Vendor Management Office VMO

KERBSProprietary and Confidential© 2009 Ed Kerbs

Best Practices Procurement And Sourcing:

Ed KerbsMarch 2015

How Vendor Management Offices (VMO) helps by adding governance & structure around global spend, savings and reporting.

Bring the right management skills process & tools around contracts, vendor performance, finance and administration to maximize profit.


Vendor Management Office:“Introduction”

• Vendor Management Office (VMO) - Why bother? • Purchasing & Sourcing departments may be unjustified source of discontent.

• They have “good / best ” people, connected, hold high ground • Can be perceived as competent but inflexible and time consuming bureaucrats• May be managed as a cost center (no “spend to save” mentality)• Can be the results of years of decentralization - best effort delivers suboptimal results• Be effected by weak management (internal, external, upper & cross divisional) • Not always viewed as strategic in times of change or duress - no bandwidth, fire fighting

• Purchasing & Sourcing departments may not be staffed & chartered to focus on • Global portfolio reporting & management of

• Strategic vendors, Spend, Savings• Policy, Tools, Process, Archives

• Interface to upper management for• Contracts, Vendors, Performance, Finance

VMO – Why?

Successful VMOs proactively manages global spend as a visible portfolio. VMO governance is a cornerstone of fact based management around spend & savings.


Vendor Management Office:“Introduction”

• Vendor Management Office VMO – Why bother?• VMO can help when:

• Too many fire drills, “band aids”, out of control perception• Poverty of specific experience or category management• Beginning of a new strategy like outsourcing, vendor consolidation, volume/enterprise• Beginning of a new strategy like business process re-engineering (challenging)• Desired evolution to metrics based management across the spend• Need to put laser focus around global cost savings • Lack of existing governance bandwidth to implement policy and reporting• Lack of accurate measurement systems or financial data confounding reporting• Lack of proactive governance to rationalize productively and profitably• Political issues between users, finance, purchasing• Lack of mentor to “train the trainer”• Over reliance on management consulting in multiple procurement contexts

VMO – Why?

VMO provides guidance, evaluates suppliers, helps in negotiations, consolidates for leverage VMO supports objectives without bias or emotion, provides legal and contractual best practices


Vendor Management Office:“Goals and objectives”

• Vendor Management Office (VMO) - Why bother? • VMO can complement and create synergy with Purchasing & Sourcing

• Goal: Global alignment of spend to an increasing shareholder / owner wealth

• Strategic Objectives: • Deliver global financial synergies around contracts (save money)• Deliver global operational innovation synergies around contracts (increase quality and agility) • Optimize specific contract deliverables & SLAs to meet requirements at lowest TCO• Bring common governance, visibility, tools, process and order around the global spend portfolio• Deliver i) global spend reporting and ii) rationalized strategic vendor reporting • Give management the opportunity to rationalize & prioritize for profit• Proactively maximize satisfaction around the global spend

VMO - Goal

Successful VMOs proactively manages global spend as a visible portfolio. VMO governance is a cornerstone of fact based management around the spend.


Vendor Management Office:“Operational Deliverables”

• Vendor Management Office VMO - What might it do? • Be the central point of governance around the global spend

• Deliver on global cross functional strategic leadership to optimize spend

• Manage Executive Level interface Vendor / Buyer / Contracts / Performance• Deliver Strategic Vendor Scorecards (monthly?)• Deliver Strategic Spend Dashboards (monthly / quarterly?)• Deliver Strategic Vendor Templates (Bi-annual / quarterly?)• Create, implement and communicate policy • Facilitate competent constant service level management (SLAs) • Mine for cost savings, deliver cost savings and operate as a profit center (CSO)• Facilitate escalation, visibility and resolution for suboptimal business arrangements• Facilitate escalation, visibility for optimal business arrangements• Facilitate rational interface between upper management, vendor, contracts & data

VMO – Deliverables VMO can prioritize strategic vendors & deliver scorecards, dashboards, templates. VMO can be global point of escalation. VMO can be funded as a profit center (CSO) to deliver >100% ROI in annualized hard $ savings


Vendor Management Office:“Operational Scope”

• Vendor Management Office VMO - What might it do? • Facilitate global Policy:

• Policy generation, implementation & communication• Policy compliance management

• Facilitate global Artifacts• Contract file and sourcing records • Templates, scorecards, dashboards• Savings Pipeline• Governance meeting minutes, Retention management

• Facilitate Global Tools• Portfolio Management, Contract Management• Finance & Business Intelligence, E-Procurement

• Facilitate global VMO Process• Develop, document and implement clear consistent processes

• Cross functional & cross geographical reporting scope and project scope• Manage strategic relationships with vendors, management, users• Managed Service Providers

VMO - Scope

VMO can deliver global centralized policy, artifacts, tools and processes.


