Module 2

Shift #1: Ensure Spec & SOW Design for TCO Shift #2: Structure the Solicitation for

Performance Results

Shift #3: Use Cost Modeling to Select the Lowest TCO Supplier

Shift #4: Develop Supplier Performance Agreements

TCO

Progression from Module 1 to Module 2

In Module 1, we covered how to take costs out of the SOW/SPEC

In Module 2, we are going to cover how to make sure you are using these modified SOW/Specs to buy

PERFORMANCE RESULTS

and not just goods and services

Stop For a Moment and Reflect

How much of your work time is spent in unplanned activities?

How many of these unplanned activities are customer or supplier related?

Have you done root cause analysis on these fires..or are you just a really good firefighter?

What could you do differently with that time if you could avoid predictable excursions?

Fundamental Premises Behind this Module:

1. Suppliers are in the business of making money

2. The best way for them to make money is to sell you

goods & services (resources) and move on. Next!

3. 75% or more of the customer and supplier

excursions you deal with are because you bought

resources instead of RESULTS

4. This misallocation of time impacts your results, your

career, your income, and most of all, your job

satisfaction.

Step 1 Cut the Fat Step 2 Solicit Results

(Module 1) (Module 2)

Key Decision Point Are You Buying Resources or Results?

6

Benefits of Buying Results

Forces supplier innovation

Allows for harnessing of supplier industry benchmarking knowledge

Holds supplier accountable to performance & results

Focuses on solving a problem or capturing an opportunity

Sets early expectations for performance

Aligns with both technical & business objectives

Allows for clear stakeholder alignment

Supplier management becomes easy 7

Stakeholders offer little

resistance when buying

RESOURCES but will be the

source of endless

heartache when they dont like the RESULTS

88

End

Result

How it will

be used

What they

want to

buy

9Ensure Supplier Delivery of Results on the Backend Requires Effort on the Front End!

the End

If you dont start the procurement cycle with

a strategy to buy

results, you WILL buy

resources. 10

All of This is a Pay Now or Pay Later Process

11

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od

, S

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at,

& T

ea

rs

Time

SOW RFX Neg.

Plan

ContractSup.

Perf.

Blo

od

, S

we

at,

& T

ea

rs

Time

SOW RFX Neg.

Plan

ContractSup.

Perf.

Pre-solicitation preparation is critical to a

successful outcomePre-solicitation preparation means understanding what

you need, why you need it, exploring the market, and

taking the necessary steps that will allow you to get it

in the best way.

In order to buy PERFORMANCE

RESULTS, you need to first research

WHY the purchase needs to happen

The SOW Should

Be soliciting results & be performance oriented

Detail the WHAT is desired, not the HOW to do it

Encourage innovation

Have stringent success metrics

Buyoff from all key stakeholders regarding intended RESULTS

Getting buyoff on intended RESOURCES is a recipe for future conflict

Be THE frontend mechanism that sets the stage for ensuring results on the backend

Be a liberating vehicle to revamp your time allocation model

13

Back to the Future

14

Assume weve signed a contract with this supplier. Given this assumption:

What is everything that could go wrong with this good or service?

What kind of things frustrate you or take your time unnecessarily with such goods or services?

What kind of problems or excursions have you seen in the past?

In detail, what does success look like for you? How would you measure that? Is there anything youve left out?

For each of the areas that are important to you, how would you want them fixed by the supplier if they fail

to perform?

What to Do With Customer Time Machine

Results

What results I

DONT want to experience

What results I

DO want to

experience

Customer

Buyer turns these into

PERFORMANCE MetricsHow would you measure these

results?

100% OTD as measured byNo inventory outages as measured byDefect rate < .01%, as measured byCustomer service response time of 5 hours

Warranty breaches resolved in 24 hours

etc

Determine the solicitations objectives

VA expects to improve its current loan servicing operations in several ways. Primary among these is to

increase the number and value of saleable loans. In

addition, VA wants to be assured that all payments for

such items as taxes and insurance are always paid on

time.Suppliers will give you better solicitation

responses if you tell them what problem

you are trying to solve

Key Supplier Performance Actions in RFX

Specifically state in your RFX that you are soliciting an offer for performance and results (not resources)

Indicate only suppliers willing to commit to deliver on performance promises need submit a proposal.

By responding, supplier must be solving a problem or offering a solution

Salespersons job is to shift you to his/her solution Does it comply with your solution?

By responding, supplier is giving a promise to perform

Must include stringent performance criteria that were defined in SOW (Success Metrics)

State the problem as well as the solution, so that supplier innovation is harnessed

17

Evaluation Criteria

You can weigh each evaluation criteria, e.g.

On time deliveries -30%

Quality issues -50%

Overcharges -5%

Responsiveness 15%

Supporting the performance result metrics is not

optional by responding, they are agreeing to do so

Call to Action

1. Remember: The supplier wants to sell you resources, and the customer will give

you a SOW/Spec for resources - but they will always complain about results.

2. Put your customers in a time machine and ask them what success looks like and

how they will measure it

3. Turn the customers vision of success into a set of measurable PERFORMANCE RESULTS

4. Embed these measurable criteria in the solicitation and state that you are soliciting

PERFORMANCE RESULTS

5. Have the selection criteria includes both of these:

a) Compliance to specs/SOW design criteria (what the customer wants today)

b) Ability to perform to performance results criteria (what the customer wants

tomorrow)

Lets answer your questions!

Q&

A