Introduction

The supplier manager is a critical role in an IT services organisation. This is especially true because technology is advancing so fast that at any given point of time a SERVICE provider may not have enough technological capability to service a business, thereby necessitating an outsourcing scenario. A supplier manager has a mix of skills in an IT organisation - they must understand a bit of technology, possess good negotiation skills, and must have excellent interpersonal skills. Supplier managers must have high integrity and be able to do their work in the best interests of the organisation. While their job is to derive value from the amount spent on the supplier, they must also have the appropriate soft skills to ensure that suppliers engage as partners, as opposed to being pushed into a corner via hard negotiation.

1. What are the responsibilities of a Supplier Manager?

A supplier manager helps in the development and review of the contracts that the company has with suppliers. If there is more than one supplier for the company, the supplier manager must ensure that the supplier processes that are established with the suppliers are in line with organisational strategies. At any given point of time, the supplier manager maintains a supplier and contracts database; this could be a shared folder or a SharePoint location. Circumstances may require some of the supplier contracts to be modified – the supplier manager must ensure that all such changes are processed via the appropriate change control mechanism. One of the key things to change supplier contracts is the involvement of appropriate stakeholders, specifically senior management within the organisation as well as in the supplier organisation. As a part of the supplier and contracts database all the supplier information e.g. the names of the key persons, management representative for any escalations, contact details of all etc.are stored.

The most important job of the supplier manager is ensuring that the company gets the desired value from a supplier in terms of the deliverables that are expected of the supplier. From time to time, the supplier manager must also review the performance of the suppliers, document any changes required including a change of supplier, or at a minimum, issuing the supplier a warning. If a supply contract must be terminated, a process must be followed. E.g. adequate notice of termination must be provided, and any responsibilities of the supplier as a part of the termination process must be documented in the supplier contract. During the exit process, the supplier must be vigilant because an unhappy supplier could possibly leave behind loose ends that could result in the degradation of service afterwards.

2. As a supplier manager how would you deal with a multi-vendor situation?

A multi-vendor situation is always tricky.

A supplier manager must take care that the suppliers do not end up competing against one another, eventually making it their primary motive. In an outsourcing situation, suppliers may try to grab a bigger share of the work, pushed by their organisation targets; sales representatives are usually rewarded for bringing in more business into their companies. Therefore, getting a bigger share of the work is always high on their agenda; under this pressure, they try competing with the other vendors who work for you. There can also be incidents of non-cooperation between the suppliers resulting in a lack of communication, and this makes the overall service provisioning to your customer challenging for you.

While competition is one side of the coin, the other side is‘colluding’. This means that the suppliers unite with each other and decide on a resolution, for e.g. they may decide that they will not provide resources below a certain rate card, which could be higher than the industry average. In such a situation you will end up spending more than you had PLANNED for. This could finally mean that you either don't make the necessary profits, or you are selling your services at a loss to the company.

There are many other ways in which a multi-vendor situation can go wrong, and therefore the supplier manager must constantly ensure that they take care in terms of the supplier relationships and strike a balance between making them collaborate with each other verses keeping them aloof.

3. Have you heard of the Supplier and Contract database? What is it?

The Suppliers and Contracts Database (SCD) is established as an integrated element of a more comprehensive Configuration Management system (CMS). The SCD should have all the details of the suppliers and the contracts that exist with the suppliers together with details of the type of services or products that are provided by that supplier and how these relate to the configuration items.

E.g. provisioning of laptops for the employees of a company may be with supplier X. This information must be stored in the SCD. Furthermore, details of the quantity of laptops, manufacturer, configuration of the laptops, lead time to provide laptops, whether laptop bags should be provided along with the laptops etc. must also be included. Supplier details such as single point of contact in the supplier organization, escalation path and contact details of the supplier manager, technical skills of the personnel who shall be installing software on the laptops may also be included in the SCD.

The SCD should store all the information and act as a single source of truth for all the supplier information in the company. Apart from the contract details for all suppliers, there should also be a mechanism to categorize the suppliers; how the organization plans to evaluate new suppliers, new contracts and how new suppliers can be on-boarded.

The evaluation mechanism is crucial to ensure that poor quality does not come in; the process should be adaptable to the changing business priorities of the organization, e.g. in a period of LEAN business, the focus in supplier selection may be on cost, but in a period of good business the focus may shift to choosing suppliers with niche capabilities. Failure to adapt might misalign the suppliers from the company objectives. Regular evaluation should be carried out for all the suppliers and this information should also be stored in the SCD.

Contract renewal and termination criteria should also be included in the SCD.

The SCD is constantly in use across the ITIL® lifecycle, through service design, service transition and service operations.

4. In your opinion what is the objective of the Supplier Management process?

The objective of the Supplier Management process is to manage suppliers and the services these suppliers provide. This is necessary to provide seamless IT services to the business, the users and the customers. At any point of time focus should be to ensure that the users of the business derives value for the money that is spent on IT. The Supplier Management process ensures that suppliers and their provided services can support the overall service levels that the business expects from the IT organization. The process promotes awareness of the business context of working with the suppliers and partners.

