How to have Successful Vendor Management

A vendor plays an important role in the success of any organization irrespective of their size and type. Although the management of vendors or suppliers is a very difficult and complex task it has to be done for the benefit of the firm. It is a very important thing to keep an easy going and frequent communication with the vendors. By doing this, a lot of cost could be saved and inefficiencies could be curbed which would then result in better customer service.

Vendor management not only involves the vendor to supply to you at low prices or better service but also maintaining a healthy relationship with them and retaining them. The first step in a successful outsourcing project is to implement a quality assurance program. A well-managed list of vendors helps the organization get a competitive edge as well as a cost advantage. There are no two vendors who are the same. Every company has their own set of unique needs and requirements. Choosing the vendor would be on the basis of your company’s culture and the quantity of orders your firm would need. Any organization would have two options with it – keeping an in house vendor management or getting it outsourced.

Organizing a vendor is a task in itself. The following things should be considered:

• What kind of services or technology is each vendor providing?
• Are any of the vendors overlapping the other?
• Is there any way of consolidating different vendors by any common supplier?

The organization should be clear of what they want. Vendor selection process can be a confusing and complicated process .They need to do their research on the “deal breakers” and “negotiable” as they call them before beginning the actual search. The company should put the most essential or crucial thing under the deal breaker category and the ones that are not essential in the negotiable category.  Having the things categorized or segregated for vendor selection process will save some headaches to the managers.

It is very important to know the target output that an organization needs, while making the list of vendors. This estimation of the output would give an idea about the weekly or monthly delivery schedule for a vendor. Also, the organization must learn from their past experiences with the vendors. They should keep in mind the good things as well as the blunders done by the vendors in the past. Communication is the most vital part in any supplier or vendor management process. There is a chance to lower the possibilities of misunderstandings and problems of any other kind if the vendor is informed as to what is expected out of him prior the deal itself.

It is not an easy process or task to have a good vendor management system in place. It cannot be achieved in a day or month but a long and continuous process. This involves the organization to maintain a good n healthy relation with the vendor and also by having a constant check on its own supply. Thus, if all the above things are done and taken care by an organization it’ll be able to achieve a good vendor management and be successful.

IT Outsourcing, Challenges during takeoff

 An organization may outsource IT work for many reasons. The most important event is the transition period.

Based on the size of the organization and the scope of IT outsourcing, the quantum of preparatory work will be different. But the process involved in preparation is same.

Simple, three step process

1. Setup the TM team.  The Transition Management team. It is essential to have a small team, from IT department as well as the concerned user department. The team members must be capable of transferring the required data to the new IT sourcing team. Must also work on a dedicated basis, to ensure timely roll out.
2. Draw out the transition plan. Use WBS (Work Breakdown Structure) for best results.  Ensure that the plan that is drawn is an integrated one.  Using the WBS, it will be easier to ensure that all steps are on paper.  It may involve, data transfer, status report hand over, shifting of full servers (if servers are being outsourced to a data center) etc, depending on what activity is being outsourced. Accordingly, the WBS may be a big tree with lot of details. It is essential to expand to fully till the leaf, to get best results during transition.
   The plan should be clear and specify a simple matrix giving activities in the proper sequence and the person responsible. The activity list itself should ensure that all dependencies are taken into account.
3. Implementation. Once the plan is ready, implementation will be a cake walk. On the day of transition, a brief shut down of the old systems / process / servers is done, data transferred and then ported to the new structure. Usually this is done during off days to have least disturbance, or if not avoidable, a couple of days break is taken and then a catch up is done to come on line (ERP Implementation).

With all of the above points, to deliver a well organized transition you might take note of this helpful note – Plan your work. Work your plan.

Cloud computing to take over IT

Cloud computing is the new age technology that has emerged. This technology is not only user-friendly but also big time savior  The biggest advantage of this is the availability and access of one’s data anywhere and anytime. This technology is on a wide use especially by the corporate world.

According to an analysis statistics say the IT department in the corporate world will shrink by 75% by the next decade. The only reason behind this diminishing size is the increasing use of cloud technology which is also proved to be quite economical. Thus IT departments would take over the role of advising rather than developing software. This will result in the smaller sized IT teams who would be focusing on making IT easier to use.

