Creating a sustainable vendor management function

Organization-wide transformation initiatives and outsourced  operations led to a multi-vendor ecosystem with large number of contracts, spread across multiple geographies. Due to varied contracting and commercial models, the company faced challenges in managing these complex contracts and associated third parties. EY conducted a diagnostic review of the existing vendor management practices followed by the Consumer product (CPR) Company and observed following challenges: 

1. Limited visibility in contracts and associated terms and conditions
2. Instances of value leakages (financial and non-financial) in contracts
3. Weak controls and inconsistent governance practices
4. Lack of visibility when it comes to fulfilment of contractual commitments (including performance obligations); and
5. Dissatisfied vendors and internal stakeholders  

Ineffective contract and vendor management may result in value leakage up to 5-8% of the contract value during its lifecycle

The company recognized the need for change and realized the opportunity to establish an integrated vendor management organization to drive stronger vendor relationships, enhance visibility, realise value, and enable effective risk and compliance management.

The vendor management program was not just restricted to achieving short-term and direct financial benefits but was also focused on driving long-term value in collaboration with third parties. As a transformation partner, EY assisted the CPR Company in defining and implementing an organization-wide vendor management program. Key components of the referenced program are detailed below:

• Strategy and Vision: Integrated vendor management organization to drive stronger vendor relationships, enhance visibility, realize value, and enable effective risk and compliance management. Program covered addressable spend categories such as Professional Services, Technology, Business Process Outsourcing, Payroll, Facility management and others.
• Organization and people: Global integrated delivery model to achieve synergy through optimized processes and deploying managed services model.
• Process: Implement a differentiated/ tiered vendor management framework with processes integrated with Procurement, Finance, Partner operations and other functions. The services offered by the vendor management organization included:
  • Contract management and administration
  • Financial management
  • Contract benefits realization
  • Performance management
  • Risk and compliance management
  • Relationship management
  • Knowledge management
• Technology: Increase adoption/utilization of existing technology solutions and leverage emerging technology solutions to automate vendor management operations.

EY assisted the company to roll-out the new vendor management function in a phased manner across different spend categories. As a managed services arrangement, a dedicated team runs day-to-day operations and provides enablement support, ensuring continuous improvement through process optimization and innovation.

Stronger relationship with strategic vendors and effective internal collaboration are essential for unlocking value from contracts. The vendor management office at the consumer product company continues to deliver value. Some of the key achievements of the engagement are captured below:

• Transformed and transitioned processes within stringent timelines
• Realized value agreed in contracts and prevented leakages (up to 3% of spend under governance)
• Gained efficiencies of up to 25% through process optimization and use of technology (EY Contract Manager Application and emerging technologies)
• Improved internal stakeholders and vendor experience
• Contribution to business initiatives to drive efficiencies and cost reductions along with vendors
• Improved operational metrics such as first-time-right invoice, PO compliance, on-time payment, contract compliance
• Generated insights from contracts and spend data

With rapid globalization and changing contracting practices, the vendor management organization continues to evolve in collaboration with EY and deliver long term value for the company.