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.

VMO because –

One size doesn’t fit all

Each company has their unique needs which may be different from that of other companies. This is the reason no two vendors are similar and therefore sometimes making an attempt to force a relationship with a vendor which contrasts one’s company culture, volume can be like trying to fit a square peg in round hole.

There is no denying to the fact that organizing one’s vendors can save a considerable amount of money, but not every vendor or deal gets same amount of attention from the vendor management office. The aim is to allot resources to the relationships that have major impact on enterprise strategy.

It’s necessary to first know what one is looking for in a vendor. Then weigh the vendors depending on the most crucial things, things which fall into tie breaker category. Having a clear vision how the vendor would be selected saves a lot of guesswork and some serious headaches.

Fix a target and then make a list. This would give a clear picture of how much a vendor needs to deliver in a period. Keep a track of all the past relationships, which vendor performed extremely well and which vendor disappointed.

Having a good vendor management system in place is not a simple process. It is a continuous process of maintaining communication with vendors, so by knowing and communicating one’s expectations to supplier one can lessen the possibility of misunderstanding and problem in supply. By having a good vendor management, a company will be in a position to be successful.

IT sourcing is not “buying toilet paper”

Vendor management is a complex task. It has a wide range of influence on the business. Maintaining good relationships with the existing vendors’ means on-time and efficient delivery.  On the other hand, poor vendor management system can lead to bottle-necking and other inefficiencies. Vendor management comes down to a lot more than simply trying to haggle for the lowest price. Enterprises that have a formal vendor management group clearly gain both monetary and strategic advantages.

Communicating with vendors is just as important as communicating with customers. Having proper communication with vendors builds a win-win relationship with vendors as it leads to increased efficiency, reduced costs, better customer service and more over it builds trust amongst two parties.

Gone are the days when organizations focused on price, without understanding the underlying technology issues that affects IT’s ability to serve business needs. Today, large organizations need vendor management because of their scale.

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.

Secrets of long term Sourcing Relationships

Many clients get surprised by the amount of internal organizational change management, transition planning and execution needed to make the sourcing relationship productive from the start, as well as sustainable in the future. It takes a combination of active and focused preparation to achieve a successful initial transition and a viable relationship that achieves planned business case benefits.

It is important to align and control transition activities and leadership, at both individual and organizational levels. When outsourcing functions with the associated resources, there is much to think upon. So there is a need of asking and answering several interrelated questions that are very important to a company’s future success.

Below are some of the best practices components of transformational sourcing:

• Transition Management
• Communication Management
• Vendor Management
• Operational Alignment
• Service Management

Transition Management: What should the plan to transition and transform functions, knowledge, tools, projects and processes to and with anew supplier look like?

A comprehensive plan, the right team and transition management office (TMO) structure, and governance are musts for the management of complex transitions and transformations; including service implementation, involvement of ket stakeholders, communication, people transition, risk management and readiness for steady state.

Change management and Communications Management: How to prepare people for the change and the opportunity that is represented? When and how to communicate what the changes mean for the company, organization and for individual team members?

Change Management: This requires a deeper approach to organizational change management that is found with project-level change. Implementing of a sourcing strategy requires addressing change across new organizational structure and leaders, new employee roles and responsibilities with new skills.

Communication management: Strong sourcing management also requires robust communication management. Making communications an integral part of the overall sourcing strategy ensures fact based messages are conveyed consistently, accurately; and with the right message delivered to the right audience at the right time via right medium.

Vendor Management: How to manage and optimize the new supplier relationship to achieve the promised results and maximize its values?

It is imperative for an organization to define the Vendor Management Office (VMO) processes that operationalise the sourcing relationship and align the organization and the supplier on a common understanding of expectations for how the relationship will actually work and be governed.

Operational Alignment: How to align the new organization and its established processes with the supplier and their processes to achieve the desired outcomes for the business and the relationship?

To ensure this each stakeholder must understand its responsibility, the business processes that will change and the touch points or handoffs between the organization’s team and the supplier.

Service Management: How will the sourcing implementation change the process of engaging with the business customers? What should be done to improve provisioning of services and to better align IT services with business objectives?

To increase the chances of successful implementation of a new supplier relationship, an organization will need to navigate all aspects of the sourcing transformation through change management and transition planning focus.

Top vendor Management Problems causing value leakage

Over time it is not uncommon for organizations to find themselves with a large number of service providers supporting their global IT requirements. Some of these providers are no doubts strategic to the business but for the most part, many perform routine, commodity type services that the enterprise has chosen to contract for rather than use internal resources.

For some firms a large no of vendors may be in hundreds while for others twenty or thirty might be considered large. Whether the total number of suppliers supporting an enterprise number in the tens or in the hundreds, multi-vendor management is complex, time consuming and inherently very costly.

Quite often it is seen that client organizations develop a sizeable overhead organization and infrastructure to support many different contract types including service request and fulfillment processes, resource tracking and report requirements, pricing models and billing arrangements. Not to mention the amount of leadership time and energy is expended trying to manage so many providers.

Poor Vendor Management Leads to Value leakage

Top reasons for value leakage related to poor Vendor management include:

• Lack of visibility to the client’s business strategy across the supplier community
• The provider’s service delivery footprint has eroded over time and is no longer aligned with the client’s requirement
• There is little or no competitive tension between providers
• The client organization does not measure providers against Conformance to Quality (CTQ) metrics
• There are few incentives to providers to improve performance levels over time
• There is a lack of partnership for innovation across the different provider type and relationship

Multi Vendor management challenges

Multi Vendor Management includes many challenges. Some of the prominent ones are:

• Fragmentation: the fragmentation of supplier effort across multiple locations and limited sharing of best practices across the supplier community
• Misalignment: The misalignment of client’s sponsorship, resource priorities, services, delivery models and differences in processes and systems between countries and/geographical regions within a country
• Lack of vendor innovation: Lack of vendor innovation is due to ineffective SLAs or inconsistent mechanisms to hold providers accountable for their performance, vendor complacency, and unwillingness to identify opportunity for innovation
• Lack of standardization: A lack of standardization in service delivery platforms and client business models across geographies and business units, proliferation of disparate systems dictating different strategies for supplier portfolio management and under investment in governance, process and technology
• Sub-optimization: Sub-optimization of key functions as a result of ambiguous roles and responsibilities, confusion regarding service line requirements, lack of clarity regarding investment decisions and the absence of a mandate to drive more effective spend through better multi-sourcing supplier management

Vendor rationalization is one way to consolidate the effort an organization applies to vendor management. Consolidating vendor management effort allows an organization to better leverage its supplier spends and improves service delivery outcomes regardless to contract types or supplier relationship.

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.