How to implement a strategic IT vendor management program

HOW TO TRANSITION FROM VENDOR MANAGEMENT TO PARTNER MANAGEMENT

JEFF KUBACKISENIOR VICE PRESIDENT & CIO

• Implement a World Class IT framework and focus on external partnerships

• Vendor segmentation

• Procurement

• Vendor management

• Implement a supplier performance management program

• Conduct an annual IT partner day

ROADMAP TO SUCCESS

Sources: Metis Strategy & High, Peter. World Class IT: Why Businesses Succeed When IT Triumphs. Wiley Press/Jossey-Bass. San Francisco, 2009.

1. Recruit, Train, and

Retain World Class IT

Employees

2. Build and Maintain a Robust IT

Infrastructure

3. Manage Projects and

Portfolios Effectively

4. Ensure Partnerships

within the Department and with the

Business

5. Develop a Collaborative Relationship with External

Partners SustainableIT

Excellence

STARTING POINT – WORLD CLASS IT FRAMEWORK

World Class IT principles are used to develop an actionable scorecard

PRINCIPLE 5 – EXTERNAL PARTNERSHIPSSub-Principle Description

Vendor Segmentation It is important first to understand which vendors can provide what sort of services for the company. The first breakdown is likely to be strategic vendors vs. staff augmentation vendors vs. commoditized vendors. In all cases, cultural fit between vendors and the company should be assessed

Procurement The procurement process should involve not only the procurement department and the legal department, but IT needs to remain very involved to ensure that the value of the contract is not lost during the negotiation process. The procurement process should consider the company’s interests first, but should strive for “win-win” scenarios for company and vendor, and well-defined SLAs should be established

Vendor Management Once the vendor has been selected, they should be reviewed at regular intervals, and those reviews should be transparent to the vendor. They should be apprised of whether they are maintaining their standing with the company or falling short based on the SLAs and other criteria that were defined during the procurement process

Sources: Metis Strategy & High, Peter. World Class IT: Why Businesses Succeed When IT Triumphs. Wiley Press/Jossey-Bass. San Francisco, 2009.

VENDOR SEGMENTATION

Critical Preferred Approved

• Quarterly performance review – Executive level sponsorship annually

• Solicit vendor feedback quarterly• Monthly Summary Performance

Scorecard results• Quality Reports as needed

(weekly or monthly depending on business area)

• Create annual goals• Attend annual IT partner day

• Bi-annual performance review• Solicit vendor feedback bi-annually• Quarterly Summary Performance

Scorecard results• Attend annual IT partner day

• Case-by-case basis determined by supplier needs – could possibly include: - Annual scorecards - Annual performance review - No review or scorecard

• May attend annual IT partner day

• The frequency of supplier performance management activities should be driven by the supplier segmentation criteria (e.g., spend, importance to the business, geographic coverage, etc.)

• Suppliers should be classified in 3 primary buckets:

• Consolidate contracts where multiple contracts with the same vendor exist to better leverage economies of scale

• Coordinate with Enterprise IT to determine what should be procured enterprise wide, as opposed to what should be procured locally

• Define a standardized procurement process

• Create an IT Service Catalog that details what tools and services are available; this will prevent procurement of extraneous tools

• Where possible, negotiate deals at the corporate level and execute them at the local levels to leverage economies of scale and optimize responsiveness

• Have distributed IT personnel provide input to Enterprise and the Procurement group in the procurement process

• Define SLAs

• Survey vendors on what went well and what did not go well throughout the procurement process

PROCUREMENT

Key Objectives

Develop a standardized process for supplier assessment of company as a business partner

Improve understanding of our suppliers “cost to serve” the company

Support identification of opportunities to reduce cost and improve efficiencies through better understanding of our supplier interactions and management approach

Serve as a platform for supplier driven thought leadership and innovation

PROCUREMENT – VOICE OF THE SUPPLIER SURVEY

Operational Performance

• Adherence to contractual commitments/obligations• Remediation efforts and timeliness for missed

SLAs/remedies• Responsiveness

• Effectiveness communicating planning/project timelines

• Effectiveness in escalated problem handling• Demonstrated process improvements

Relationship and Account Management

• Talent knowledge• Problem management• Integrity• Continuity of staff

• Effectiveness and access to executives• Effectiveness and timeliness of communications• Overall satisfaction with relationship management• Negotiating flexibility

