itd #7: best practices in supplier management (english)

8/4/2019 ITD #7: Best practices in supplier management (English)

http://slidepdf.com/reader/full/itd-7-best-practices-in-supplier-management-english 1/13

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ITD #7 ‘Best practices in supplier management’

© IT Decisions 23 September 2011 - All Rights Reserved

Bestpracticesinsupplier

management

ITDResearch#7:Sep23,2011



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IntroductionThe IT department has changed. The whole model of

delivering a corporate IT solution has changed. And

inevitably,ITleadershavealsohadtochangetheirways

ofworking.

ManagingITsuppliershasnowbecomeacriticalpartof

howanyITdepartmentoperates,butitisnotalwaysan

easytask.

Selecting vendors, managing and evaluating their

delivery, as well as monitoring contracts are all very

differentskillstothoseneededforsupervisinganinternal

IT team. And some CIOs have found – sometimes the

hard way – that the suppliers are masters of draftingcontractsintheirownfavor.

Evenonceasupplierisonboardanddeliveringservices

regularly,canyourelyonthemwhenthingsgowrong,or

when the requirements suddenly change? Thecontract

willalwaysstatethescopeofyourrelationship,butwhen

you test the boundary of that relationship, will the

supplier remain just a hiredhandormorph into a true

partnerandhelpyourbusinesstosucceed?

Theimportantquestionis:canacompanythatyouhire

and pay on amonthly basis – which is also measured

endlesslywith contractualterms suchasSLA,KPI anda

rangeofotherparameters–everbearealpartner?Are

theyinitjustforthecashordotheywanttohelpyour

business succeed just as much as you

do?

Regardless of individual realities, themodern IT department can no longer

ignore the influence of the supplier

community in the decision making

process. With technology becoming

increasinglycomplexandevolvingfast,it

isveryraretohavealltheskillsyouneed

internally.Thismeansthatsuppliersare

crucial in offering flexible and highly

skilled resource exactlywhen you need

it. But do they always deliver to that

promise?

AndifworkingwithITsuppliersisnowa

keypartoftheroleoftheITleader,what

are the rules of thumb that can help

ensure a smooth relationship wherever

possible, or at least define what you

shouldbelookingoutfor?

In our research this week we have

explored what our community of IT

leaders think about the supplier

community, their experience of the

issues,andthebestwaystomanagean

ecosystemofITpartners.

“…canyourelyonthemwhenthings

gowrong,orwhen

therequirements

suddenlychange?”



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ParticipantFeedbackToexploretheissueofITsuppliermanagement,inthisweek’sresearchsurveyweaskedfour

questions–threeofwhichweremultiplechoiceandonedesignedtopromoteanopendiscussion.

Wereceivedanswersfrom25executivesfrom17industrysectors:logistics,retail,foodand

beverages,consumerservices,shipbuilding,financialservices,oilandenergy,consumergoods,

education,insurance,foodproduction,utilities,health,media,chemicals,automotive,and

manufacturing.

Question1:Isitincreasinglymoreimportantforyoutobeabletomanagesupplierseffectively

ratherthanmanagingyourownteam?

Thisinitialquestiongoestotheheartoftheoutsourcingdebate.Itasksifthebalanceof

managementtimeismovingtowardsmanagingsuppliers,ratherthantheinternalteam.Fromthe

responsesourITleadersgave,itabsolutelyconfirmsthatsuppliermanagementisbecomingan

indispensableskillforCIOstomaster.

Only16%disagreedwiththestatement,andthoughtheagreementthatitisbecomingmore

importanttomanagesuppliersonlygot32%ofsupport,the52%agreeingwiththis‘insome

areas’showsthatalargenumberofITleadersarenowrunningsomeoftheirdepartmentthrough

suppliers.

0 2 4 6 8 10 12 14

YES

NO

INSOMEAREAS

32%

16%

52%



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Question2:Outsourcingaimstoincreaseflexibility,butcanasupplierevermatchthe

commitmentofaninternalteam?

Itisacriticalissue.ImaginethatanimportantsoftwarerollouthastobecompletedonFriday

eveningaftertheofficecloses,butbeforethesystembackupstakeplaceonSaturdayand

certainlybeforepeoplereturntoworkonMonday.Somethinggoeswrongandtheteamhasto

staylateintoFridaynighttostabilizethings.

