Building A Vendor Management Office: Lessons From Insurance And Airports

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Managing vendors and procurement activities effectively has never been more important. Why? The drive to outsource activities and build more complex products means you need contributions from beyond your organization.

Alas, project management isn’t like Amazon. There’s no “one click” buy button or overnight shipping when you’re building a bridge, submarine or a CRM implementation. You need a more sophisticated approach. If you’re just getting started, read 6 Steps To Successful Vendor Management. To take your vendor management approach to the next level, stay with me.

This week, I attended an session on “Building A Vendor Management Office,” hosted by Fasken Martineau, a Canadian law firm. It was a helpful session with some great war stories. In this article, you will learn how two organizations in very different industries improved their vendor management practices. For more events like this, look into joining the International Association of Outsourcing Professionals (IAOP).

Economical Insurance: Vendor Management & Transformation

Economical Insurance was founded in 1871. Today, it is one of Canada’s leading property and casualty (P&C) insurance companies. That long history brings certain assets such as long standing customer relationships and a well-known brand. However, the company has also accumulated vendor relationships that needed to be revised due to a new strategy. Economical has committed to success in the digital world and the vendor management strategy has to support that goal.

Innes Dey, Senior Vice President & Chief Strategy Officer at Economical Insurance,  presented his experience. I appreciate his efforts especially considering he had a difficult cold!

  • Purpose: The company’s drive to modernize vendor management is part of a broader transformation agenda to ‘demutualize’ the organization. In a mutual structure, the organization is owned by employees and policy holders. It’s a rare structure but it is still used in some cases. Vanguard, a major investment firm known for offering index funds, is owned by its policyholders.
  • The Limits of Contracts. Be wary of assuming that a good contract is enough – it’s also important to have good people to work with at the vendor. After all, if the vendor team is rude, unprofessional or unresponsive, then you will not achieve value from your spend.
  • Engage in “productive overlap” with staffing. By partially overlapping responsibilities between staff, you can have support and collaboration. This is a great management principle. It also means that people can go on vacation without worrying that a critical process will fail.
  • Maintain Internal Unity When Dealing With Vendors. Innes  made the interesting comment that vendors are “skilled at exploiting disorganized clients.” If your executives are getting wined and dined by vendors, the vendor management office needs to know about it.
  • Be wary of conflicts of interest. Some consultants have business relationships with other organizations that may influence their recommendations. These relationships become problematic when YOU are unaware of these interests.
  • Staff Up To Achieve Value. If your organization is managing millions of dollars in vendor relationships, make the case for full time vendor management staff. Managing seven figure contracts with IBM, Deloitte and other large organizations requires dedication.

Greater Toronto Airports Authority: Managing Vendors & Becoming The Best Airport In The World

The Greater Toronto Airports Authority (GTAA) is responsible for operating Canada’s busiest airport, Toronto Pearson International Airport. John Alexis and Angella Dikmic presented observations from their journey on improving vendor management. While the GTAA presentation focused on IT and technology vendors, there’s no reason why these frameworks cannot be applied to other functions.

  • Understand Your Reality. The first step is to create a central repository of contracts. This point is especially important if your organization has multiple contracts with a vendor. Multiple contracts sometimes lead to problems like different pricing, payment terms and conditions.
  • Set Your Vendor Management Goals. Initially, the GTAA approach focused on cost reduction. Delivering cost reduction and cost avoidance to the organization was essential to win support from executives. Over time, relationship management and risk management have become more important.
  • Classify Your Vendors And Govern Accordingly. As you create a governance program, it’s important to apply different levels of governance depending on cost, risk and importance. Remember that a small spend vendor may merit a “Tier 1” approach if they provide enterprise critical services.
  • Plan Your Exit. Every business relationship comes to a conclusion at some point. If you don’t define how that will end, you could be in for a world of hurt. The speakers shared a story from another organization that underscores this point. A client ended a relationship with a buyer and asked for their data back. The vendor printed the data on paper and delivered it (ignoring the client’s request for the data in digital form). The result? Many months of client time spent typing up the data!
  • Be Part of the Contract Discussion. For large contracts, it is vital for the vendor management office to be part of the discussion. Leaving them out will make running a long term relationship with the vendor much more difficult. You don’t want to land in a situation where you are stuck with a painful, complicated contract.
  • Leverage Organizational Change To Introduce a VMO. There’s a saying in politics – ‘never waste a crisis.’ In the business context, the same idea applies. With the GTAA, they had a major contract with an IT firm close to expiration. Rather than simply go through business as usual and renew, GTAA management used this change as an opportunity to revamp their entire approach to vendors.
  • Conduct Regular Satisfaction Surveys. The GTAA regularly conducts vendor and customer satisfaction surveys to detect issues and areas for improvement. As vendors become more important in delivering your value chain, this is an excellent proposal to use. I’ve recently used Survey Gizmo to conduct surveys and it has been helpful.
  • Use Recurring Meetings And Calibrate The Detail Accordingly. The GTAA uses a series of recurring meetings with different audiences to execute vendor governance. For example, executives are briefed annually on the top vendors. Other vendors with a lower impact can be managed with a monthly meeting focused on operations.


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2 thoughts on “Building A Vendor Management Office: Lessons From Insurance And Airports

  1. Vendor management is as critical as stakeholder management. Having a clear-cut approach to selecting a vendor, and having a team on hand to manage the process is vital to maintaining a healthy relationship with major partners. However, getting the sponsor to sign-off on a VMO can be tricky.

    • To win sponsor support at first, I suggest focusing on cost reduction. If there has never been a vendor management function, there is often opportunity there.