Financials

• Timely payment of accurate invoices• Effective utilization of purchased solutions/resources• Interest and ability to execute cost improvements

• Strategic approach and communication of cost reduction/savings strategies

• Ongoing management of assets and investments

Strategy

• Discussions and inquiry into new products/innovations• Robustness of technical road maps

• Level of innovation• Engagement in technology collaboration

VOICE OF THE SUPPLIER SURVEY CATEGORIES

1. Retain executive sponsorship and assign Business Relationship Managers that have accountability for providing regular communication on business strategy

2. Implement Annual Business Plans with key Strategic Suppliers; drive joint accountability and results

3. Implement quarterly cadence of Business Management Reviews; incorporate best practice discussions and allow for supplier generated innovation proposals

4. Broaden involvement in technology briefings that will allow company to be better informed on options to support longer term strategies

5. Drive standardization and consolidation

6. Seek opportunities to use technology across other areas of the enterprise

VOICE OF THE SUPPLIER SURVEY – SAMPLE FEEDBACK

• Altman Z Score - This model combines five different financial ratios to determine the likelihood of bankruptcy amongst companies.

• Frisk Score - This index utilized by Credit Risk Monitor assists in predicting the probability of default within 12 months based upon industry credit information.

• D&B Financial Stress Score - This tool categorizes the potential for financial risk into specific categories and predicts the probability of failure based upon specific characteristics.

• Paydex Score - A D&B credit score which reflects promptness of payment to creditors.

VENDOR MANAGEMENT – MONITOR HEALTH

Why an enterprise-wide supplier performance management program?

Connect Coordinate Monitor Control Improve

• Rationalize supply base and connect with the best suppliers

• Integrate with suppliers to exchange information

• Synchronize requirements with suppliers

• Identify suppliers’ core competencies

• Link core competencies with business requirements

• Use scorecards to measure supplier performance to ensure service level agreements and business objectives are being met

• Prevention: Insert control points at suppliers to mitigate risk and increase reliability

• Identify gaps and develop improvement plans

SUPPLIER PERFORMANCE MANAGEMENT PROGRAM

SPMP – KEY OBJECTIVES

• Standardize the method used to evaluate performance of suppliers

• Expend resource time with those suppliers deemed most important to the business

• Drive a disciplined approach that enables business/supplier bi-lateral communication

• Drive continuous improvement and innovation with supplier programs

• Improve supplier performance through consistent measurement and communication process

• Sustain and grow business with the highest performing suppliers

• Increase supplier accountability and reliability; ensure receipt of high products and services

• Align with business enterprise risk management program; proactive risk mitigation planning

• Assign focused accountability

• Create a company-wide standard of excellence

SPMP – SAMPLE SURVEY PERFORMANCE AGAINST CONTRACT TERMS AND CONDITIONS SUPPLIER FLEXIBILITY AND ABILITY TO MEET ESTABLISHED SERVICE LEVELS 1) Select a score that best represents the supplier's performance as it relates to supplier's flexibility to meet our changing business needs and performance against established service levels per the agreement. 1 - Supplier is significantly below expectations (many issues). 2 - Supplier is below expectations (multiple issues). 3 - Meets expectations for addressing business needs and performance against established service levels. 4 - Sometimes exceeds expectations for addressing business needs and performance against established service levels 5 - Consistently exceeds expectations for addressing business needs and performance against established service levels N/A - This question does not apply to me. QUALITY 2) Select the score which best represents supplier's ability to produce quality products and/ or quality services. 1 - Does not meet expectations for quality. 2 - Rarely meets expectations for quality. 3 - Meets expectations for quality of the products/services ordered. 4 - Consistently meets expectations for quality of the products/services ordered. 5 – Significantly exceeds expectations for quality the majority of the time. N/A - This question does not apply to me. DELIVERY 3) Product orders or service delivery is within the delivery and performance guidelines in the contract. 1 - Does not meet expectations for delivery. 2 - Rarely meets expectations for delivery. 3 - Meets expectations for delivery of the products/services ordered. 4 - Consistently meets expectations for delivery of the products/services ordered. 5 - Significantly exceeds expectations for delivery the majority of the time. N/A - This question does not apply to me.

