating with vendors and constructing win-win solutions in times of economic pressure. The following are specific vendor management tactics that organizations have used to reduce costs:

Top Tip : Consolidate suppliers

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"We realized major cost reductions by consolidating our IT suppliers. We went from hundreds of companies to a handful of preferred vendors and renegotiated key contracts. We acheived anywhere from 25 to 50% reductions for some service suppliers by initiating an RFP process."

—Ursuline Foley
XL Global Services

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• Review your procurement process. Ensure someone in the organization is reviewing and approving all software and hardware purchases. Enforce a list of standards. Limiting variety decreases the costs of support and maintenance. Negotiate purchase prices with vendors and consolidate purchases. Centralize policy related to purchasing process, and best practices. Have a documented list of approved or certified suppliers.
• Hire or assign a procurement person that is familiar with IT purchases, or train someone to know IT and how to negotiate with technology vendors.
• Centralize license purchasing to leverage costs and ensure you optimize purchasing decisions for the organization. Software licensing is complex and there are many opportunities for cost savings in how you structure purchase and support agreements. Some companies have realized savings of up to 30 percent by consolidating purchase agreements. Having one program helps achieve larger discounts and increase negotiating leverage. By pooling procurement across business units, departments, divisions, and locations, companies benefit from economies of scale. Consider a purchasing consortium to leverage agreements across related companies or government entities.
  Top Tip: Reduce vendors

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  "We looked at our partnership relationships. We had 67 vendors in IT and reduced it significantly. For example, in voice/data we had nine vendors, now we have two. It is a partnership and a win-win relationship. We don't try to carve every last nickel out of it."
  —Paul Kay
  Long Term Care Group

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  Top Tip: Standardize purchasing

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  "The first place to look for cost reduction is to standardize PCs, phones, and anything you are purchasing. Consolidate suppliers for commodity items and look at purchasing as a partner. Make sure you have good purchasing systems. Even reverse auctions for commodities provide savings."

  —Gail Farnsley
  Purdue University
  (former Cummins CIO)

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• Review payment terms. Many vendors will make adjustments on terms, which may provide immediate cash flow benefits.
• For major purchases, develop a request for proposal and obtain at least three bids. Costs should be a key factor to review, along with vendor support, technology viability, references, etc.
• Monitor and track supplier performance and quality delivery statistics, including vendor support. Make changes as necessary. Establish monthly meetings with large key vendors to review operational performance compliance with established service levels. Claim any credits for noncompliance according to contract terms