Optimize Your Vendor Spending

Step 2: Develop a plan for each subcategory

Your internal demand profile should include an overview of historical spending with each vendor and of expected future demand. It should be complemented by market analysis of both incumbent and potential vendors. This will enable you to develop a sourcing plan, and likely savings targets, along with the series of exercises required to rationalize your vendors. The plan should cover the collection of detailed requirements, the building of a formal RFP, the soliciting of vendor responses, the deselection of vendors and the transition between vendors.

Step 3: Socialize the plan and gain buy-in

To be successful, the subcategory plan must have widespread support from the principal vendor relationship owners, stakeholders and executives. Without buy-in from the relationship owners in particular, making changes to the supply base is likely to be futile. You need to demonstrate the likelihood of measurable returns that equate to the value they can see. Your goal is to have the business case speak for itself, while identifying the risks and how you will lessen them.

Step 4: Execute the plan and identify preferred vendors

A subcategory steering committee made up of key stakeholders and sponsors can help keep the plan on track as you review vendors' responses and bids. Before making any final awards, mitigate the possibility of business disruption by preparing for transition. Consider extending existing supplier agreements before undertaking a transition, as this can reduce business disruption and make for a smoother transition.

Step 5: Implement governance to maintain a rationalized portfolio

Finally, develop a list of preferred suppliers for each subcategory, and establish a governance process for executing new contracts. To ensure that preferred vendors remain competitive in terms of both cost and technology, assign owners to each subcategory and have them review their strategies annually. These reviews should include monitoring of changes in the market in relation to suppliers, prices and technology bases.

"No one wants cost optimization or vendor rationalization to become a roadblock obstructing innovative initiatives that justify the use of new suppliers. But similarly, you don't want to let innovation become an excuse for adding too many suppliers to your portfolio," says Corsi. "To strike the right balance, establish an innovation committee within the project management office. It can approve and manage the process for adding suppliers that help drive innovation."