With an increase of outsourcing duties in cloud computing, vendors are also taking on increasingly fundamental roles in enterprise operations. As the scope, scale and complexity of vendor relationships and services increase, the challenges related to them and the importance of effective vendor management has also increased proportionately.

In this blog post, we will discuss the three challenges with vendor management on cloud.

1.    Security

Including third party vendors in cloud business models has given rise to security concerns. Many cloud providers are undertaking formal third-party security evaluations, such as International Organization for Standardization (ISO), Service Organization Control (SOC) 2 and Federal Risk Authorization and Management Program (FedRAMP). To avoid security concerns, you must focus on developing an enterprise public cloud strategy that includes security guidance on acceptable uses for SaaS. You must learn to incorporate procurement and sourcing solutions into this strategy. Also, you can implement and enforce policies on usage responsibility and cloud risk acceptance processes.

Following a life-cycle governance approach that emphasizes the ongoing operational control of your public cloud use is necessary.

2.    Integration

Many procurement and sourcing suites are combined by making use of separate modules originally designed as stand-alone solutions. Even though integrations between modules are improving, they don’t always work smoothly or meet customer expectations. Thus, you must carefully review the performance and limitations of integrated suites. Vendors need to understand their plans and timing to resolve integration issues and introduce new functionality and improvements.

Organizations should focus on developing procurement and sourcing automation strategy that considers innovation and specialized solutions to solve integration complexity.

3.    Pricing

Procurement and sourcing solutions have several pricing models. Let’s take a look at some of these models:

• Subscription Based Model

In this model, fees are based on the number of users, the amount of spend, estimated quantity of events or some other measure resulting in a fixed fee generally paid on an annual basis. The right to use the software expires at the end of the contract. This is common for the upstream source-to-settle (S2S) services.

• Transaction Based Model

In this model, fees are based on the number of transactions that are made. It is paid on a monthly, quarterly or annual basis. The right to use the software expires at the end of the contract and expenses are treated as operating costs. Some vendors charge transaction-based fees for invoice automation and supplier information management transactions.

• Perpetual License and Annual Maintenance

In this method, a one-time license fee is paid for a perpetual license with annual maintenance fees. This may apply in hybrid SaaS situations where license fees are generally treated as a capital expense.

• Supplier Fees

Here the fees are charged to suppliers by the procurement and sourcing solution vendor that can be based on subscription and transaction-based models. These fees can be assumed by the buying organization.

Choosing a correct pricing model can be a difficult task. You need to have detailed knowledge and an understanding of the solution service delivery model and its corresponding pricing model. You can also develop a detailed TCO analysis that considers the pricing model, time to implement, and follow up processes such as monitoring and maintaining the procurement.

Managing external vendors on cloud should be a key competency for every enterprise. Successfully doing so leads to optimally migrated risk and significant benefits to your organization.