Ifitisyourinternalteam,youcanbuythemsomepizzaandpatthemontheback.Ifitisasupplier,willtheystayanddosomethingthatisnotinthecontract?Andiftheydostay,willthey

chargeyouanextrafee?

Thisistheproblemintheory,butitseemsthatourITleadersfeelconfidentthattheITpartners

theychoosecanbereliedontohaveasmuchcommitmentasaninternalteam.Outoftheleaders

surveyedthisweek,68%agreedthattheirsupplierswouldhavethesamelevelofdedication,with

only16%suggestingthatasupplierwouldnotbeascommitted.

0 2 4 6 8 10 12 14 16 18

YES

NO

CRITICALTASKSAREALWAYSINTERNAL

68%

16%

16%



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Onthesurface,thisresultfeelssurprising,butperhapsitreflectsthatthemodernITleaderhasto

relyonexpertsuppliers–andsothereisalreadymaturityintheserelationshipsanda

commitmenthasbeendemonstrated.

Question3:Supplierstalkofpartnership,butcanarelationshipbasedonhardmetrics(KPIs,

SLAs)everbearealpartnership?

Youknowthesituationwellwhenthesubjectissuppliercomparison:theyallwanttobewithyou

forthelongterm.Theyonlyevertalkofbeingapartner,asopposedtojustasupplier.Butdo

thosevendorsevercomeclosertotheidealofatruepartneryoucanrelyon?

OurITleadersbelieveso.Some72%oftheleadersquestionedfeelthatsupplierscanbe

consideredastruebusinesspartnerseventhoughtherelationshipisonethatisendlessly

assessed.ItisstrikingthatnotasingleITleaderanswerednointhisquestion–eventhe28%

remainingsaidthatthemeasurementtoolsareanecessaryevil.

Clearly,themodernITleaderreliesonsuppliersandthesemanagersarealsoskilledatturning

thoserelationshipsintorealpartnerships–creatinganITecosystemfortheircompanybyhiring

thebestskillswhenneeded.

0 2 4 6 8 10 12 14 16 18

YES

NO

NECESSARYEVIL

72%

28%



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Question4:Pleaseoutlinethemainissuesthatyouhavehadwithyourownsuppliersandwhatyouthinkcouldimprovethesituation?

Themostinterestingandrelevantresponsesfromourrespondentsarelistedbelowbyindustry:

Logistics:Contractualspecificationscanjeopardizepartnerships

AlthoughthereareKPIsandSLAs,thecustomer'scommitmentislimitedtothevalueofthe

service,sowhenthefinancialvaluerunsout,thecommitmentofthesupplierends.Tominimize

thiseffect,sometimesapartnershipcanbeestablished(somethingthatusuallyexistswithlong-

termsuppliers)wherebytheserviceisprovidedevenwhentheservicelevelindicatorsareinferior

towhathasbeendefinedinthecontract.

Thatbecomesverydifficultwhenthesupplierisapubliclylistedcompany,sinceinternalaudits

andcorporategovernancemakeitdifficulttoprovideserviceifthatisnotsupportedbythe

contract,andsothepartnershipisjeopardized.

Retail:Youcannotoutsourceyourownresponsibility

OutsourcingdoesnotdiminishortakeresponsibilityawayfromIT.RulesaroundKPIsandSLAsare

neededforflexibilityandtransparencyofthecontractedservice,justaswehavemetricsto

evaluateinternalstaff.

Food&Beverages:Finesandstrictcontrolsonsuppliersareessential

Theeternalproblemofnon-compliancewithagreeddeadlines,qualityofservice,speed,etc.can

onlybeimprovedwithstrictcontrolsandprovisionsofcontractsassociatedwithfinesfornon-

compliance.

ConsumerServices:Creatingpartnershipsisharderforsmallerclients

Dependingonthesizeofyourcompanytothesupplier,partnershipsbecomeverydifficult.Many

suppliersservealltypesoforganizations,butthevalueofasmallclient–theSMBs-islowfor

many[ITcompanies].Perhapsthebestapproachistoseeksuppliersthatarebestsuitedforyour

typeofbusiness,beitintermsofsizeortheprofitabilitythatyourbusinesswillgeneratefor

them.

