Starting A Vendor Management Office

4 Steps to Getting Started with a VMO

Starting a Vendor Management Office (VMO) within a company can be quite challenging. The key is to determine the breadth and depth of services that the VMO will provide the company. With any successful implementation you need a project plan that defines the vision and mission of the VMO.

Step #1 — Know the Business

Before designing the roles and responsibilities of the VMO, you must first know the business and how current vendor relationships are managed.

Questions to ask:

  • Why did the company decide to implement a VMO?
  • What are the current challenges with vendor relationships?
  • How does each line of business (LOB) handle vendors?
  • Who currently negotiates contracts?
  • Where are the contracts, reviews, SSAE 16's and Insurance Certificates stored?
  • Who performs vendor risk and performance reviews?
  • Who reviews and submits invoices?
  • Who handles vendor end-of-year tax processing (1099-M)?
  • Who sets up vendors in the company's database or servicing systems?
  • Who are the business owners for the vendors?

To answer the above questions, I would suggest meeting with each functional area to discuss the questions above. This would also be the perfect time to set expectations on gathering all vendor documents, understand the services provided by the vendors, and be made aware of any current vendor incidents and active projects in the pipeline.

Step #2 — Design & Propose the VMO's Roles & Responsibilities

The VMO team provides a support role and assists each department with vendor selection, negotiations, contract terms, monitoring vendor performance, identifying risk and handling on-site reviews. Once you have your list of issues, vendors, documents and corporate structure, it's time to create a VMO implementation plan.

Design the Plan

Each company will vary on what roles they want the VMO to be responsible for. The company may not have performed a deep dive into all aspects of what a VMO can provide. I would suggest gathering your data from Step 1 and putting a deck together to present to the executive team.

The deck should contain:

  • Timelines for each implementation phase
  • Projected staff size
  • How you will manage the data

This is the perfect way to validate the business needs and to determine if your VMO vision meshes with the executive team's expectations.

VMO Functions

After you analyze the company's current vendor management approach, you need to evaluate and prioritize what functions you can provide that will eliminate risks for the company and create efficiencies for the lines of business.

I call these the 22 keepsakes of a VMO:

  1. Execution of all NDA's
  2. Manage RFP's
  3. Perform due diligence
  4. Negotiate costs
  5. Create contracts
  6. Contract negotiations
  7. Contract approval process
  8. Gather business requirements
  9. Negotiate contract terms
  10. Manage contract renewals
  11. Termination of vendors
  12. Maintain vendor documents
  13. Risk reviews
  14. Onsite reviews
  15. Vendor performance reviews
  16. Vendor incident resolution
  17. End-of-year processing (1099M)
  18. Invoice audits
  19. Vendor utilization
  20. Vendor setup in systems
  21. Manage vendor scorecards
  22. Purchasing/purchase orders

Keep in mind the functions you commit to may require additional staff, depending on the company's volume of vendors.

Job Descriptions

Depending on the initial assessment of duties, you can start creating VMO roles and the set of tasks that each person will perform.

Among the roles you may consider are a contract administrator, a vendor analyst and a vendor auditor. Their typical responsibilities include:

Contract administrator

  • Assist with the RFP process
  • Review and negotiate contract terms and pricing
  • Obtain proper approvals and signatures on all contracts
  • Maintain and update as needed company standard blanket contracts
  • Manage select vendors
  • Assist with administering vendor action plans as needed
  • Conduct vendor business reviews
  • Perform other activities as assigned by the Vendor Manager

Vendor analyst

  • Research, collection, tracking and reporting of vendor SLA's
  • Maintain information in the vendor management system
  • Track escalated issues and reporting of root cause analysis
  • Manage the archive and cataloging processes for all VMO documents
  • Tracking of agreement renewal dates
  • Assist the team in the collection and analysis of vendor information as input to the annual profit plan cycle
  • Perform invoice tracking against purchase orders as directed by the Vendor Manager

Vendor auditor

  • Perform daily activities related to managing regulatory compliance and performance of the company's vendors
  • Partner with the Compliance Department to review changes in regulation that may apply to the company’s vendors
  • Maintain an overall vendor scorecard that relates to vendor risk and performance as related to the review analysis
  • Conduct vendor performance reviews
  • Conduct due diligence reviews during the vendor on-board process
  • Conduct vendor risk reviews as directed by company guidelines
  • Perform vendor on-site reviews as directed by the Vendor Manager

Step #3 — Select Your VMO Database

Another factor to consider is how to manage your documents, data and timelines. Building a spreadsheet can be overwhelming document for more than 100 vendors. Some things to keep in mind when planning what your database should have are:

You'll also need to determine how you'll manage all of the information and action items you'll be accumulating. Using a spreadsheet can work as a bare minimum solution, but it proves to be an inadequate solution once you have more than 100 vendor and/or need features like document storage and email reminders.

You'll want your VMO database to handle:

Document Storage

  • Vendor performance reviews
  • Risk reviews
  • Fully executed contacts
  • Vendor certifications (SSAE 16)
  • Insurance certificates
  • On-site reviews
  • Vendor incidents
  • Contract redlines
  • NDA's
  • Email communications
  • RFP results
  • Notes
  • Misc. documents

Tracking and Notifications

  • Contract expirations
  • Vendor performance reviews
  • On-site reviews
  • Insurance expirations
  • Risk reviews
  • Vendor certifications (SSAE 16)

Quick Reference Information

  • Vendor contact info
  • Contract clauses
  • Service level agreements (SLA)
  • Cost of services
  • Termination dates

Step #4 — Implement the Plan

Now that you have the plan approved it's time to put everything together. Being in a support role it's imperative whatever you implement has to be simplistic for the business as well as efficient for the VMO. Whatever database you chose, ensure that the business has access to it so you can concentrate on your core functions to support the business.

In implementing any plan you should have policies and procedures for the company to follow and an internal VMO policy for your staff.

VMO Company Policy Topics

  • Vendor onboard process
  • Contract signing authority
  • Ongoing relationship with vendors
    • Contract renewals
    • Performance reviews
    • Risk reviews
    • Price changes
    • Change in terms
    • Vendor scorecards
    • Vendor issues
    • Gift policy
  • How and when to terminate a vendor

VMO Internal Policy Topics

  • When to use an NDA
  • Steps on implementing a new vendor
  • How to create and score an RFP
  • How to upload new vendors into your Customer Information System (CIS), if applicable
  • Creating and managing a risk review
  • Creating and managing a performance review
  • Processes on managing the vendor management software or database
  • How to terminate a vendor
  • Contract expiration notification process
  • How to manage and resolve vendor incidents

Implement your vendor management software or database as soon as possible. The last thing you want to have happen is for high volume or risk vendors contract to expire during this transition phase.

Once you have your policies and procedures published, a repository and tracking system and your staff hired, it’s time to officially kick off the VMO and introduce the policies and procedures and show present the value you will add to support the lines of business by managing vendor relationships and processes.

Depending on the company culture, you may wish to do a roadshow by starting with the department heads to get their buy in so they can trickle it down to their team, conducting continuing education, or email. I would suggest getting with your training department and see how they have rolled out new departments in the past.

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