All ITIL service lifecycle phases must consider the process of Supplier Management with due importance and that the supplier manager is involved in all the stages, from strategy through design through transition and operation and finally to improve.

In the modern business scenario Supplier Management should be able to ensure that it has full control on the suppliers and can quickly re-align and motivate the supplier to the changing business needs of the organization without going too much into contractual discussions. Supplier flexibility is key to the survival of any business as it helps to mitigate the risks of the business organization when not having certain skills or capabilities.

The primary goal of the Supplier Management process remains to continuously derive value from the suppliers and the partners, often through a reward and penalty mechanism. Value will also be derived through partnering, maintaining continuous communication with suppliers and agility is maintained through having a pool of ‘preferred’ suppliers with whom Master Service Agreements are already in place.

5. What do you understand by supply strategy?

Strategy for an organization is devised during the Service Strategy phase of the ITIL® lifecycle.

The first step in defining supplier strategy is whether the nature of the business allows certain services or products to be sourced from outside of the company. Due to reasons of confidentiality, this may be a very controlled process where every product or service that is being sourced externally must pass through stringent quality checks, e.g. procured laptops may need to undergo ‘hardening’ to prevent hacks. When services are being sourced from a supplier, confidentiality and data protection requirements may necessitate that the supplier provide services through a secured network or even from a physically isolated and secured location.

Supplier strategy must also define what kind of services and products may be sourced from the suppliers. E.g. certain businesses may not allow the procurement of software product licenses directly from the software vendor due to the higher license costs; in such cases the company must go through license resellers.

For sourcing manpower from external agencies restrictions may apply too. E.g. a business may not want to hire staff from a provider that already supplies manpower to its competitor. In some situations, such as a project that requires staff to operate in the night shift, there may be restrictions on hiring women in certain countries due to cultural reasons.

While supplier strategy can be more generic and overarching there should still be room for tweaks so that certain limitations of a prospective supplier may also be overcome, therefore ensuring that the business does not miss out on procuring products or services of better quality from a good supplier.

Cost consciousness is one of the primary factors for supplier selection. Many businesses follow a linear approach of choosing the least expensive supplier. However, the supplier strategies also allow flexibility in terms of choosing quality of deliverables over price when dealing with certain niche skills or services.

A good supplier strategy is beneficial to the business. The management must spend a good amount of time in formulating this and utilize the learnings from the past.

6. What is the most important factor of a good supplier relationship?

A good supplier relationship has a centrepiece called ‘Trust’. Trust is intangible and needs time to materialize within a relationship. A customer-supplier relationship starts with the exchange of goods or services against money. Commitments are made and must be fulfilled. These commitments are mostly contractual, and subject to scrutiny and legal jurisdiction and may result in financial reward or penalty.

However, businesses do not run linearly where there are only simple transactions; doing business would then be quite easy. There are numerous examples where businesses make commitment to their customers based on what suppliers have committed to the business. E.g. consider a case when delivering your project will require having a niche skill on-board. One of your staffing vendors has agreed to provide you with qualified resources in a stipulated amount of time. You will rely on this commitment from your supplier to commit to the business about delivering the software at a certain milestone. If the supplier is unable to provide you a quality resource on time, then you are in deep trouble. This is when you lose faith on your supplier and can no longer trust them. On the contrary, let us say that your supplier comes up with a unique plan, goes ahead and invests at their end in training to provide the resource to you. This enables you to deliver your software on time and with good quality to your business.

In the above situation the unique plan that your supplier executes is not a part of your contract with them, but it has enabled you to fulfill your committed business objectives. It’s a good example of when your supplier has built trust with you. When you deal with this supplier in the future, you will be always assured in your mind that they can deliver.

Look at the same example from another dimension. A supplier who can propose a unique solution outside of the contract probably understands your business needs very well. What they have demonstrated is ‘partnership’, which is well beyond a transactional relationship. Partnering is a very desirable state in the world of Supplier Management. If you are dealing with partners as opposed to vendors, you are more likely to succeed in your goals. For the supplier it is equally motivating to be considered a partner than just another vendor. It represents a growth in the value chain for them.

7. Can you distinguish between a Service Level Agreement, an Operational Level Agreement and Underpinning Contract?

A Service Level Agreement (SLA) is an agreement between you as an IT service provider and the business as a consumer, to provide specific IT services at a certain level of fulfillment. E.g. you may have an SLA with the business to maintain the infrastructure at 99.97% uptime. SLAs will be referred to in Statements of Work and contracts and are legally enforceable. Failure to fulfill SLAs may result in financial penalty for the service provider.

An IT service provider may have limited capabilities and skills which may require that it source ADDITIONAL services externally from suppliers who have expertise in the same. To source these services externally the IT service provider may need to enter into another contractual agreement with the supplier, which is also legally enforceable between the IT service provider and the supplier. This agreement is also referred to as an Underpinning Contract (UC). UCs need to be created for procuring equipment or specialized services from third party for the supplier or vendor.

