Project Management Institute

Supply & demand

Improvements in vendor management software reduce risk and provide greater insight on project status.

BY MICHELLE BOWLES JACKSON

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Managing multiple vendors on a project—often spread across different countries—carries a host of risks. What if a vendor doesn't deliver on time or within budget? What if vendor-deployed resources don't live up to expectations?

Project professionals have long searched for ways to better handle vendor relationships, and that need has only increased during the past few decades.

“Thirty years ago, perhaps more than 90 percent of any good or service was produced by a traditional workforce,” according to Edward Jackson, CEO of Provade, a software-as-a-service provider in San Mateo, California, USA. “Today, 30 to 50 percent of the workforce is made up of third-party labor.”

Technology has enabled this shift. During the past few years, vendor management systems (VMS) and other IT solutions have evolved to allow project managers to efficiently submit requests for proposals (RFPs), review responses, track vendor progress based on deliverables, and quickly on- and offboard vendors.

The onboarding process involves creating the data for a vendor record and educating the vendor about processes and account management. Offboarding, on the other hand, occurs when a vendor's relationship with an organization ends, and consists of exit interviews and paperwork.

“A traditional employee is only on- and offboarded once,” Mr. Jackson says. “A vendor may have multiple resources coming and going—a big overhead to do without a VMS system.”

Vendor management has advanced significantly since the days of leveraging Excel workbooks, Word documents or Microsoft Project databases. The software now offers more functionalities to communicate and share data with vendors as well as support clients, says Sofoklis Theodotos, PMP, procurement and vendor management manager at the pharmaceutical titan Pfizer in Athens, Greece.

When Laura Koenig, PMP, first joined IT giant Cisco more than 10 years ago, she worked with vendors either through spreadsheets or by installing the company's inventory management system at vendors’ sites.

The former process was laden with risk.

“When you are emailing a spreadsheet back and forth, there is the risk of using out-of-date data. You also risk sending data to someone who shouldn't have access to it,” says Ms. Koenig, a program manager in Cisco's global services supply chain group in The Hague, Netherlands. “There is also a time risk. If you send an email to a person who is in a meeting for a few hours or is on vacation, you can lose valuable time.”

Using Cisco's inventory system also proved troublesome because vendors had to input data into their own systems as well, leading to double entries and wasted time.

Such arrangements are even less desirable when vendors are remote and costly travel is required for setup, Mr. Jackson points out. “Plus, not all companies are comfortable with opening their firewall to vendors right into their core financial system,” he adds.

VMS solutions began alleviating some of these issues.

“With first-generation VMS software, project managers were able to track timesheets, calculate manpower charges and put in place analytic project costs,” Mr. Theodotos says.

However, early options still lacked full transparency and automation around tracking the suppliers’ progress based on deliverables or percentage of a project completed.

The latest incarnations of VMS software have come a long way in helping project professionals work more efficiently and effectively with outside suppliers. Solutions used to be solely staff augmentation-based, where an organization decided what a vendor resource would do on a daily basis and then paid for the time logged.

Current-generation software can be deliverable-based as well. “Today, VMS tools can memorialize the specific deliverables and financial outcomes for those deliverables,” Mr. Jackson says.

Essentially, vendor resources track their progress by entering in deliverables completed and requesting payment. It's a win-win, he says: A vendor is encouraged to log its process (if it doesn't, it won't get paid), and project managers can easily validate that work was completed properly.

“VMS provides visibility early on in terms of project status,” Mr. Jackson says.

And because a large number of VMS tools are web-based cloud solutions, project managers are afforded visibility anywhere, anytime.

Current-generation VMS tools assist with much more than just project status tracking. VMS software can optimize the vendor-selection process by maintaining a database of preferred vendors that are properly vetted and have accepted the best terms and conditions as part of a master service agreement, Mr. Jackson says.

“These preferred vendors, for example, might have agreed to carry a minimum business insurance level of US$5 million, replacing a resource within 10 days if the organization doesn't like his or her work performance, or not charging the organization a senior person rate without prior approval,” he explains.

At the program and portfolio level, VMS solutions provide even more visibility.

“VMS tools give program and portfolio managers the ability to see who their key suppliers are based on performance metrics,” Mr. Jackson says. “It also enables them to take action: ‘My number-three supplier is my number-one violator of being on time and on budget, so I need to focus on that. My top five suppliers are more cost-effective than my internal workforce, so I should use them more.’"

VMS software can essentially guide project professionals to the appropriate vendors to minimize delivery and execution risk, as well as achieve better financial ROI.

SIMPLICITY, FROM THE BEGINNING

Vendor management systems (VMS) aren't the only solutions that evolved to meet the needs of project professionals managing vendors.

cisco's services supply chain, which outsources about 80 percent of its business, connects with most vendors through B2B (business-to-business) links between the company's inventory management system and vendor systems. vendors input status information, orders and shipments into their own systems, and those automatically feed into cisco's.

The solution not only creates time efficiencies by eliminating double entries, but also reduces costs associated with implementing and maintaining cisco's system at remote sites.

“The links enable us to collaborate very closely with vendors,” says Laura Koenig, PMP, Cisco, The Hague, Netherlands. “It allows us visibility and realtime tracking, and makes us more adroit and able to work with more vendors than before.”

The company's latest vendor management endeavor is an automated system for capturing request for proposal (RFP) feedback from vendors.

“In the past, we would put together the RFP, email it to vendors and ask them to email it back,” Ms. Koenig says. “It was all very cumbersome and left a lot of room for problems.”

The new electronic system proactively maintains a vendor list and directly feeds in RFPs and feedback on them. Appropriate vendors receive an automatic notification when an RFP is issued, as well as friendly reminders when feedback is due.

The system guides vendors to submit very specific information—rather than having vendors create a Word document with the information they think is valuable.

“That allows us to collate the information much more quickly and compare apples to apples,” Ms. Koenig says.

Software solutions also provide automation regarding the downstream aspects of a project, particularly with on- and offboarding resources.

“All the logistics to onboard a resource (badging, assets assigned to a resource like a laptop or cell phone) and appropriately offboard a resource are automated to improve cycle time,” Mr. Jackson says. “Vendor resources start day one, ready to function.”

VMS and other advanced tools have gained significant ground in helping project professionals better manage vendors. Still, Mr. The odotos points out, no one tool currently answers every need, from developing an RFP and choosing a vendor to reviewing the work of the vendor and closing the contract.

“There are software systems offering many but not all functionalities,” he says.

But that shouldn't be the case for long. “I strongly believe that in the next two to four years, more sophisticated and integrated VMS software will be available to support more and more functionalities for project managers,” Mr. Theodotos says.

Even with room for improvement, current-generation VMS tools can help project professionals reduce risks, achieve greater insight on project status throughout the life cycle and enhance project execution.

“Putting a VMS in can be almost transformative,” Mr. Jackson says. “The ROI should be five to 10 times the cost of the VMS.” PM

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK NOVEMBER 2011 WWW.PMI.ORG

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