Shipbuilding:Suppliersmustusereliablemanagementmethods

Whenthereisnomaturityintherelationship,itbecomesverydifficulttoachieveagreed

outcomes.Ihadnumerousproblemswithsupplierswhoinsistedon"judging"situationsbasedon

gutfeelinginsteadofrefiningandconsolidatingresultsthroughareliablemanagementtool.

FinancialServices:Itisimpossibletopredicteverythinginacontract

Iuseanoldadage:whatisagreedisnotexpensive.However,itisnotpossibletopredict

everythinginacontract.Theimportantthingistocreatearelationshipoftrust,mutualsupport

andbalance.



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ConsumerServices:Pressurizingsuppliersdoesnotyieldsuccess

Well-designedcontractsandrules,aswellasawin-winrelationshiparefundamentaltothe

successofanoutsourcingprocess.Thereisnouseinputtingsuppliersunderthethumbfinancially

fromacustomerstandpoint,becauseinevitablythiswillimpactthequalityofservicesdelivered

andtheseniorityofassignedpersonnel.

Food&Beverages:Win-winscenariosallaroundshouldbethenorm

TheITmarketishotandretainingtalenthasbecomeamajorchallenge,especiallywhenitcomes

toprofessionalswhospecializeinmoretechnicaltasks,sotheoutsourcingofprocessesisoneway

ofminimizingtheriskaroundlosinganimportantmemberoftheteam.Butthechallengeof

retainingtalent,whetherinternalorundertheresponsibilityofapartner,isachallengeforboth

partiesandsotheproblemshouldbesharedbetweenuserorganizationsandsuppliers.

KnowledgemanagementfortheseprofessionalsshouldbehighupontheCIOagendaand

demandingthatsameattitudefromourpartnershasbecamemandatory.Turnovercyclesare

increasinglysmallerandthereforemanagingtheknowledgetransferbetweenothermembersof

theteamistheonlywaytoensureinvestmentandcontinuityofcriticalprocesses,especiallyif

theyareundertheresponsibilityofanexpertpartner.

OnewaytoensurethatyourpartnersarerespondingtotheserulesistokeepSLAlevelswith

moreaggressivepenaltiesandKPIsthatshowthereliabilityofthesupplierandthenthelevelof

maturitytobringaboutcontinuousimprovementinprovidedservices.

KPIsandSLAsarenotanecessaryevil:havingachievablegoalsandobjectivesdrivesourcreativity

andourpowerofachievingthings-measuringoureffortsandshowingwherewehavetoimprove

andwhatopportunitiesweshouldbepursuingwithmoreemphasis.

Oneauthorwrote:"Forthosewhodonotknowwheretheyaregoing,anyroadwilldo."Any

responsiblecompanyshouldkeepinmindthatyourpartnershouldhaveadequatefinancial

strengthtosupportthequalityofservice.

So,win-winscenariosshouldbeencouragedacrossallspheresoftheuser-customerrelationship.

Education:Itisthecombinationofforcesthatdrivessuccess

Thereis,infact,lesscommitmentfromsuppliersthanfromtheinternalteam.Itisthegeneral

feeling.However,theexpertiseofthosewhomasteraparticulartoolisunmatchedbyaninternal

team.ThecombinationiswhatallowsITtoexpressthebusinessvalues(internalteam)inaddition

tothetechnicalknowledge(thirdparties).



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Insurance:Penaltiesareavoidedforthesakeof“friendships”

Ourcultureisarounddoingthingsthrough"friendship."AsmuchaswehaveestablishedSLAsand

signedcontracts,penaltiesarehardlyappliedwhenthereisnocompliancewithcertaincriteria.

Thisisamajornationalproblem.

Utilities:Suppliersdon’tshareissuesearlyenough

Thereisthelackoftransparencyproblem:thevendorwithissuesdoesnotsharethesefactsuntil

itistoolateandthecontractorassumesrisksthatcouldbeavoidedby,forexample,changing

supplier.Thereisalsothematterof“doingandnotknowinghow”:thedesiretogainmoreclientairtimepromptssupplierstoproposetodothingsthattheydonotknow,presentingprojects

wheretheyhadamarginalparticipation-whichisdifficulttodetect-asareference.