An IT service provider may be a large organization with different departments. E.g. the HR department is responsible for providing staff to the IT Service Manager so that they may fulfill the commitments made in the SLA. If the HR department is unable to provide good quality staff on time, the IT service commitments cannot be fulfilled. This is where the IT Manager may want to enforce Operational Level Agreements (OLA). So, OLAs are internal, and made within different departments of the same organization. In certain mergers and acquisition OLAs may be in force between the merged organizations.

8. Can you think of some suitable KPIs for Supplier Management?

One of the most basic KPIs for Supplier Management is the number of underpinning contracts (UC). SLAs exist between the business and the IT service provider, however, when the IT service provider is sourcing goods or services from a third-party or supplier UCs may be the key to the success of the IT service provider being able to meet the SLAs. Appropriate coverage of financial liability must exist in case the supplier fails to meet its objectives. The UC enables to transfer the liability partially or fully to the supplier. In other words, the UC acts as a safeguard or an insurance for the IT service provider when it fails to achieve its business objectives due to the poor performance of its supplier.

Another KPI is the number of contract reviews with the supplier. Contract reviews ensure couple of things. First it ensures that you keep having regular conversation with your supplier. Secondly, it also ensures that the discussion regarding the fulfillment of commitments as per the UC happens. This KPI measures the contact frequency and is therefore useful to determine healthy supplier management setup.

Yet another useful KPI is the number of identified contract breaches with respect to the UCs. Every shortfall of the supplier in fulfilling a contract will usually result in additional costs incurred by the service provider so that the agreed service levels can be provided to the customer. These additional costs will not be chargeable to the customer for the business. Contract breaches are usually identified during contractor reviews or for major breaches during the event itself. A supplier who breaches too many times may be liable to heavy penalty or delisting from the list of suppliers. The service provider may need to further identify another supplier as a suitable replacement.

9. What are the factors to consider when choosing a supplier?

A good supplier is likely to take accountability for quality issues and provide a plan to work forward to address these issues quickly. A supplier without accountability is more likely to deflect the responsibility and blame something else that they will try to pass off as something outside of their control. Good suppliers are usually open to having their processes and internal working audited whenever required. If the supplier is resistant to such audit, it may be a sign of trouble.

Another factor to consider while choosing a supplier is their ability to scale, e.g. as an IT service provider you want a supplier to provide you desktops. You may want to check if they will be able to supply in bulk when need it as well as supply a single piece when the demand is low. A supplier must be verified and possibly references regarding their skills be sought especially when dealing with niche content or skills. Experience of delivering technology solutions in the same domain e.g. banking, manufacturing, E-Commerce sector is also important.

As per the saying ‘culture eats strategy for breakfast’, the next check that you need to perform is whether the supplier’s culture is aligned to yours or whether they will be able to align to your culture. Culture is difficult to change and this fitment must be considered even before choosing the supplier. In international businesses the language BARRIERS and the ability to maintain open and direct communication is important. It will also be the other way around, where as a service provider you may be doing business with an organization which is in a country that speaks a different language. In this case you may want to choose a supplier that also speaks the same language as the business you are serving.

The supplier must possess clear and comprehensive record keeping practices, e.g. they should record all the important decisions and honour the commitments that may have been made only verbally. A supplier must comply to ethical practices and also the regulatory practices whether it be the law of the land or the law under whose jurisdiction the underpinning contract is.

While all the above make a good supplier, what makes a supplier great is their focus on continual improvements e.g. does a supplier only care for the industry standards like ISO? Does it also care to continuously reduce waste and improve efficiency in their operations and possibly even commit to passing some of these cost savings to the customer as gain of productivity?

10. What are the typical contents of Underpinning Contract (UC)?

Underpinning contracts should contain the following information array minimum:

Service name supply information such as supplier name, address, contact person and contact details such as mobile number and email ID

Contract duration, i.e. not only start and end dates but also the terms and conditions under which renewal or termination may happen

Description of the service outcome - this is the scope of the service; what is the utility that is derived from consuming the service. Any warranty information should also so be included under the description of scope of services.

Communication channels and interfaces must be defined which should include not only the contact points and details for both the contractual parties but also a description of such interfaces e.g. how will these interactions happen – over phone, email or Skype. Any service reporting requirements including the content and the frequency must be described. Service reviews at periodic intervals must be included including the parties that will before forming review. Triggers to affect an escalation and the parties involved in the escalation should also be described in detail.

The window of service should be described in terms of hours of service availability as well as the exceptions e.g. weekends and local holidays

The types and levels of support must also be described e.g. remote support or onsite support or out-of-hour support

Service level requirements and targets should also be set in the UC and this would primarily be driven by the business Service Level Agreements and by those that the IT service provider has committed to the business. These could include availability targets, capacity / performance targets and any service continuity commitments including disaster recovery scenarios

If any standard has to be followed for example ISO or CMM this should be mentioned in the UC.

Roles and responsibilities, usage of subcontractors, pricing model including rules for penalties and chargebacks should also be included. The underpinning contract may also contain a glossary of terms and commonly used expressions so that the contracting parties are on the same page. References to other documentation for example master service agreement must be made.