The cloud computing technology taking over the IT department would not only affect the work flow of the IT department but it would also impact the other departments of the firm. These impacts can be listed as follows:

• Helps the CIO’s increase their roles in the frim – The changes would help the CIO’s increase their roles and use their management skills in all the other departments like HR, Supply chain, etc.
• Changes in the other IT roles – Around 80% of the people in the IT department would experience a lot of changes in their roles and responsibilities. Also these employees would be expected to better their skills as per the changing business requirements. Thus the traditional IT roles like a developer, datacentre admins or network admins will no longer exists in the IT work flow. All these would be replaced by all cloud services like supplier of the software etc.
• IT department will only act as an advisory board – With the changing business requirements the IT department needs professionals with good negotiation skills, salesmen skills, financial and contract management skills which could be used to tackle the suppliers. Thus they help the other departments buy the IT systems they need.
• Emergence of new IT roles – The emerging new technology of cloud has replaced a lot of traditional roles. The organizations need more of the service managers in their IT team which will help the firm obtain the right systems according to the requirement of each department.
• Retraining for the IT department – The firm will help the employees to develop their collaborative skills so that they can survive in the new environment. The CIO’s suggested that there should be a long term workflow decided upon which would help the organization recruit the desired employees with the same management and collaborative skills for the same. As also they suggested that the existing employees are trained.

Thus with an indulgence in Cloud technology and a few other changes in the present system as mentioned above, an organization with a handful of trained professionals and a small sized IT department can achieve huge profits.

Renegotiating IT Outsourcing Contracts

Need

Outsourcing an activity is done when there is a value addition in doing so, viz;

• Better service quality
• Cost benefit  and Manpower benefit
• Lesser tension in performing the particular activity

Outsourcing an activity does not absolve the parent organization / person from the ultimate responsibility of delivery in terms of quality & timeliness.

Hence any organization should keep the above points in mind before outsourcing.

Initial Parameters

Each Organization will have its own reasons for outsourcing. The call will have to be taken by IT, before outsourcing.

Midterm Review of operations / service delivery

Any outsourcing cannot be for eternity.  The initial contract will have to specify clearly the terms of reference for delivery and also the review period. It is better to review all aspects of delivery, so that, any new parameter that may have come up during the intervening period, can also be taken up. It is also essential to have midterm review to have a clear idea of the performance, so that necessary course corrections can be done.

Re-Negotiation

After the first phase of execution, it will be time for re-negotiation. This is the time when both the parties should have an independent internal review, taking into account their own interests and future business.

Some points can be:

• Is outsourcing still required for the activity under consideration?
• Are there others in the market, which are better in terms of delivery capability? Can the activity be outsourced to more than one vendor for safety purposes
• Is the vendor using the latest technology?
• Delivery capability check is very essential, as personnel and other required resources keep changing
• Are there any new technical requirements that have cropped up during the intervening period?
• Due to the previous experience can the delivery time be improved?
• Delivery measurement – are the objectives of the company’s being met & aligned with
• Cost evaluation –
  • What is the market rate?  Is it down or up
  • Even if there is a down turn, one should not negotiate very hard, as that may reduce the minimum margin that the vendor is operating. This will affect service delivery.  It is better to do some internal, simple calculation to find out whether the vendor quote is within reasonable limits.
  • The client’s scope might have increased. Provision will have to be made for the same
  • All these will ultimately result in cost. The customer will have to be forthright in negotiating the cost without compromising the delivery objectives.
  • Has the vendor developed any other capability that may be useful to the client? This may give an advantage to the current vendor

Summary

• The client should put in writing the clear objectives of its outsourcing
• Evaluate new contracts based on the above points
• Decide the best vendor, taking into account its own delivery interest
• The usual L1 logic of tenders MAY not apply here, as the outsourcing department is ultimately answerable to its own customer departments for quality, quantity & timeliness

Investment Capital increase in Small Business

Nowadays business of any kind or type i.e. small or large, national or international (Local or overseas) needs an IT department in it. IT has become a vital and an integral part of any business. In order to compete in this big world of business small businesses have started giving more importance to their IT department. So to do so, they have started increasing their budget for the IT department since the beginning of this year.

The strategy that the business has adapted is to increase the budget and improve the technology and train the present employees on the same rather than recruiting new ones. In short they are increasing the percentage of the budget by almost 20% and reducing the recruitment by almost 5%.

Statically, if the budget for a firm with 1000 IT employees was increased it wouldn’t make much of a difference but on the other hand if the same would be done to a firm with 250 IT employees it would have made a hell lot of difference.