Insurance:Buyerculturecanaffectoutsourcingprocess

Theissueisdirectlyassociatedwiththecompany’squalityandculture.Bothbuyersandsuppliers

needtobepreparedforoutsourcing,andsometimes,thebuyer’scultureinterfereswiththe

progressofissuescombined.

Media:Contractsarerarelywelldefined

AllareproblemsthatIhavefacedstartedwithill-definedexpectationsandpoorlywrittencontracts.Whenthesetwobasicrequirementsaremet,anydeviationofperformancehasa

measuringtoolthatenablesthecorrectionofthedirectionoralesstraumaticdisruptionof

service.

Insurance:Whenmetricsarediscussedatlength,therelationshipiswornout

WheneachSLAandKPIisthoroughlydiscussed,possiblythesupplierrelationshiphasbecome

wornout.Whatusuallyhappensisthatsupplierwillrealizethatitisassumingaresponsibility

beyondthecold,establishednumbers.Thatiswhenthevendorstartstodirectlyaffectthe

operationofourbusiness.

Chemicals:Thebiggestmistakeswithsuppliershappenatthebeginning

Ittakesalotofstrengthandmethodologytohandlerelationshipswithsuppliers.Withoutthose

attributes,wewillgetintoconflictorbecomecomplacent.Thelearningcycleislong;weneedto

buildlong-termrelationships.Inseveraloutsourcingcontracts(systemsandinfrastructure)we

beganbadlyandimprovedovertime.

Thebiggestmistakeshappenedalreadyatthehiringstage.Whetheritisbecausethestipulated

pricewasnotcorrect(forexample,thesuppliergivestoobigadiscounttowinthecontractand

providestheserviceataloss)orbymutualignorance(thesupplierdiscoversthingsitshouldhave

knownbeforeelaboratingtheproposal).



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Media:Theissueisaroundtechnicalskillsrequirements

Themainissueisoftenlinkedtotechnicaltrainingofstaffemployedbythesupplier.Asthe

vendortriestoincreaseitsprofitabilitymarginsand/orbemorecompetitive,sometimesthe

providerwaivesthetechnicalskillrequirement.

Theimprovement[inthatsituation]couldbemadefromcommoncriteria(setbythecontractor

andcontracted)inrecruitment,orbyinterviewingthecontractemployeeswhowillworkforyou.

Manufacturing:BuyersshouldfocushardonvendormanagementskillsThehigherthelevelofoutsourcingofthecompany,thegreatershouldbetheamountinvestedin

SVM(StrategicVendorMangement).Ifwearenotstructuredtodealwiththat,wewillrealize

overtimethatthepartythatismanagingtherelationshipisthesupplier.

Inorderforthisrelationshiptoreallybeawin-win,itshouldbemanagedandmonitoredsincethe

initialalignment,withtrackingoftheprogress,crisismanagement,strategicguidelines,reviews

andsoon.Whenwearefacedwithinsurmountableproblems,ifweevaluatethecausesina

neutralway,wewillrealizethatwefailedinoneofthesesteps.

Retail:Suppliersallocatenon-qualifiedpeopletoprojects[Issueswithsuppliersincluded]failuretomeetestablishedSLAsandinfulfillingcontracts,

unskilledlaborforce,exchangeofresources.Ithinkthatfollowingindicatorsandagreed

deliverablescloselyisthebestwaytoensurecommittedsuppliersandbetterqualitydelivery.



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Conclusion&ExecutiveSummaryBrazilhasa longestablishedITcommunity.Themajorinternationalsuppliersarealloperatingin

thecountryand thereis stilla communityoflocal companies–eventhough the larger foreign

firmsarerapidlybuyingthesefirms.

Perhaps it is thismaturitywithin thewider IT community thathas promptedsomeof the keyobservationsfromourITleadersthisweek.Farfromcomplainingabouttheirsuppliers,therehas

beenapositiveresponsetotheexperienceofworkingwithsubjectmatterexperts.

OurquantitativequestionsrevealedthattheBrazilianITleaderhasfullyacceptedthatsuppliers

areanintegralpartoftheirdeliverymodel.AlmostalloftheCIOsquestioned(84%)seesupplier

managementasacriticalskillforthemodernITleader.

