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Developing a Strategic Vendor Management Framework

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Written By:

Teal Benson

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March 22, 2024

Transform Vendor Management into Partnership Success

Your vendors are an extension of your brand. You entrust them with your most precious asset – your customers. So, how you manage outsourcers has a direct and lasting impact on customer loyalty and bottom-line growth. Although these relationships are critical, only 45% of executives surveyed are satisfied or very satisfied with their outsourcers’ performance.

So, the question is, why is satisfaction with outsourcer performance so low? How can organizations improve performance to achieve higher customer satisfaction and better overall results?

It is an exciting time in our industry! Customer expectations are rapidly evolving, channel availability is expanding, and the complexity of transactions handled by outsourced partners continues to increase. Therefore, a structured approach to transforming outsourcing relationships into mutually beneficial partnerships is critical to long-term success.

Traditional vendor management approaches need to evolve. Reimagining how you think about governance models, vendor manager skillsets, role expectations, measurements, and levels of oversight will help you navigate the changing nature of outsourcing.

We will explore key areas to transform vendor management approaches into a partner success model for the future.

Centralized Vendor Management

Implement governance models and levels of oversight that make sense

First, let’s talk about vendor management organizations (VMOs) in general. A VMO is a centralized group that manages outsourced service partners. Whether known as a VMO or by some other name, they play a critical role in ensuring outsourced service operations are carried out as intended and meeting ever-changing demands.

Our research shows that 85% of executives surveyed said they have a formal VMO. Additionally, 12% said they did not have a VMO, and 3% were unsure whether they had one.

A soundly structured governance model, whether managed through a centralized group or otherwise, is a must for high-performing organizations that rely on a business process outsourcer (BPO) to carry out their operations. A well-structured model ensures VMOs meet contractual requirements and intentionally address changing business needs. 

Vendor Manager Role

Reimagine the role of vendor managers to align with your objectives 

The role of a vendor manager is critical. For many brands, this role is managing multimillion-dollar contracts and, at minimum, meeting the required outcome. The skillset for this position usually requires a high degree of operational management knowledge.

Vendor managers need to know the fundamentals of workforce management, quality, recruiting, training and development, and program management. They should also know how the metrics from these areas work together. This understanding ensures a vendor manager knows when and where to focus improvement efforts. Or, at the very least, it can ensure that the company is not overpaying.

Once upon a time, the vendor manager role was highly sought after because it involved traveling the world to conduct site visits. However, with the rise of remote work, this is changing. VMOs realize that routine site visits aren’t worth as much as a robust governance model and scorecard based on mutual success. Now, VMOs can often be half the historical size with better outcomes.

Managing Vendor Performance

Design performance scorecards that drive the desired results

A performance scorecard that drives the desired results is vital. Even though it is tempting to enshrine the metrics in a contract, ensuring the agreement states that the outsourcer will meet scorecard requirements is more important. This is because your scorecard may change over time. 

If you are doing things correctly, you are working on the most critical metrics first to achieve a state of acceptable performance. The scorecard should be flexible enough to adapt to other metrics needing attention over time.

A key recommendation is to avoid scorecards that reward the minimum desired performance. After all, you are paying for the minimum desired performance. Instead, a carrot and stick model that incentivizes outstanding performance drives the desired results. In these models, there are penalties for not reaching the minimum requirements and even higher penalties for substantially low performance.  

It’s a fair and balanced scorecard that helps align the VMO and an outsourcer, and both share in the program’s success. It allows the outsourcer to set the objectives, owning their performance. It also prevents vendor managers from becoming de facto operational managers for the outsourcer.

Outsourcing Strategies

Establish a footprint that best supports your customers

There is no one outsourcing footprint that works for all. Each brand must determine its customer’s needs and how the outsourcer footprint can meet them. 

Brands first have to identify their customers’ needs and determine the criteria. There are plenty of considerations. For example, if you are a 24/7 operation, it is often better to adhere to a “chase-the-sun” strategy. This is a better approach than an operation that promises 24/7 service at one site.

Additionally, recent global events have highlighted the importance of business continuity. Consider your footprint and each outsourcer’s ability to ensure business continuity when the unexpected happens. With the volumes of mergers and joint ventures, there are still many options, even with relatively few companies achieving the above. 

Whatever your needs, your outsourcer selection should follow. While some within the brand may push for the lowest cost outsourcer, there is a high cost to poor performance. Understand that the VMO is there to ensure the outsourcer meets the minimum requirements.


Your strategic outsourcing partnerships are the foundation of your success. And as with any important relationship, business needs evolve, and expectations change. So, it is important to periodically take a close look at how they are structured and managed. This involves effective governance models, realigned vendor manager roles, balanced performance measurements and the right footprint. It is never too late to change how these relationships are viewed and approached to ensure mutual, long-term success.

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