These businesses are investing this big chunk of money towards the hardware which the employees can use and use it to benefit the work they do and in turn help the business make profits. The 2 most important things that they are investing on are tablets and cloud computing. Using these 2 very essential things would help the company provide a more balanced and flawless managed and cloud service providers. The usage of cloud computing and hosted IT services has helped a lot of small business in the past few months and its usage is expected to increase due to its efficiency and easy accessibility. Also there are statistics that over more than 70% of the small businesses are using Server Virtualization.

Tablets being the new trending gadget in the field of technology, its use are accounted for giving more flexibility in work. Ever since its launch its use has been growing. Nowadays almost every second person at work place has a tablet. Having this is a lot more beneficial than predicted. It helps employees get handy with their work. It is much lighter than any laptop so the employee can carry it with great ease wherever he wants and get work done on the go. Thus, all the small businesses are encouraging its employees to have one tablet, if not everyone but at least the higher officials.

Thus the small businesses are focusing on optimization of the resources with the tools and technologies to help their business grow better and faster.

Budget vs Bill – How will it affect Outsourcing

The 2013 US budget is out & it claims to reduce the spending on the outsourcing front & also lowers the interest rates being the lowest in the past six decades. On the other side, the US Senate has passed the bill stating the decrease in the number of foreign employees in the US. These two are the major factors which are going to affect the 2013 year for Indian outsourcing industry.

Indian outsourcing industry had tough time in 2012 in the US market, which now gears up to to 2013 to invest wisely & earn more profits. Most of the companies have been in long term contracts with the employers & are on the verge of extending their contracts for the future. According to the market survey, around $50 billion is at stake which is almost more than half the entire Indian outsourcing industry. The outsourcing owners must use this instance & enhance their business to meet the needs of the budget & act wisely. Companies have to come up with innovative strategies & techniques which will restructure their business entirely rather than just upgrading their business models. The main focus should be cost-reduction, time-saving, improve the service delivery & quality & communication efficiency. Also for the small & medium sized businesses, more importance should be personalizing their services which are more suitable to the customer & also saving-costs at the same time. Some of the following points must be considered moving forward –

• Set-up offshore contact centers with onboarding skillful workforce to bring in more innovative ideas to the table & also help in cost-reduction.
• Think of methods to revamp the entire business model rather than just upgrading the old ones. Traditional models are inefficient & might be vulnerable to your business delivery. It’s better to compete in the market with the latest technology & services.
• Many offshoring companies are switching to the more personalized offerings & providing the customers what they just need for their business. This allows them to stay away from the general business models in the market & also makes them uniquely stand out amongst the rest in the industry.
• Other model which can be used is to maintain a transparent mode of communication between the offshore vendor & the client. This will help in maintain a healthy customer relationship & will also show positive results in your business on a timely basis.

As far as the Bill is concerned, the outsourcing firms will be having a tough time getting their visa’s approved by the United States. Many major companies like Wipro, Infosys, and TCS will face the problems when their employees won’t be able to get their visas. Their workforce percentage will be reduced due to the limitation on foreign workers as stated in the bill. All new workforces will be granted temporary visas at the cost of $5000 for every new employee being fetched from offshore. As for now, supported by the American information technology executives, the total number of H-1B visas will increase gradually from 65,000 to 110,000 in 2013. After 2014, companies cannot employ more than 75 percent of offshore workforce on temporary visas. By 2016, this ratio might drop down to 50% as stated in the bill. Most of the foreign workforce consume of 50 to 75% of the companies staff of United States. However this does not target the Indian outsourcing companies specifically. The companies will now have to revamp their hiring processes & limit the foreign workforce. This will help employment increase in the United States but at the same time it has created a barrier in the trade relations between United States & other foreign offshoring countries. Many companies have invested in building their contact centers in the US even though the economy had slowed in the past few years. According to reports, around $5.9 billion are being invested by the companies in building new centers in the US. Also the US budget now reducing their spending on the outsourcing avenues, the offshore companies will  have think wisely on how to invest & go about their business onshore. The bill also restricts a foreign resource working at the offices of the clients, which according to analyst is essential for business. According to the industry body Nasscom, “this bill is somewhat against the interests of Indian companies & can create disputes between the customer vendor relationships”. This will also indirectly increase the visa & wage cost for the Indian offshoring companies. According to Indian sources, “such restrictions on the new visas, or the existing ones should be applied uniformly to all & not just the Indian companies. This will also affect the competitiveness in the US market and also the effect the US-India commercial relationships.” This will affect the Indian offshoring companies from hiring the workforce in the US. The information technology industry played a key role in the US-India commercial endeavors & also generated revenue for India which will now get affected.

