Innovation Through Smart Sourcing

In the past, the goal of vendor management programs was to get the best prices from hardware, software and services companies. Although competitive pricing remains an objective of vendor management, it's no longer the primary one. In today's growth-obsessed business climate, constructive relationships with technology providers often prove to be a source of innovation. Dennis Gaughan, a research director with AMR Research, says maintaining healthy relationships with technology providers helps CIOs improve the service they provide to their end-users and the services their companies provide to their customers.

"It gives them an opportunity to leverage their vendors' skills and capabilities," he says. Companies now spend so much on technology, which is such a significant source of competitive advantage, that managing vendor relationships ought to be treated as a strategic activity and not a tactical or administrative one.

Hmel certainly views vendor management as a strategic activity, given the $US280 million his company spends on technology each year. "It's a way to make FedEx Ground more successful," he says.

Indeed, the care and feeding of 30 technology providers has made his company more agile and his IT group more innovative. For example, with the help of EMC, Hmel's IT department put in place disaster recovery capabilities in a matter of months. "It has really, really helped us get things done faster," he says of vendor partnerships.

Vendor management is so important to Hmel that he uses the phrase "strategic business partnerships" to elevate the concept. "We call the people that we've invited into this inner circle our trusted business partners. They were a vendor when we first started dancing with them. Now that we're in bed with them, they're our partners."

Hmel and Aiello facilitate collaboration with their strategic business partners in a number of ways. These include celebrating successes together and honouring the technology companies that provide the best service with a supplier quality awards luncheon. In addition to meeting with them regularly, they also give vendors physical access to the IT department during projects.

FedEx Ground's vendor management practices are "absolutely worth emulating", says Julie Giera, a vice president who covers vendor management for Forrester Research. She says FedEx Ground is unique in combining so many best practices into a cohesive vendor management strategy; most companies use only one or two of these tactics.

"The return FedEx gets by having such a comprehensive vendor management program will pay off in so many ways," adds Giera. "It's not just that they'll get a good deal, which they will, but the vendor's commitment to FedEx will be much higher. They'll involve FedEx in R&D, and FedEx will have influence over what features and functions come with future releases of software and hardware."

Getting to Know You

Meetings like the one with Sun, which grew out of confrontational, combative relationships, are largely a thing of the past at FedEx Ground. Hmel and his direct reports now hold bimonthly and quarterly meetings with key vendors, says Aiello. One of the goals of these sessions is to educate the vendors about FedEx Ground's business so that they have more skin in the game and can provide products and services that will help IT meet corporate objectives.

In those meetings, Hmel and his executive staff brief their partners on the company's quarterly financials, its short-term and long-term strategy, business goals and priorities, current and future IT initiatives, and the dynamics of the logistics business in terms of cost, revenue and margins. They also explain their business processes and how they envision technology supporting them.

"You can't just be sought out by people willing to sell you their things," says FedEx corporate senior VP of IT Kevin Humphries. "You have to let them know as much as you can about yourself so they can select the best they have to offer for you and not overwhelm you with a full Chinese menu of what they have to sell."

FedEx Ground lifts the corporate veil in these meetings to build trust with vendors and to demonstrate the role their products play in the company's success. Hmel used this tactic effectively to reinvigorate his company's relationship with Oracle.