SPMP – SAMPLE SURVEY ACCOUNT MANAGEMENT AND OPERATIONAL PERFORMANCE 4) Overall satisfaction with this supplier. 1 - Not satisfied with supplier. 2 - Dissatisfied with supplier. 3 - Supplier meets expectations. 4 - Very satisfied with supplier. 5 - Extremely satisfied with supplier. N/A - This question does not apply to me. HOW RESPONSIVE IS THE SUPPLIER TO COMPANY'S NEEDS? 5) Delivers consistently against expectations. 1 - Never. 2 - Rarely. 3 - Sometimes. 4 - Most of the time. 5 - Always. N/A - This question does not apply to me. 6) Escalates issues responsively to appropriate representatives within our respective organizations. 1 - Never. 2 - Rarely. 3 - Sometimes. 4 - Most of the time. 5 - Always. N/A - This question does not apply to me. 7) Demonstrates continuous improvement and works toward improvement goals and metrics. 1 - Never. 2 - Rarely. 3 - Sometimes. 4 - Most of the time. 5 - Always. N/A - This question does not apply to me.

SPMP – SAMPLE SURVEY 8) Responds effectively to ad hoc needs and requests that fall outside contract parameters.

m 1 - Never. m 2 - Rarely. m 3 - Sometimes. m 4 - Most of the time. m 5 - Always. m N/A - This question does not apply to me.

9) Provides stable sales force and account representation.


10) Demonstrably understands COMPANY's business and is invested in continuing to learn COMPANY's business.


SPMP – SAMPLE SURVEY 10) Demonstrably understands COMPANY's business and is invested in continuing to learn COMPANY's business.


FINANCIAL VALUE

11) Recommends effective products, services and solutions/aligns with strategic objectives.

m 1 - Does not offer recommendations for products, services or solutions to meet COMPANY's needs. m 2 - Rarely recommends products, services or solutions to meet COMPANY's needs. m 3 - Sometimes recommends products, services or solutions to meet COMPANY's needs. m 4 - Often recommends products, services or solutions to meet COMPANY's needs. m 5 - Consistently and proactively recommends products, services or solutions to anticipate COMPANY's needs. m N/A - This question does not apply to me.

12) Please rate this supplier's ability to maximize savings for COMPANY.

m 1 - Supplier does not maximize savings for COMPANY. m 2 - Supplier rarely offers opportunities to maximize savings for COMPANY or findings didn't lead to execution. m 3 - Supplier sometimes finds opportunities to maximize savings for COMPANY. m 4 - Supplier often finds opportunities to maximize savings for COMPANY that lead to execution most of the time. m 5 - Supplier frequently and proactively finds opportunities to maximize savings for COMPANY that lead to execution the majority of the time. m N/A - This question does not apply to me.

SPMP – SAMPLE SURVEY 13) How well does the supplier demonstrate interest and execution to improve the partnership and identify areas for improvement?

m 1 - No interest m 2 - Limited interest, below average execution. m 3 - Adequate interest, average execution. m 4 - Strong interest, appropriate execution. m 5 - Exceptional interest, strong execution m N/A - This question does not apply to me.

14) Aligns pricing with our specific situation/condition transparently and logically.


COMMENTS

15) Please provide any additional comments.

_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Your ratings and comments will be used to establish an ongoing review process with our suppliers.

Thank you very much for taking time out of your busy schedule to complete this survey!

