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Governing the Third-Party IT Estate Through Vendor Consolidation and Spend Optimization

Rita Korkor Agyei1, Ogochukwu T. Izuchukwu2, Dominic Feboh3, Abiola Idowu4

Abstract

The third-party information-technology estate of a large enterprise—the full population of software, infrastructure, platform, and service suppliers on which the enterprise depends—has become one of the largest and least governed elements of the corporate cost base. It accumulates one contract at a time, through decisions made by different business units under different budgets and at different times, and the result is an estate that no single decision was ever taken to create and that no single manager is positioned to optimize. This paper develops a conceptual model for governing that estate through two coupled disciplines: vendor consolidation, which reduces the number of suppliers by eliminating redundancy and concentrating volume, and spend optimization, which extracts full value from the suppliers that remain. The model is organized as a decision architecture rather than an organizational unit. It comprises estate visibility and a spend cube that renders the estate legible; a set of rationalization decision rules that determine which suppliers to retain, consolidate, or exit on the basis of capability redundancy, business criticality, switching cost, and total cost of ownership; a consolidation- wave execution logic that sequences change to manage risk; a set of spend-optimization mechanisms operating on rate, demand, contract, and consumption; and a demand-governance and benefits-realization layer that prevents the estate from re-fragmenting once optimized. Grounded in transaction cost economics, the resource-based view, purchasing portfolio theory, and agency theory, the model is developed as a practitioner-usable decision framework and is situated against the recurring finding that the binding constraint on estate governance is not authority but visibility. The paper synthesizes literature on IT outsourcing, category management and spend analytics, vendor governance, cost governance, and digital transformation, and it specifies decision rules, metrics, and directions for empirical validation.

Keywords

third-party IT estatevendor consolidationspend optimizationspend analyticscategory managementtotal cost of ownershipsupplier rationalizationIT spend governancetransaction cost economic

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