Multi Vendor Management is much more than just Supplier Management

This week the IT Service Management gurus have been discussing whether ITIL is Broken.

David Moskowitz – Interesting discussion @ Facebook #back2itsm group regarding whether #ITIL is broken http://goo.gl/QxdBR (hint, I don’t think it is) #ITSM

ITILZealot – @davidm2 #ITIL isn’t broken, it is a nirvana that may never be totally achieved but functions as a goalpost to aim for

David Moskowitz – Admit I’m tired reading about how broken #ITIL is. Hint: it’s DESCRIPTIVE meaning it’s meant to be adapted. So… adapt, don’t complain

You will have to join the #back2itsm Facebook group to view the interesting discussion thread.

The exam question is not whether ITIL is Broken, it should be about the quality of the explanatory guidance provided in the ITIL 2011 Edition core volumes.

In my experience the books describe “What to Do” but contain insufficient detail on “How to Do It”

Let’s drill into a particular topic by taking a look at the guidance provided by the ITIL industry standard framework for Supplier Management and Multi Vendor Management.

 

Service Design – 4.8 Supplier Management

The purpose of the supplier management process is to obtain value for money from suppliers and to provide seamless quality of IT service to the business by ensuring that all contracts and agreements with suppliers support the needs of the business and that all suppliers meet their contractual commitments.

I encourage you to read through all of section 4.8 for example 4.8.5.3 Supplier categorisation.

Service Strategy – 3.7.3 Multi-vendor sourcing

Sourcing services from multiple providers has become the norm rather than the exception. This approach has been delivering benefits and gaining increasing support. The organization maintains a strong relationship with each provider, spreading the risk and reducing costs. It should also be noted that each provider may represent a different type of sourcing option.

Governance and managing multiple providers, who often have little to do with each other outside of the common customer, can be challenging.

Service Strategy – 3.7.5 Sourcing governance

Governance refers to the rules, policies, processes (and in some cases, laws) by which businesses are operated, regulated and controlled. These are often defined by the board or shareholders, or the constitution of the organization; but they can also be defined by legislation, regulation or consumer groups.

This description of Sourcing Governance is non-specific.  What is required is a practical example of how a Governance Board provides oversight for multiple vendors.   

The purpose of the Vendor Management Board is to ensure that strategic vendors are acting as global service partners in the company’s best interests, in a way that is consistent with the intent of contractual obligations.

Objectives of the Board:

  1. Maintain a productive and well managed strategic relationship at the most senior levels
  2. Provide a forum for open and honest two-way communications between client and the prime vendor
  3. Ensure that both client’s and the vendor’s relevant medium-term and long-term strategic imperatives (business, technical, etc) are understood by both parties, and potential opportunities and risks are identified
  4. Identify and exploit opportunities to leverage the relationship between client and the vendor in order to add value
  5. Provide a forum for reviewing holistically at a global level the service being provided to client by the vendor

The Vendor Management Board should meet formally every quarter at a minimum

IT/BPO Outsourcing and Supplier Management explained

Thomas Coles – MSM Software

00:30 MSM have been engaged by a client to manage the relationship with over 25 suppliers.

What does ITIL have to say about the Supplier Manager role and responsibilities?

Service Design – 6.3.12.1 Supplier Management Roles

This section sets out the Process Owner and Process Manager responsibilities that need to be performed in support of the supplier management process.

For example, the Process Owner works with the business to ensure proper coordination and communication between corporate vendor management and/or procurement and supplier management.

Section 6.3.12.1 does not provide the right level of guidance to define and effectively establish the role.  Here is a more detailed [15 point] list:  

The Vendor Manager is responsible for:

  • Developing and maintaining executive working relationships with strategic vendors
  • Facilitating negotiations and commercial engagements with the vendors for current and future business requirements
  • Creating an escalation path within the vendor organisation for the purposes of dealing with high profile service and account management issues
  • Implementing best practice vendor management processes in addition to the ongoing governance thereof
  • Acting as an escalation point for vendor performance or governance issues
  • Managing the dispute resolution procedure relating to claims or disputes between the service organisation and its strategic vendors
  • Liaising with business relationship managers to channel and prioritise their requirements to the vendor(s) and to ensure that internal customer expectations are met.
  • Evaluating sourcing strategies to ensure they reflect Client’s operational and vendor experiences
  • Developing the contractual elements of the sourcing strategies
  • Evaluating markets for sourcing developments and opportunities
  • Maintaining a current understanding of external environments, including vendors and product innovations
  • Managing review meetings with strategic vendors to ensure delivery against objectives and contract budgets, developing regular reports on contract, and commercial milestones and performance, and informing internal customers, vendors and management of activities and progress through regular written and verbal communication
  • Administering commercial and financial arrangements with vendors to include billing, invoicing, performance/penalty adjustments and internal charge-backs, where appropriate
  • Managing ongoing regional or local evaluation and benchmarking requirements for ITO and  BPO services
  • Managing the evaluation of vendors against the efficiency and effectiveness metrics, and report results and findings to IS and business stakeholders.