Gold 4.5 - 5.0Silver 3.5 - 4.49

Bronze 2.5 - 3.49Yellow 1.5 - 2.49Red 0 - 1.49

Supplier SPMP ScoreCurrent SPMP

Rating Contract Ts & Cs

Acct Mgmt/Op

PerformanceFinancial

Value

4.34 Silver 4.28 4.52 4.18

4.34 Silver 3.93 4.49 4.4

3.51 Silver 3.5 3.69 3.33

3.39 Bronze 3.31 3.52 3.3

4.61 Gold 4.78 4.88 4.25

2.97 Bronze 2.88 3.27 2.71

4.24 Silver 3.77 4.47 4.24

2.86 Bronze 2.67 3.05 2.76

3.12 Bronze 3.29 3.2 2.96

3.60 Silver 3.53 3.76 3.48

3.25 Bronze 3.44 3.41 3

3.91 Silver 3.59 4.04 3.94

3.61 Silver 3.33 3.77 3.58

2.62 Bronze 2.33 3.14 2.25

3.80 Silver 3.67 4.27 3.39

4.23 Silver 4.33 4.25 4.17

3.70 Silver 3.44 3.61 3.25

SPMP – SAMPLE SURVEY RESULTS

SPMP SURVEY RESULTS TEMPLATESupplier Performance Management Date: 3/26/2013

Indirect Suppliers Ranking 3.55 Gold 4.5 - 5.0

Silver 3.5 - 4.49Supplier EXAMPLE Bronze 2.5 - 3.49

Yellow 1.5 - 2.49Sourcing Manager BUYER Red 0 - 1.49

Purchasing Category IT HARDWARE

Surveys Sent 9 Response Rate 44.44%Surveys Returned 4

AVG Score Weight1.) Performance Against Contract Terms and Conditions 3.44 20%

5 Exceptional knowledge of contract terms and conditions, strong execution, exhibits flexibility in support of the contract4 Strong knowledge of the contract terms and conditions, appropriate execution3 Meets expectations for supporting terms and conditions of the contract2 Supplier is below expectations (multiple issues)

1 Supplier is significantly below expectations (many issues)

AVG Score Weight2.) Account Management and Operational Performance 3.78 40%

5 Extremely satisfied with supplier's account management capabilites and administrative focus4 Supplier delivers above expectations through proactive account management and quality administrative skills3 Supplier provides satisfactory account management and administration2 Dissatisfied with supplier

1 Not satisfied with supplier

AVG Score Weight3.) Financial Value 3.38 40%

5 Exceptional accuracy, no errors, exceptional timeliness on 4 Strong accuracy, very few errors, strong timeliness on delivery of service/product3 Adequate accuracy, few invoice errors during review period, adequate timeliness on delivery of service/product2 Limited accuracy, many invoice errors during review period, limited timliness on delivery of service/product

1 Inaccurate invoices received the majority of the time, poor timeliness on delivery of service/product

Comments:

Please provide any additional comments.

Participating suppliers will be assigned one of five performance level ratings:

• Gold• Silver• Bronze• Yellow• Red

ANNUAL IT PARTNER DAY OBJECTIVES

• Gain an understanding of Business & IT objectives

• Learn more about the business and what we do

• Review IT account plans, conditions of satisfaction and IT Account Executives

• Announce the Partner of the Year & Account Executive of the Year

ANNUAL IT PARTNER DAY – WHAT DOES THE CIO NEED?

• Transition from vendor to partner; don’t just be an order taker

• Help us think out of the box – stop conventional thinking

• The project is not over until the product is fully implemented, the benefits have been realized and the IT staff has been properly trained

• Continue helping us move from tactical KTLO to strategic business partners

• Help us become a World Class IT organization

ANNUAL IT PARTNER DAY – WHAT IS ON THE CIO RADAR?

IT Security

Integrated Supply Chain Management

Execution on our ERP Projects

Enabling Innovation

World Class IT

Acquisition Integration

Communications

ANNUAL IT PARTNER DAY – SAMPLE OBJECTIVES• Implement a World Class IT operating model that ensures the effective and efficient use of IT in

enabling the company to achieve short and long term business goals

• Drive increased automation and integration across the supply chain, and identify corresponding opportunities for cost avoidance/removal to improve EBIT performance

• Leverage IT infrastructure and services to drive increased employee performance and productivity, and in the process identify and realize opportunities to improve EBIT performance

• Achieve increased cost discipline across the IT infrastructure to drive future reductions in IT budget requirements

• Develop a comprehensive IT risk management framework with a focus on reducing IT risks and strengthening security

• Leverage technologies such as social computing, mobile computing, analytics and MES to enable breakthrough innovation that supports growth initiatives

ANNUAL IT PARTNER DAY - CONDITIONS OF SATISFACTION

• Don’t try to sell us more products or services until you have completely helped us implement the products or services we already acquired

• Learn our business and understand our objectives and priorities so that you transition from a vendor to a partner

• Demonstrate that you are in this for the long run; not just using our company to meet a quarterly objective

• Demonstrate consistent performance as measured by the Supplier Performance Measurement Program (SPMP)

ANNUAL IT PARTNER DAY – ACTION STEPS

• Review the account plans and conditions of satisfaction with your teams

• Schedule a follow-up meeting with your IT Account Executive to discuss your capabilities and potential pursuit opportunities

• Identify and document active projects

• Meet at least quarterly with your IT Account executive to update the plan and review YTD performance

How to implement a strategic IT vendor management program

Leadership & Management

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