Supplier Management - Special Interest Group - Oct 2015 Post Meeting Report

  • Published on: 16 November 2015
  • By: Lesley Michaelis

The world of IT supplier management is becoming ever more complex, with a constantly changing array of new suppliers offering fresh and exciting services such as Agile, Cloud and SaaS challenging the established supplier landscape.



  • How can you choose the best business partner(s) amongst all the noise?

  • How do you maintain good relationships throughout the term with your current incumbent supplier?

  • How do you ensure that you receive the value promised at signature?

  • And how do you constantly strive for the innovation that allows your company to get ahead of competitors?


    The Quantum Plus Supplier Management Special Interest Group (SIG) has been set up to share experiences and thought leadership to date, explore ideas and work in collaboration to further develop some of the answers and create a forum for open discussion and communicate “lessons learned” so that others can benefit from learnings and experience to date.


Agenda for the afternoon

  • Introduction and objectives for the afternoon

  • Supplier management framework

  • Components of a ‘best in class’ framework for managing strategic suppliers

  • Organisation design for effective supplier management

  • Responsibilities (contract management/service management/category management)

  • Business engagement in supplier management process

  • Supplier engagement

  • Integrating suppliers to optimise service

  • Supplier collaboration teams

  • Contractual measures

  • Service integration and management (SIAM)



Session one – supplier management framework

The afternoon session was opened by each attendee introducing themselves to the group and encouragement was given to share individuals’ experiences and explore various ideas.

Peter Nowottny facilitated the first session which was based on the Supplier Management Framework and the components of a ‘best in class’ framework.

The purpose of a management framework was discussed and the reasons for requiring a framework included:

  • The market is constantly changing e.g. labour arbitrage, process automation etc.

  • To extract full potential value from suppliers

Some challenges raised by the participants comprised:

  • Internal stakeholder management understanding and fitting within the framework

  • From a supply side perspective, it is difficult for the service providers to get the engagement they require to ensure a successful relationship. If they don’t have the engagement/interest from the business, this becomes difficult

  • It is difficult to determine which suppliers to focus on in order to build the supplier management framework. If the service provider doesn’t consider the client as important, the client then has to demonstrate the potential their organisation has as a customer

  • What is the supplier’s perception of the customer; are they exploiting the customer? It could be useful to gauge what the supplier’s perception of the customer is and consider how the customer changes to become more attractive to the supplier

  • In the majority of cases, the supplier management framework is currently focussed on service and cost, with insufficient attention given to the wider relationship

Peter presented the 10 key components of the supplier management framework which demonstrate the conventional supplier management measures as well as provide elements for smarter relationships.

General observations from the group were:

  • A value assessment objective is a key component that works well. It drives additional value from the relationship but, to ensure success, must be measured regularly

  • Cultural and behavioural fit of organisations is key

  • Supplier behaviour is also a key part of the performance scorecard

Framework component 1 – service management

Peter referred to a client scenario whereby SLAs had been developed and agreed in each area, with the supplier responsible for component parts, but they did not know how to create an end to end SLA, and as a result had not moved forward to develop business outcome SLAs.

Peter explained that, in Quantum Plus’s experience, trying to express SLAs in terms of success of business processes is almost a step too far; the client isn’t ready to have the dialogue with the business, therefore a ‘halfway house’ approach is recommended - instead of availability of components or incident resolution, who are the critical users, what are the critical periods? Targets should be set for incident resolution. At least a proportion of SLAs should be focussed on critical apps/people/periods.

Some SLAs may be split between the ‘halfway house’ and traditional method. It is recommended to try and drive business outcome SLAs this way.

Focussing on incentives/penalties is fairly insignificant to the supplier and is not going to help to drive and achieve the right behaviours. Any penalties should be progressive.

Angela suggested behaviours varied around penalties, depending on whether service providers could offset the service credits against future invoicing, or whether they had to write a cheque for the penalty. It was agreed that the supplier would prefer to discount the penalties, as this wasn’t as transparent to the supplier’s senior executives.

General feedback from the group regarding service management included:

  • Earn back clauses still exist within some contracts

  • Is over performance of value to an organisation?

  • From a supply side perspective, it is much easier to offset penalties against invoicing, as writing a cheque creates much greater visibility within an organisation

  • Reference business outcomes – how many businesses are getting to introduce business outcomes? In one client’s experience, people won’t align to this

  • Peter advised he knows of one client whose business outcome SLA is 20% of their overall SLA

  • The halfway house approach has been seen in two or three contracts, representing 40% of overall SLA

  • One client said they have critical business processes but there is no end to end responsibility

  • The key is to focus attention on critical processes at critical times

Framework component 2 - performance management

  • Often organisations do not monitor the issues that are important to them

  • The key is to have a wider balanced scorecard across all aspects of relationship performance

  • Put a balanced scorecard at the heart of the whole relationship and review regularly/quarterly

  • Explicitly link the scorecard to preferred supplier status, or something that is attractive to the supplier

Observations/input from the group:

  • Subjective scorecards can be contractually manipulated

  • One participant tried to bring in an objective view within IT; they defined the criteria, but it was too labour intensive to run. A halfway house approach was therefore adopted where key people from both sides meet to agree position using loose criteria

  • Suppliers feels that they have to manage aspect of all data around KPIs. 70-75% can be measured

  • Often value delivery and innovation is promised from a supplier – a review of the projects brought to the table by the supplier each year is a good way to review/measure this

  • One participant noted that their scorecard is not currently linked into contract and would like to explore ways in which they could be linked

  • SLAs can be linked to service credits, outside of this they have a set of KPIs which are linked to the overall score