Vendor Management – Best Practices For Your Business

Regardless of what business you are in, vendors play a key role in the success of your business.  By using the following vendor management best practices to build a mutually strong relationship with your vendors you will strengthen your company’s overall performance in the marketplace.

  • Vendor Selection – right vendor for the right reasons
  • Vendor Search – create a short list of vendors that meet the defined requirements
  • Flexibility – willingness to work towards a mutually beneficial contract
  • Vendor Performance Monitoring – must be monitored constantly in the beginning
  • Communication – avoid misunderstandings and proactively address issues

A well managed vendor relationship will result in increased customer satisfaction, reduced costs, better quality, and better service from the vendor.

Carmela DeNicola, FYI Business Consulting

I recommend that you read the full article which provides more detail for each of the five best practice areas.  Here is the LINK

Bill Laberis – In tough times, lean on your vendors

You can and should lean more heavily on your big IT providers to prove tangible and intangible value

 

The Next Wave of Vendor Relationship Management – LINK

What is the next great strategic sourcing practice for sustaining cost reductions and driving an efficient, competitive business in an environment that is constantly and dramatically changing?

The answer is in how companies are addressing vendor relationship management and creating incentives that better leverage the capabilities of their current providers.

Most mature outsourced companies have created a concentrated multi-provider base, often with a handful of large sourcing vendors playing a major role in supporting the organization. These efforts have shifted business critical processes and value chain activities to outsourcing providers, creating new major provider relationships that are vital to operational continuity.

Accelerated software delivery life cycles, vastly more sophisticated infrastructure virtualization, rapid pace of process and technology convergence, and the need to work seamlessly with offshore vendors have made effective vendor relationship management more demanding and more critical than ever before.

The challenges of Multi Sourcing

FUJITSU UK executive Discussion Evening

If you can get past the annoying background noise this video clip has sound perspectives from senior level practitioners.

At 02:55 Dr Richard Sykes of Intellect talks about the need for outcome based agreements with a single vendor which is not Multi Sourcing.

Multi-sourcing: CIOs tips on making it work for you –

and your suppliers

Businesses are moving away from trusting single suppliers to deliver multi-billion pound outsourcing megadeals in favour of accessing services from multiple providers instead.

Almost 40 per cent of CIOs surveyed by Harvey Nash/PA Consulting Group last year said they planned to increase their use of multi-sourcing – where IT or business process services are sourced from a range of suppliers rather than a sole provider.

Multi-sourcing, as well as providing access to services from best in breed suppliers, offers a way around the common pitfalls of being locked into a long-term deal with a single vendor. Long-running outsourcing deals with sole suppliers can encourage low innovation, sloppy service delivery and customer dissatisfaction as the supplier, safe in the knowledge that it has a multi-year contract, has little incentive to try too hard.

However multi-sourcing is not without its risks, in particular the potential for the deal to come apart if the client fails to get to grips with co-ordinating multiple providers or if communication between suppliers breaks down.

At the recent CIO Event, CIOs shared their thoughts on the best ways to get the most out of multi-sourcing and keep multiple suppliers on track:

  • Check whether multi-sourcing is the right approach
  • Small deals may not be suitable to be broken up and delivered by multiple suppliers.
  • Outsourcing contracts often require suppliers to invest upfront and if splitting a deal into smaller contracts reduces their value too much, suppliers will likely reject the job as not being viable.
  • Companies should also check how many suppliers have the skills needed to deliver the work they want to outsource.
  • If only a small pool of suppliers are able to carry out the work then multi-sourcing may not be the best approach as there will be too few qualified suppliers to provide competition.

