News Feature

A New Way To Manage Vendors

By Susannah Patton

PAGE 4

At the American Red Cross, CTO Dave Clarke says he has cut ongoing operating costs by more than 20 percent from three years ago by rebidding, restructuring or not renewing contracts with software and hardware vendors that his VMO has found to be performing poorly. Clarke says the VMO has helped him save money by tracking spending, which helps the management teams find better deals. "The VMO is a major element of our approach to financial rigor," Clarke says.

The collaboration between Guardian Life Insurance's VMO and its telecommunications department has helped the company cut telecom costs by 35 percent by negotiating a new contract, says Rick Omartian, CFO for IT. By bringing in all of the major telecom players in an RFP process, the company found that it could save money by switching from MCI WorldCom, which had been chosen several years before by the head of the company's telecommunications department, to Sprint and Quest. Before Guardian had a VMO, contracts were often negotiated without RFPs, which meant they didn't always get the lowest price.

Aflac has also saved money through careful negotiations by its VMO. Guth says that when negotiating with a supplier on a hardware purchase, he can leverage volume discounts by adding some IT services into the deal. "Instead of using two companies, I'll use one and get a big discount," he says. In fact, he was able to negotiate such a deal with IBM, which provides both desktops and services to Aflac.

Guth emphasizes that first and foremost, his goal with the VMO is to "maximize Aflac's tech investments so that the company pays a fair and reasonable price in return for superior delivery." He reminds CIOs that getting the lowest price is sometimes less important than assuring a vendor performs well and brings in senior staff to do the job. "Some customers are not savvy and try to get a supplier down on price at any cost," he says.

Creating Vendor Competition
Guth also notes that the VMO allows Aflac to minimize risk by creating its own purchase agreements; the majority of its deals have contracts drafted by Guth rather than by vendors. While such an approach isn't restricted to a VMO, Guth's expertise with legal and financial issues has helped him put this practice in place. This is another good reason to hire the right person to head a VMO.

"When I got here, all of our contracts were on supplier paper, whether they were software licenses or services," he says. "They were all slanted to the supplier. By getting our own form agreements, we help reduce legal risk and operation risk." Microsoft, for example, has negotiated agreements using Aflac's contracts, he adds, giving Aflac protection against possible proprietary rights infringement and any other contract-related risks. Guth speaks with pride about this accomplishment but admits that vendors haven't always liked working from Aflac's contracts. He stresses that his legal background led him to insist that Aflac use its own contracts wherever possible and also notes that vendors have been willing to accept the unorthodox arrangement because Aflac treats vendors fairlyÃ¢â¬â¬not always driving for the rock-bottom price.