How to Create It

Ten years before Jim Lester became CIO at AFLAC, he worked for a vendor that sold property and casualty insurance software. In the worst client meeting he can recall, two managers nearly came to blows over whether their insurance company needed the software he was pitching.

"I kind of slipped out the door and took the quickest plane home," says Lester. But the encounter also helped convince him of the need to set up a vendor management office (VMO) when he became the CIO at Columbus, Ga.-based AFLAC Inc. in 2001.

Recalling the days when he worked for vendors, Lester says, "I've been treated like a king and as a peasant. So I wanted to create a climate where [vendors] felt comfortable discussing their product offerings and made sure we connected them with the right people."

AFLAC, short for the American Family Life Assurance Company of Columbus, is just one of a growing number of companies setting up VMOs to more effectively manage their vendor relationships. "It's becoming massive," says Howard Rubin, executive vice president at Meta Group Inc. He predicts that in 10 years, organizations will buy hardware and software capacity and functionality from a network of vendors. As a result, says Rubin, vendor management "will be the core of IT economics."

To launch a VMO, most organizations start by naming an IT manager who is an effective communicator and is well versed in managing relationships between vendors, business leaders and the IT department. These leaders then typically hand-pick a few savvy IT managers who either have experience dealing with certain types of vendors (for example, hardware, software or service providers) or are skilled in contract negotiations or overseeing service-level agreements.

Vendor managers then compile a list of the top vendors they work with to help manage those relationships and develop a standardized set of vendor performance metrics if they aren't already in place.

For the moment, organizations such as Southern Co. are leveraging their VMOs to get the most out of their vendor relationships.

Jim Lester, CIO at AFLAC

Jim Lester, CIO at AFLAC

Image Credit: Stan Kaady

"We do business with hundreds of vendors, and you can't have the same level of relationships with all of them," says Jim Trupiano, technology contracts manager at Southern, a super-regional energy company in Atlanta.

Shortly after the utility established its VMO in mid-2004, it decided to identify the top 35 vendors it works with. It made the importance of products and the amount of dollars spent the top criteria, says Trupiano.

Now, Trupiano and his team of six vendor managers are in the midst of developing a scorecard aimed at tracking key performance indicators for vendors. These include tracking whether purchasing hardware warranties made financial sense based on the failure rates of equipment and the cost of sending the equipment back to the vendor versus fixing it in-house.

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