Industry bodies like Nasscom & Confederation of Indian Industry are waiting for any changes in the bill which will better suit the Indian outsourcing. The IT industry is important to the government as it helps in earning domestic profit & also generates employment avenues in India. So now putting into perspective both the Budget & Bill, it seems like an uphill task for the Indian offshoring companies for their business in the US.  The companies now will either have to raise the issue with the government or come with strategic & innovative methods to deliver their businesses as per the current bill conditions. Let’s hope the Indian outsourcing companies win this twin battle of the Budget vs Bill.

5 important aspects to outsourcing

Outsourcing is the most common approach used by companies to handle their business. But this approach also has its side-effects when it comes to the trust factor with the vendor. You have to be very careful when u decide to approach a vendor for an outsourcing contract. Here are a few aspects which 1 should consider before outsourcing to an appropriate vendor-

1. Vendor Stability in market – Be aware of the vendor’s status in the market whether it is worth depending upon a third party. Evaluate the vendor first before getting into a contract with it since it might affect your daily operations and hamper your delivery standards if the vendor fails to deliver. Also check for the infrastructure & technology that the vendor is utilizing in their work methods to deliver your business services. Also consult on the vendor’s performance with its earlier or existing clients. This might give you the slight idea of how the vendor works.
2. Vendor Performance – Outsourcing involves long term contracts with the vendors and you work on a daily basis with the vendor communicating the various deliver methods. Initially when you sign a contract, it is necessary that you define your goals & objectives of the engagement with the vendor. The vendor should be very clear on his part as to what are the services he needs to provide, know about its deadlines, and also in case of emergency come up with remedial solutions on time. For example – if a ticket is raised on a helpdesk portal, the vendor should acknowledge that ticket request to the raiser & resolve that ticket in the time which has been defined in the SLA of the contract.
3. Measure – Outsourcing deals with costs savings, flexibility in business services, financial flexibility & stability which in turn help in increasing the organizational value. But before you contract the vendor, it is necessary the vendor focuses on the core services of your businesses & set SLA’s against these operational activities to track the performance of the vendor. Define specific metrics which would help to evaluate the vendor’s performance which in turn make the vendor perform better in making your business a success.
4. Retain your employees – Outsourcing your business to an external provider can hamper an existing employee’s job. The employees can feel vulnerable that their job is next on the cut-off list of the company. To avoid such situations, it is important that the company forms a committee of members who will analyze the problem areas & come up with appropriate resolutions on retainment of these existing employees into the outsourcing areas. This might also involve third party vendor with whom the company has outsourced its business.
5. Knowledge transfer & transition to vendor – You might know about your business, but the external provider has more valuable insights & broader knowledge of the industry you are outsourcing. But since it’s your business, you know more about its functioning and knowledge within your organization. There should be proper procedure followed by the company to impart all this knowledge transfer to the third party provider. It can be done though various training programs conducted for the provider and effective and frequent communication between the company & the provider.

To or Not to – Benchmark

Benchmark is the one of the important aspects in driving the outsourcing contracts. To be competitive in the market, companies’ usual follow through the benchmarking processes & act accordingly to its findings. Due to the fast evolving technology, visibility in the pricing & also the growing market which gives buyers more options to choose from have all gradually contributed in decline in the IT services. Companies these days are failing to keep up with their benchmark due to the speedy evolution of technology & its related services. So to be competitive in the market space companies either has to frequently re-bid & re-negotiates their short term contracts.

One of the important aspect of benchmarking is that it improves efficiency, but many outsourcing providers argue somewhere down the line these benchmarking clauses are proving less effective. Earlier there were benchmarking clauses which were part of the contracts which directly impacted the service delivery pricing with regards to market standards. These clauses usually referred to the periodic changes in the pricing and quality of the services. But this mandate over the inclusion of these clauses in the contract is decreasing gradually over a period of time. Some companies incorporate these benchmark clauses in their contracts since they are useful in effective outsourcing strategy, both for in-sourced and outsourced contracts. At the same time some companies independently contract their IT services & keep their pricing on a fixed and timely basis.