Nick Heath

This is an extract from a longer article which also explores the following: Competition is good, Reward joint success, Keep suppliers clued up and Align your goals.  LINK

 

IT services the end of multi-sourcing is nigh

Multi-sourcing is dead; long live the trusted advisor. As contracts reduce in size, power is being redistributed to the key players in many outsourcing engagements, according to Ovum.

In the new report*, the independent IT and telecoms analyst firm finds that on the back of an ever reducing number of megadeals the average contract value has fallen to USD$65m in the first nine months of 2011.

Jens Butler, Principal Analyst of Ovum and author of the report commented: “The mix of major providers in outsourcing contracts has shifted from the much-heralded multi-sourcing approach to a more contained portfolio of suppliers and services in recent contracts.”

The report uncovered the increasing prevalence of single “capstone’ vendors “controlling” larger proportions of contracts. On average 60 per cent of total contract values (TCV) are being allocated to a single, lead supplier across multiple supplier deals signed since 2009 highlighting the fact that consolidation of control and governance is shifting to a single, trusted supplier model.

“The more mature markets are moving towards consistency in contract size and length, enabling suppliers the ability to plan and think strategically and develop value that can be delivered through the lifecycle of the contract”, said Butler.

The report notes that in the emerging markets, cost management and control are less of a core factor in decision making and there is a tendency to leverage IT to support business growth and expansion. As such, the key driver for enterprises when investing in IT is speed of delivery.

Butler recommended  that enterprises need to be prepared to engage with multiple suppliers, offer a big enough carrot of additional services and to be prepared offer more applications into the mix in the emerging markets.

Jens Butler

* IT Services Contracts: A Single, Trusted Supplier

Many factors are driving a review of IT sourcing strategies:

Business Drivers

  • Meet growing business demands for IT solutions that contribute to competitive advantage
  • Accelerate time-to-market for IT solutions, such as for new business models
  • Maintain high satisfaction levels with business

Financial Drivers

  • Reduce IT costs 
  • Maintain a flexible cost base
  • Maximize returns on IT investments
  • Balance costs, quality and service levels

Capability Drivers

  • Re-skill and up-skill IT personnel
  • Focus on IT capabilities that will deliver business value

Risk Drivers

  • Address IT performance issues
  • Improve IT workforce management

Multi-sourcing has become a de-facto standard service model for outsourcing in large companies as it accumulates benefit from the capabilities of the best players.

However it should be noted that the benefits of multi-sourcing come at the price of increased complexity.  Additional complexity is created where the organisation has implemented:

  • key nearshore and offshore locations to provide balance between skills availability and service cost
  • a hybrid model enabled by private and public cloud services

Companies must stand up a retained IT organisation which is responsible for Vendor Management providing oversight of the outsourced suppliers, commercial management and end-to-end service management capabilities.

The retained IT organisation must be specialists who will typically focus on the following topics: 

  • Buying Services: Company focuses on what services needed and not on how they should be delivered
  • Service Levels – Management through output measures e.g. KPIs, enhanced and predictable service levels without resource constraints
  • Pricing – Service based pricing; paying for usage with annual cost reduction targets
  • Contract Terms – Service unit prices defined up-front; payment related to service usage
  • Contract Governance – Client controls demand, but not delivery
  • Retained Skills – Focus on service procurement, business enablement, requirements and service measurement
  • Processes – Client buys standardized processes and tools (based on best practice frameworks) instead of spending company resources to build and maintain them

Multi sourcing is typically enabled by a prime service integrator.  The prime integrator (lead supplier) ensures service levels through industrialised Service Management practices which are supported by an integrated toolset.

Industry standards, such as CoBIT 5, ITIL 2011 Edition and ISO/IEC 20000 have an important part to play in the standardisation of ways of working across multiple vendors.

I hope that you now appreciate that implementing a multi sourcing service model and multi vendor management is much more than just the supplier management process and roles described in the ITIL 2011 Edition core volumes. 

Gartner recognises this as one of the greatest areas of stress for CIOs, how to make sure you choose the right service suppliers, and how to get them to work for your benefit not theirs.

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2 Comments

Filed under Business

2 responses to “Multi Vendor Management is much more than just Supplier Management

  1. This is not what good looks like!

    Please remove my trademarked logo and service name from your website – “Decipher the ITIL Code”. Poor form! If you use other people’s sweat then RECOGNIZE IT. Link images to sources and cite!!!

    • I selected “Decipher the ITIL Code” from Google images. How is one to know that it is a trademarked logo? Where is the TM.

      I will remove it form the post

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