Going lean: How vendor consolidation creates big gains

The 2nd quarter of 2020 launched many digital transformation projects that didn’t necessarily happen at the behest of chief innovation officers, but because of the wrecking ball of disruption referred to as covid-19. Even if businesses did succeed at rapidly orienting operations and services to digital, the transformation journey is far from over—and that means procurement and vendor management professionals now need certainly to work some IT budgeting magic.

This content was created by Insight. It was not compiled by MIT Technology Review’s editorial staff.

Jamie Werve is director, e-commerce strategy, at Insight.

The reality is, you can’t purchase innovation without first optimizing procurement. Sourcing, procurement, and vendor management (SPVM) professionals face critical objectives this season: optimize operations to reduce costs and take back funds to buy innovation. How do you accomplish both whenever your budget has been wildly thrown off track?

While companies are trying to go lean throughout challenging economic times, a bloated vendor portfolio conceals a lot of opportunities to get more with less.

Why is vendor management so difficult?

Business IT ecosystems today are highly sophisticated and ever-increasing in complexity to be able to realize the return on investment promised by digital transformation. Events of 2020 have further emphasized the critical dependence on modern infrastructure and digital experiences. However, a robust IT ecosystem can also be costly to maintain, resource-intensive to manage, and inefficient to use.

On average, organizations want to manage a lot more than 10 vendor relationships for a single initiative—and may have upward of countless vendor relationships to fulfill the vast selection of needs over the organization. Adding to the complexity may be the reality that IT systems and technology-related decisions are in fact happening beyond IT.

SPVM professionals are all too familiar with the painful and time-intensive coordination required to purchase across numerous vendors and their disparate fulfillment operations. Stack in addition to that disparate computer software licensing agreements and rogue employee IT purchasing. This creates an obscured view over the organization’s supply chain and IT lifecycles, leaving little opportunity to surface key insights for improvements. Vendor sprawl means businesses face these top challenges:

  • Increased costs
  • Shadow IT
  • Compromised security
  • Inefficient procurement processes

But costs and processes aside, perhaps the most damaging results of vendor sprawl is the threat to successful business transformation. Disparate systems and partners can lead to siloed communications, integration challenges, security gaps, and a growing landscape of one-off solutions. Visibility over the whole IT environment becomes obscured.

What is strategic vendor management?

Vendor consolidation isn’t as simple as reducing the number of IT vendors where you purchase services and products from—it’s a strategic partnership.

Although it’s unrealistic to consolidate down to an individual vendor, establishing stronger relationships with a brief list of key partners can cause efficiency gains, optimized costs, and putting up with business outcomes. That’s because working with fewer vendors helps you to optimize the whole supply chain—driving efficiency across procurement, delivery, deployment, asset management, and services. The IT lifecycle becomes much easier to control and enables automated procurement tasks and fewer service-level agreements (SLAs).

A common misconception about vendor consolidation is that dealing with fewer vendors will dissolve a company’s ability to negotiate SLAs and pricing against a vendor’s competitors. But, in fact, the contrary is true. Rationalizing spending across a few vendors allows organizations to make the most of scale or volume pricing, as well as potential preferential pricing and priority customer service. Consider the following great things about vendor consolidation:

  • Ability to automate procurement and increase business agility
  • Access to data analytics to optimize purchasing
  • Reduced costs associated with IT support for vendor management
  • Increased discounts as a result of preferential, scale or volume pricing
  • Simplified view that enables effective IT governance and compliance

When it comes to vendors, less can actually give you more

An optimal vendor portfolio will provide end-to-end IT services and products. But a lot more than that, the best partner should feel like an extension of one’s IT team. This is very important today with increasing demand for hybrid IT, or a mixture of internal and external IT talent. This is particularly great for offloading low-level IT support or for more complex work in which specialized IT talent is needed to fill knowledge gaps. As IT further intensifies its role within businesses, technology vendors are also evolving to offer more comprehensive support.

A compelling reason behind organizations to trim the vendor list is due to a rising strain of super solution integrators (SSIs). An SSI is a single team, or organization, with expertise and capabilities that span the whole IT ecosystem and can architect, manage, and execute IT initiatives from end to get rid of. That means they’ve got you covered from procurement to asset management and beyond—empowering SPVM professionals to generally meet both cost optimization and innovation objectives.

How to begin a vendor consolidation

There are clear and overwhelming advantageous assets to vendor consolidation—but there are also existing misgivings and concerns about consolidating. The white paper “Driving Business Value Through Vendor Consolidation” digs deeper to the current pain points of SPVM professionals and uncovers key great things about vendor consolidation supported by industry research. It will help you develop a business case and help determine which partners will ultimately be practical today—and later on.