AndtheCIOtodayhasfaithintheirsuppliers.Afull68%ofthosepolledbelievethattheycanget

thesamelevelofcommitment,orhigher,fromasupplierratherthantheirownteam.Notasingle

oneoftheITleadersquestionedbelievesthatyoucannotcreateatruebusinesspartnershipwithanITsupplier.

But issues do remain. One of the major challenges Brazil faces is in normalizing employment

regulations,sooutsourcingisanacceptedwayofdoingbusiness.ACIOhiringanITsupplierwill

alwaysberesponsiblefortheprocessesthataredelivered–youcanneveroutsourceyourown

accountabilitytothebusiness–buttheindividualsdeliveringtheservicemustalwaysremainthe

responsibilityofthesupplier.

KeytakeawaysmentionedbyourITleadersalsoinclude:

• Suppliers are not always using the right people for the job. Sometimes the team is

unskilledorcontractedresourceistoojunior:asiftheyarelearning‘onthejob’.

• Clients can sometimes feel that the supplier is delivering to the contract, but the

establishedrulesareinflexibleandclearlyneedtobemodified,becausethedeliveryisnot

whatwasexpected.Evenifsuppliersaremeetingallcontractualdemands,theservicejust

doesn’tseemtobegoodenoughformostCIOs.



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• Whenserviceisnotgoodenough,strongenoughpenaltiestoenforcegoodbehaviorare

rarelyeverapplied.Evenservicecreditsarerarelyworthapplying,asafailuretodeliver

correctlycanbefarmorecostlythananyfinetheclientimposesonthesupplier.

• Thesuppliermaynotshareinformationaboutprojectsthatarebeingdelayeduntilitistoo

latetochangedirection,becausetheyareneverincentivizedtosharebadnews.

• Failuretodelivertoyourclientsmaymeanthatyouareoutofbusiness,buttothe

supplier,failureisonlyeverlimitedtothevalueofthecontract.Thisdoesnotencouragea

truespiritofpartnership.

Fromthefeedbackreceiveditispossibletodrawanumberofconclusionsaboutbestpractice,or

whatreallymakestheclientandsupplierrelationshipworkwellintheexperienceofourIT

leaders.

• Risksharingisessential.Iftheproductorserviceyoudelivertoyourowncustomersis

criticalforyourbusinessthenyourITsupplierhastoappreciatethis.Iftheysharesomeof

theriskoffailureratherthantheworstpenaltybeingalossoftheirmonthlyfee,thenyou

willencouragethebehaviorofatruepartner.Iftheyhavejustasmuchtoloseasyou,then

theywillmakesuretheydeliver.

• Transparencyfromthestartiscritical.Themessagetovendorsclearlyis:don’tdrivedowntheirfeestothepointthatyouarestrugglingtomakeanymoneyfromtheproject.Work

openly,shareideas,utilizetheexpertiseofyourpartnersandencouragethesharingof

goodideasandexperiences–aswellasbadnews.

• Win-winscenariosmustbeenforced.Structuringthecontractfromthebeginningsothat

bothpartiesfeeltheywinfromworkingtogetherisessential.Agoodexampleisbasedon

thesizeofyoursupplier.Ifyouarealargecompany,thenasmallersupplierwillmove

mountainstohaveyouasaclient.Ifyouareasmallcompanyandyouemployalarge

internationalITsupplier,thenyoumayonlybethe500thmostimportantclienttothem–

it’sworthconsideringhowyoucanselecttherightpartnersothatyoubothbenefitfrom

thedeal.

Onthewhole,thisreporthasbeenfullofpositivefeedback.SuppliersoftenpicturetheCIOasan

executivewhoonlyevercomplains,butthethoughtfulresponsesfromourITleadersshowthat

theseexecutivesappreciatetheimportanceofthesuppliercommunity.

Thereareproblems,butinanycorporaterelationshiptherewillalwaysbesometensionbecause

moneyisinvolved.WhatcanbeobservedfromthisreportisthatmostCIOshaveastrongsense

oftrustinthesupplierstheyworkwithandsupplierscanbecometruebusinesspartners–aslong

asbothpartiesplaytheircardsright.



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itd #7: best practices in supplier management (english)

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