Go Global or Stay Local?

One of the challenges in managing a multi-national book of indirect spend is whether to consolidate local contracts under a single contract out of one office, typically the corporate headquarters.

There's pros and cons to centralization:

Benefits

1. Lower administrative overhead
2. Improved coordination of the vendor relationship
3. Simplified cost management process
4. Enhanced visibility into spending patterns

Disadvantages

1. Less responsiveness to local user needs
2. No term "arbitrage" - non-US offices can often get lower unit costs than US businesses. I have managed contracts for users in all major geographies, and almost without fail, unit costs
3. Less flexibility in responding to regional business and/or macroeconomic conditions. 

My advice: see if you can split the baby and get the administrative benefits of centralization combined with the flexibility of local responsiveness. 

To have it both ways, you need to have a superb communication process in place between the central Vendor Management Office (VMO) and the regional office that's managing the contract on a daily basis. You also need to have local people you can trust to execute their responsibilities - particularly relationships with end-users. Key vendor management processes like commercial due diligence, management reporting, signing authority and legal review of terms & conditions can be set by the central office. Entitlements management, user training and needs assessment, and interfacing with vendor account managers can be done locally.  

One of the biggest pitfalls of this hybrid approach is inventory expense management. Users may be swapped or added to a contract locally and the central VMO isn't informed, leading to outdated and inaccurate data for reporting purposes. 

Further, contracts may be renewed locally and the VMO doesn't capture the most recent data. Budgeting and expense reporting accuracy begins to suffer, and your credibility with senior management goes out the door: they can't trust your numbers and lose confidence that you can effectively manage your book of business. Not a good look.

Key takeaways: have a robust, formalized vendor management program in place that clearly delineates the responsibilities of both the local and central offices. Require that contracts over a certain amount be vetted and signed by the central VMO. And implement an inventory and expense management utility like FITS or MDM, with local admins, to ensure maximum transparency. 

With a good communication plan and well-governed vendor management program you can take advantage of both central and local contract administration.

 - Kevan Huston