Tips for cost optimization with sourcing and vendor management
In the last three years, economic uncertainty and increased pressure on investments in digital enablement have put enormous pressure on cost optimization for technology leaders, particularly mid-size organizations with smaller budgets.
Technology leaders must support cost optimization efforts across I&T (Information & Technology) and business processes to increase business performance while investing in and preparing business demands to support digital enablement.
Gartner states, "With cost optimization a top business priority, you must take a structured approach to develop a business case for rationalizing your vendor portfolio to improve costs while maintaining quality."
There are three areas of focus for cost optimization, including Information & Technology, which comprise data center, application management, application development, Infrastructure and application services, software, and SaaS; the second area is business process optimization, e.g., Advanced automation, intelligent services to cut costs and eliminate errors, and the third area is digital business initiatives, e.g., the implementation of an IoT platform, a blockchain proof of concept, data center modernization, offshore increase, agile sourcing, cloud, and SaaS migration. According to Gartner, digital business initiatives have the most significant potential impact when replacing outdated processes with digital processes spanning businesses, customers, and products.
That is why sourcing and vendor management should be reviewed holistically to have a meaningful impact on the overall cost optimization efforts. The following are the key points for an approach that can show positive results.
Reducing the number of vendors – This can help get more discounts but requires vendors with multiple competencies (like technology advisory, assessments, and delivery)
Fewer vendors can reduce the burden on vendor management, which can help with the quality of the deliverables
Aligning with strategic vendors with commitments for a long-term relationship
Improving the sourcing and vendor management governance structure
Partnering with vendors with a healthy mix of on/offshore resources for maximum value without quality loss
Vendors with access to innovation labs
The approach mentioned above can assist in driving cost-reduction initiatives concerning sourcing and vendor management while keeping the organization coordinated on crucial technology deliverables for the year.
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