Complete guide to outsourcing vendor management

‍Vendor management is the broad ongoing process of strategically overseeing and evaluating how your organization’s cloud or SaaS providers are performing. Effective vendor management encompasses a range of areas — from procurement and contract negotiation, to tracking performance metrics against service level agreements (SLAs), to maintaining strong relationships with the third-party vendors themselves.

Within the cloud ecosystem, many companies offer outsourced services where they assume the burden of certain business processes on behalf of other organizations. Outsourced vendor management is one example, which involves offloading aspects of this essential activity to a partner company.

The benefits of outsourcing vendor management

Outsourcing vendor management is a strategic move for businesses looking to optimize their procurement operations. By partnering with specialist firms, companies can leverage numerous benefits to enhance efficiency and effectiveness.

• Access to expertise
  Outsourcing vendor management provides access to knowledge and skills that might not be available internally. Since vendor management firms focus specifically on this area, they’re equipped with market intelligence and experience that ensures best practices are followed.
• Cost reduction
  Although outsourcing vendor management comes with a fee, this is often outweighed by the significant reduction of expenses associated with maintaining the function in-house. Outsourcing eliminates costs related to recruitment, training and employee benefits, often resulting in greater cost optimization as vendor management outsourcing partners are focused solely on this activity. 
• Efficiency improvements
  Outsourcing allows businesses to focus on their core competencies while vendor management firms handle the complexities of overseeing service providers, leading to better resource allocation and productivity.
• Scalability
  Vendor management services can be scaled up or down more easily based on your organization’s needs, providing flexibility in response to market changes or business growth. 
• Risk mitigation
  Vendor management outsourcing partners are adept at navigating regulatory requirements and implementing security measures, so they can help minimize risks and ensure compliance with industry standards.
• Improved performance monitoring
  Specialized vendor management partners offer rigorous performance tracking and reporting, and always have eyes on vendor performance to ensure they’re meeting or exceeding expectations.
• Enhanced vendor relationships
  Professional vendor managers can put more time into nurturing relationships with service providers, so they may be able to attain more favorable pricing and terms compared to an in-house team. 
• Innovation
  Vendor management partners are likely to invest in the latest tools and technologies, helping drive innovation and giving your business a competitive advantage.

Things to consider when outsourcing vendor management

Despite the benefits offered by outsourcing vendor management, there are potential drawbacks that businesses need to consider beforehand. Here’s a round-up of challenges, along with how Vertice’s white-glove service and vendor management software addresses them.

• Loss of control
  By outsourcing vendor management, there’s an inherent loss of control and oversight of vendor activities. To ensure clients stay informed, Vertice maintains regular reporting and transparent communication.
• Security concerns
  Naturally, there’s a degree of third-party risk involved with vendor management outsourcing, and many businesses may be hesitant to share sensitive information with outside firms. Vertice prioritizes compliance and data security, and can also improve your organization’s security posture management through its monitoring and reporting tools.
• Limited understanding of business needs
  Vendor management partners may not fully grasp a company’s unique requirements. However, Vertice takes the time to understand each client’s specific goals and objectives, and tailors its services accordingly. 
• Communication challenges
  Differences in time zones and communication styles can make it difficult for businesses and their vendor management outsourcing partners to get on the same page. Vertice’s dedicated support and communication protocols ensure a clear and open dialog.
• Dependency on the outsourcing partner
  Relying heavily on a vendor management outsourcing firm can create a dependency, making it difficult to switch providers or return to in-house vendor management if required. Vertice mitigates this risk by fostering collaborative, flexible relationships where clients are prepared for any necessary transitions.

In-house vendor management vs outsourcing vendor management

Not sure whether to manage your cloud and SaaS vendors internally or outsource the function? There are pros and cons to both approaches — ultimately, the decision depends on your company’s specific needs and resources. Here’s a round-up of the advantages and drawbacks of both in-house and outsourced vendor management.

In-house vendor management

Pros:

• Direct communication – Internal vendor management makes it easier to foster close relationships with your service providers, potentially leading to faster issue resolution and improved collaboration.
• In-depth knowledge of needs – Your internal staff have an acute understanding of your organization’s requirements and objectives, and can ensure your approach to vendor management aligns with these aspects of your business.
• Greater control – By managing your vendors internally, you have full control over the process, which may be crucial for strategic partnerships.
• Security – By keeping vendor management within your organization, sensitive data may be better protected.

Cons:

• Higher costs – Maintaining an internal vendor management team can be expensive, especially for complex stacks requiring significant expertise and training.
• Less scalability – If your organization is growing at significant speed, it may be hard to scale your vendor management team accordingly in order to match an expanding vendor network.
• Higher workload – Routine day-to-day tasks associated with vendor management can divert staff and resources away from more strategic business activities.
• Expertise – Building a team with expertise in all aspects of vendor management can be a challenge, especially for SMEs and startups.

Outsourced vendor management

Pros:

• More cost-effective – Outsourcing your vendor management may be cheaper than maintaining an internal team.
• Greater scalability – Outsourced vendor management partners can more easily scale to meet the needs of your business as it grows.
• Expertise – Third-party vendor management gives you access to subject experts with specialized knowledge, who know how to employ best practices to get the most out of your providers.  
• Greater efficiency – By eliminating the administrative overhead of vendor management, your staff and budget can be directed towards driving innovation or growing your business.
• Risk mitigation – Experienced vendor management partners can help identify and mitigate risks by leveraging industry knowledge and enforcing security policies.

Cons:

• Less control – Delegating your vendor management to an outsourcing partner inherently involves relinquishing some of your control over the process.
• More limited knowledge of needs – Vendor management partners have a less intimate understanding of your business’s goals and needs than an in-house team.
• Security concerns – Sharing sensitive information with outsourced vendor management firms may increase the attack surface for cybersecurity threats.
• Communication challenges – A clear and open dialog with your vendor management outsourcing partner is crucial for a successful relationship.

How to effectively outsource vendor management

Vendor management outsourcing can increase efficiency within your organization, lowering costs and reducing the burden on your staff — but only if it’s done right.

Here are some best practices to keep in mind when outsourcing vendor management:

• Define your needs – Before you begin your search for a vendor management outsourcing partner, liaise with stakeholders to establish your business requirements. Clearly set out what you want to achieve from outsourced vendor management so you know what to look for in a potential partner.
• Evaluate vendors – Once you’ve drawn up a shortlist of potentials, carefully research and select a vendor management partner with a proven track record and experience in your industry. Make sure the outsourcing partner meets your security and compliance needs as well.
• Communicate openly – Fostering open communication and collaboration throughout your vendor relationship is vital if you want to get the most from your outsourcing partner. They’ll often be in contact with your cloud and SaaS providers, so make sure they fully understand your organization’s needs and objectives.
• Maintain control – Don’t completely cede control of your vendor management process. Although your partner will be handling day-to-day tasks, you should maintain oversight of the process through regular reporting and performance reviews.
• Monitor performance – Set clear KPIs which can be used to assess your partner throughout the duration of the contract. This way, you can ensure you’re reaping the benefits of outsourced vendor management and negotiating renewals based on historic performance.

Outsource vendor management with Vertice

Another way to manage your IT service providers is through a vendor management system (VMS) such as Vertice. Our SaaS Purchasing Platform offers a range of tools to streamline sourcing of new solutions, track utilization and wasted seats, and centralize your contracts under a unified interface.

When you outsource vendor management to the Vertice platform, you can also realize cost savings by letting us handle your IT procurement and license renewals. Using our market intel about what other companies are paying specific vendors, we can leverage more favorable contracts and SLAs. To find out more, simply get in touch using the form below.