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Dec 2014 - Insight - Doc # 253355

Vendor and Sourcing Management: Optimal Engagement Models Deliver Value, Foster Innovation, and Minimize Risk

Authors: Rajeev Agarwal, Suya Xiong

This IDC Insight is designed for the VSMO staff, line-of-business (LOB) executives, and program and project managers (PMs) who work on vendor and sourcing engagements. This Insight provides an overview of four vendor engagement models — time and materials (T&M), fixed capacity (FC), managed services (MS), and fixed price (FP) — that should be understood by the VSMO to reduce costs, drive service excellence, and mitigate buyer risks for the organization. We discuss the key attributes for each engagement model, including optimal scope, process maturity, cost structure, performance measurement, and buyers' responsibilities. This Insight also highlights the actions that the VSMO should consider in order to leverage more mature vendor engagement models (e.g., MS and FP) to lower both costs and delivery risk. To drive value from vendor and supplier relationships in the 3rd Platform environment, this Insight assists the VSMO to address the following questions:

  • What kind of relationship do we have with our vendors?
  • What kind of contract and statement of work (SOW) do we look for?
  • What type of vendor engagement model should the VSMO use?
  • How can the VSMO effectively manage the risks inherent in vendor and sourcing relationships?
  • What actions should the VSMO take to work with existing and new 3rd Platform suppliers to build mature vendor engagements?
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