Benchmarking has two approaches to it when an organization is opting for it. One of the methods is to go by the benchmark findings and help build your contract pricing depending upon the market. This sort of method can be utilized when the organization is aware of the industry pricing which is already competitive. In such scenario it’s better to explore & adapt to alternative change strategies and come up with a contingency plan wherein you can leverage your market space & contract pricing.

Another approach is where you change your contract pricing depending upon the final results. These manly occur when the initial research & analysis fail to show the expected results with the rapidly changing market standards. To avoid scenarios companies usually prefer to have the standardized benchmark reviews of their IT service pricing prior to any fall outs. Companies usually conduct these benchmark reviews of their IT services, BPO services, and IT infrastructure services before any of them entering a new contract.

Research analysis after the reviews have revealed decline in overall contract pricing, reduction in costs due to improved processes for implementing new practices. Effectively using benchmarking can prove vital in cost savings in the long run which help improve the service level agreements & keep the company competitive in the industry leading practices.

Research reveals that companies who do not mandate benchmark are the ones who are at risk. There’s a debate about the binding with the benchmark clause or go with the non-binding & actionable approach. Some believe that contracts which don’t mandate benchmark reviews aren’t worth pursuing. Some debate over the fact that binding benchmark clauses might result into hampering the client supplier relationship since it provides with less flexibility.
A common norm is that a clearly defined set of expectations with appropriate set of benchmark reviews is healthier in maintaining long-term relationships between the supplier and the client

Benchmarking has more than often proven to be pivotal in an organization’s success & growth. Benchmarking acts as an intermediate between the company’s research & requirement understanding of the new & existing activities and the actual execution of the company’s business processes. It identifies the risks & helps them mitigate through proving alternative solutions within the benchmark review scope. It also helps analyze the current operational activities and plays an important role in quantifying those and improving them with changes. Benchmarking is all about the culture of continuous improvement & improved performance.

Vendor Management Office – By Nikhil Pundlik

Need for Vendor Management Program

As more and more of our IT applications development / infrastructure is outsourced to various vendors, We need to realize the importance of a formal vendor management program. A tool which can help us to measure the performance and efficiency of various vendors is absolutely necessary if we desire to manage out outsourcing relationships successfully. Setting up a Strategic Vendor Management program helps us to clearly define and understand the relationships we have with our vendors so that we know how to measure, and in turn, optimize various specifics of the engagements. The foundation of any new vendor management processes always starts with defining metrics (measuring points/areas) and then accumulating various vendor data to set up those measures and metrics.

A Legacy Vendor management system.

Instead of a web-based vendor management system, many organizations use non-web based manual VMO systems. However as the number of relationships and vendors increase, handling data gets very tough as information regarding vendors was gets very fragmented.  It resides in file cabinets, Excel spreadsheets, Word documents, Access databases, etc.  There is no consistency in the way the information is stored and it becomes a challenge to extract information about vendors when required. The process of managing a vendor relationship is not clear as role and responsibilities are not understood and the information required of vendors to effectively manage the relationship is not known.

What are the advantages/benefits in moving to the web-based app?

The web-based application completely redefines the way we view vendor management.  With the system, we are able to combine all vendors, contracts, software, and services into one database and build logical relationships between them.  Since vendor management is a distributed function in most organizations, it was critical that the system should be understood and used by individuals throughout various business lines.  The web-based application’s ease of use simplifies the process of tracking vendor information and managing on-going vendor activities such as contract expirations, watch lists, and vendor reviews.

Does the web-based Vendor Management application help with presenting information to the auditors/regulators?

In most cases, Regulators place a very high level of importance on an organization’s ability to display that vendors are being managed effectively.  The web-based application is the tracking system for all vendor information.  With the system, we can easily communicate to auditors and regulators the risk of each vendor and the due diligence activities performed.  The reports we generate using the system allows the organizations to quickly respond to audits and examinations and provide comprehensive and current information in a usable format.

Who can use the application and how often?

The application can be used by a number of employees depending on the rights of usage given to each employee.  It is originally employed as an organizational priority with senior level management support.  The system provides the organization with a holistic view of the documentation and activities surrounding vendors, contracts, software, and services.  Vendor management is an on-going process that requires a methodical and diligent approach.  The organization can use the system as frequently as on a daily basis or depending on how the data is gathered from different vendors  to manage and maintain a successful vendor management relationships.

By Nikhil Pundlik

(Sourcing Guru since Mar 2008)