Vendor Management Office:“Operational Deliverable - Templates”

• Vendor Management Office VMO – Templates• Best Practices in Creating Templates

• Page 1 – Company Information • Stock price chart • Use D&B for private company, Yahoo Finance for public (mind copyrights)• Vendor name, location, market value, revenue, of employees, • General paragraph

• Page 2 - Total spend • Chart 1 going back as far as practical • Chart 2 breakout current year spend by logical category • Be clear with sources and assumptions, mark FY or CY

• Page 3 - Breakdown vendors offerings by reported structure, • Highlight areas of Firm’s spend

VMO - Templates

Data and information held in template gives upper management leverage




• Page 4 - Strengths and weaknesses, • Internal and external sources • There are always some dig hard

• Page 5 - Executive team • Vendor and Firm alignment including name and function • Verify to highest level

• Page 6 - Operational team • Vendor and Firm alignment including name and function

• Page 7 - Vendor Pipeline • Name, description , Vendor owner, Firm owner, value, status

• Page 8 - Vendor Importance • Strategic, Tactical, Commodity, Boutique (can I swap – how deep is relationship)

• Page 9 - Calendar of executive level events, • Participants and major takeaways

VMO - Templates

Data and information held in template gives upper management leverage




• Every number, every fact has one or more sources. • All must be documented and dated

• Textbook high quality look and feel• Creates credibility

• Highest possible level of accuracy and precision• Creates credibility

• Use the highest relevant executive as your sponsor • Support is needed to get meaningful results

• Get buy in from all relevant senior management • Avoid blindsiding and being pressured to publish suboptimal templates

VMO – Best Practice Templates Maintaining credibility in this highly visible document is essential Accurate and precise deliverables are a must Strong “optics” are also very important




• Data sources will be inconsistent and require reconciliation • Competent financial analysis is needed – “political”

• Any and all assumptions must be clearly displayed • Finesse needed to make them terse across the portfolio

• Professional result takes far longer than you think • Especially the first one – complexity in overlap, merger, mis-coded spend

• Use 10K and web as beginning point for public companies, • D&B and web for others – Gartner, Forrester etc..

• Make appointments immediately with internal and external contributors• These are highly proprietary

• Mark them as such • Hand deliver paper only to known list (for executive consumption)• Lock desk and do not e-mail• Deliver disk / FOB only if necessary

VMO - Best Practice – Templates

Templates are proprietary, confidential, take significant time & effort to create Provides management with the opportunity to rationalize and prioritize the spend



• Vendor Management Office VMO – Leaders needed • VMO Leader requires competency in management of

• Vendors, Performance, Finance• Contracts, Project Portfolios• Sourcing Strategy, Tools, Process

• VMO Leader must have experience dealing with: • Legal, HR, Finance, IT, operations, sales/marketing• Sourcing, procurement, purchasing, supply chain • Internal & external communications, complex analysis • Upper Management

• VMO Leader must have executive level ease and facility with: • End user technology, Decision making, Negotiations • Communications, category competency, mentoring & leading people• Time Management, planning and analyzing

VMO - Leadership

VMO leader must be an executive experienced in driving change


Vendor Management Office:“Operational Deliverable - Dashboard”

• Vendor Management Office VMO

• Total Spend Dashboard• Increase / Decrease ~ +/-• All suppliers in descending order by spend• Spend by operating unit

Dashboard Data from vendor, G/L, A/P, Sourcing and others will vary Dollars in the green are compliant and under optimal control Dollars remaining white represent leakage and opportunity to improve leverage

PO’s Contracts

Total Spend



• Vendor Management Office VMO • Purchase Order Dashboard

• What is the total spend month over month and year over year• Increase / Decrease ~ +/-• Top 10 - suppliers by spend, categories by spend, purchases• Spend by operating unit• PO / Invoice matching percentage • PO / Invoice matching trend

Dashboard “PO leakage” is when i) A/P invoice ≠ PO or ii) things that should’ve been on a PO Different challenges cause different shades of green and white Opportunity to optimize existing or new suppliers or purchases

PO’s Contracts

Total Spend

POLeakage




• Contract spend• What is the total spend month over month and year over year• Increase / Decrease ~ +/-• Top 10 - suppliers by spend, categories by spend, purchases • Spend by operating unit

Dashboard “Contract Leakage” is when A/P invoice ≠ Contract or should’ve been on a contract Different challenges cause different shades of green and white Opportunity to optimize existing or new suppliers or purchases

PO’s Contracts

Total Spend

ContractLeakage




• Percent contracted spent in non contract venue (Maverick/Rogue) • Percent PO/Contract spent in non PO/Contract venue (Maverick/Rogue)

• What is the total spend month over month and year over year• Increase / Decrease ~ +/-• Top 10 - suppliers by spend, categories by spend, purchases • Spend by operating unit

Dashboard Always challenge colleagues in a rational and consultative way Look to significantly reduce and not totally eliminate rogue and maverick spend Be careful not to get in the way of mission critical business – offer a hand, not a foot

Total Spend

Maverick&

RogueSpend

PO’s Contracts

Documents

Vendor Management Office VMO