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IT Vendor Management Best Practices to Cut Costs

IT contracts can be complex, and pricing can often be unpredictable. As a result, on average, companies overspend on about 85% of their IT purchases. As digital transformation and AI continue to drive higher investment in the IT spend category, you need a robust IT vendor management process to avoid overspending, optimize licensing, and ensure that vendors deliver on their promises.

This is especially true for large enterprise companies, where IT spending is high, and they manage hundreds of business-critical technology vendors whose products and services are frequently bundled. 

What is IT Vendor Management?

IT vendor management is the process of overseeing and managing relationships with third-party technology suppliers to ensure efficient delivery, cost-effectiveness, and alignment with organizational goals. This is critical to ensure you’re getting your money’s worth, and the products and services meet your standards in a cost-effective manner.

IT vendor management's best strategies go beyond choosing the right vendor. You need to monitor performance and value over time to make sure your goals are being met and you are getting best-in-class pricing on your hardware, software, cloud, and SaaS spend — especially at renewal times.

IT Vendor Management Best Practices for Cost Reduction

So, how do vendor management best practices help you keep costs in check? Here are eight IT vendor management best practices to maximize cost efficiency.

1. Establish Clear Vendor Negotiation Criteria for Cost Efficiency

Cost-effective IT vendor management requires establishing clear criteria in the negotiation process (just as you established clear criteria in the selection process). You need to determine what is most important to your organization — factors include price, licensing flexibility, futureproofing, SLAs and other risk management and commercial terms. By setting these criteria upfront, you can ensure your IT procurement process and focus aligns with your risk management and cost-saving goals.

You should also maximize preparation before you start getting quotes. IT deals are often complex, and IT buyers are typically outgunned by the enterprise vendor sales machine. NPI can empower you to come to the table with market intelligence, negotiation intelligence, and predictive analytics to source, plan, and negotiate better deals.

2. Align Your IT Roadmap with Your Vendor’s

It’s important to have visibility into your vendor’s roadmap. This will help you understand their priorities. Look for opportunities to align your organization’s short and long-term IT roadmap with what your vendor has planned. Areas of alignment can serve as negotiation leverage during new purchase and renewal conversations. 

3. Regularly Assess Vendor Performance to Ensure Value

To ensure ongoing value, you need to regularly assess performance against key metrics such as delivery timelines, quality of service, uptime, SLA’s and contractual obligations. By consistently monitoring vendor performance, you can identify any issues early and take corrective action before they lead to increased costs or business risk.

4. Implement Effective Contract Management Strategies

Contracts should clearly define the scope of services, pricing structures, performance expectations, and penalties for non-compliance. By carefully drafting and managing contracts, you can avoid hidden fees and ensure you are only paying for the IT assets and services you receive.

It’s a good idea to review contracts regularly to ensure ongoing cost control, especially when needs or market forces change. At renewal times, a comprehensive contract review is essential to avoid getting locked into rate increases without negotiation.

5. Negotiate for Cost-Effective Terms and Prices

Approach negotiations with a clear understanding of your budget, fair market value pricing targets for the solutions being provided, and what other vendors are offering (and for how much). This knowledge can be used to negotiate better rates or more favorable terms — leading to lower costs over a contract’s lifecycle.

IT price benchmarking is one of the most powerful and least disruptive IT cost reduction tactics. This, combined with software license optimization, can result in 7-, 8-, and 9-figure savings. Over 130 of the Fortune 500 trust NPI’s team of 300+ consultants, analysts, and vendor-specific specialists to use these tactics to drive savings on billions of dollars of IT and telecom spend.

6. Utilize Technology for Cost-Effective Vendor Management

Vendor management software (VMS) can automate many aspects of vendor management, such as performance tracking, contract management, and invoice processing. These tools can help reduce administrative overhead, minimize errors, and provide better insights into vendor performance and spending.

7. Consolidate Vendors to Leverage Volume Discounts

One effective cost-cutting strategy is to consolidate your vendor base. By reducing the number of vendors and increasing the volume of business with a select few, you can often negotiate better rates and volume discounts.

This approach not only reduces costs but also simplifies vendor management.

Risk Management to Avoid Cost Overruns

Risk management is an essential component of IT vendor management best practices when it comes to avoiding cost overruns. By identifying potential risks in vendor relationships, such as service disruptions, compliance issues, or financial instability, you can more effectively mitigate these risks and prevent costly surprises.

How NPI Can Enhance Your Vendor Management Strategy

Cost savings is just one benefit of strong IT vendor management. However, as enterprise IT vendors seek to extract more revenue from customers, more companies are taking a holistic approach to cost reductions. This includes finding opportunities to optimize costs throughout the entire vendor management lifecycle. 

NPI works hand in hand with enterprise IT vendor management to identify and eradicate tech overspending. By ensuring our clients pay the lowest price possible for only what they need, we help clients regularly achieve multi-million-dollar savings. On individual purchase transactions, savings of 20% to 50% are common.

Get the pricing, licensing, and negotiation intel you need to secure a world-class outcome on every IT purchase and renewal. Contact NPI today to get started.

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