  • One participant suggested linked non-numeric KPIs to breach. The scorecard would need to be very objective, with an element of joint agreement between supplier and customer

  • The key to getting this in place would be at renewal with the incumbent supplier, and could be defined as a deal principle. Simplify SLA structure and introduce KPI monitoring elsewhere

  • In respect of material default, you can normally terminate the contract if SLAs have been at red for 6 months

Framework component 3: value assessment and realisation

  • Reducing business cost/increasing business revenue

  • Classic methods - economies of scale

  • Rationalising service centres

  • Technology transformations by putting in new technology

  • Service improvement, increasing SLAs

  • Easily monitor SLAs and work out how much value being achieved

  • One participant is actively monitoring benefit realisation and Quantum Plus has helped with this

Framework component 4: relationship management

  • Assessment based around the same balanced scorecard used for performance management

  • Scored jointly between client and supplier

  • It is key to place at the heart of the governance process

  • Put action plan in place with specific actions for improving weak areas of the relationship

Assessment by SIG: framework components 1-4

Slide 21 of the SIG pack allows each participant to score themselves in framework components 1-4. These were reviewed around the table and the result provided below:

Observations/input from the group:

1: Service management

  • One participant found it difficult to score their organisation due to there not being a dedicated supplier management function in place

  • Another participant also did not have a dedicated supplier management function and explained that one of the purposes of attending the SIG was to better understand the benefits

  • One other participant doesn’t have a mature supplier management function and currently no contract owners. They have just completed supplier segmentation, between tier one and tier two suppliers, and are now putting in place some level of governance

  • IT procurement used to be a passive role in one organisation; the participant now sits outside of function in a dedicated procurement team

  • One participant asked how to make a business case for a supplier management framework


2: Performance management

  • One client has just put a framework in place; they have the process and now need to run a few cycles

  • Framework and process are in place within one organisation, but the challenge is the lack of people who can invest time in it

  • One participant doesn’t do much in this area currently - it is of relatively low importance currently but the importance is growing

  • One organisation has a supplier management framework in place but it has deteriorated due to a cost cutting focus. What happens when you become category B/C customer in the suppliers’ eyes? – priorities and importance changes

  • Some suppliers are niche legacy suppliers where there is no choice but to use them, but there is a struggle to get momentum from them

3: Value assessment

  • One organisation has just started measuring value assessment, using specific values that Quantum Plus helped put in place

  • The same organisation said they need to measure whether they are getting what was promised

  • Another participant believes value assessment will be very important going forward

  • Another participant said they weren’t measuring value assessment in IT, but there is a professional services function

4: Relationship management

  • One participant sees this as being very important. He would regularly take key relationships in to the CEO and COO

  • Another organisation still needs to put this in place. It is seen as being extremely important, although others within the organisation see it as going through the motions

  • Another participant said that some of their businesses are very mature in relationship management. He struggles from a procurement point of view to get across the importance

  • This is viewed as very important and is in place within the IT function

  • Another participant said the IT function sees this as relatively important, but it hasn’t turned out to be any more than facilitating meetings with senior people. It doesn’t seem to drive much action from outside and not viewed as very effective currently

  • Another participant is currently putting it in place - it’s not effective yet, but is happening

  • The CIO holds the relationships with tier 1 suppliers in one organisation, but because other supplier management functions currently not in place, there are no metrics currently

Framework component 5: Independent market comparison

How would your top 5 relationships compare? In line, above or a good deal? Cost is important, but value and performance also important. Health checks against the market are a good idea; this is not necessarily a formal benchmarking exercise.

Framework component 6: Individual supplier strategies

  • There is a role for suppliers within the future sourcing strategy

  • Review big transformational changes

  • Consider areas for improvement

  • The key is not just the thought process, but the engagement and buy-in

Framework component 8: Deal principles

  • Best practice; what will suppliers agree to?

  • Deal principles form a key part of the competition

  • Market is changing; ensure currency

  • Apply material default for a poor relationship

  • Clearly define the selection criteria

Framework component 9: Sourcing strategy

  • Overall strategy should be reviewed regularly, and always before renewal or the re-tender of a significant relationship

  • Ensure the strategy reflects where you are as a business

  • Define sourcing objectives

Framework component 10: Renegotiation/re compete, exit

  • 70% of deals get renewed without full negotiation

  • 90% of deals get renewed without any competition

Observations/input from the group:

  • This is because people don’t have time to renegotiate/go out to tender

  • Exit is not an attractive option so some organisations will roll it over for a few years

  • There’s an “if it’s not broken” mentality and, over time, there becomes a lot of complacency in relationships. You could be getting so much more for your money but don’t take advantage

  • There is more to be had from the incumbent too, but due to time constraints this isn’t necessarily considered

  • Resource is a constraint, and when working on IT projects, this involved someone from the IT team, and they may not have the time to dedicate

  • People don’t appreciate the length of time required for re-competition/review

  • One participant said they are often asked a couple of days prior to renewal, by which point it is too late to consider re-tender/re-negotiation

Due to the amount of debate and discussion around the supplier management framework, we ran out of time to complete the agenda item. The general agreement between the participants was that it was a useful session and they would like the elements not covered to be on the agenda for the next special interest group.


Session two - organisation design for effective supplier management

Angela facilitated session two of the afternoon and opened by explaining that we would be focussing on organisation design for effective supplier management, and would discuss thoughts and approaches. She explained that there wouldn’t be sufficient time to build a ‘best practice’ model but this could be scheduled for the next session if the participants would like to.

Retained organisation review

  • One participant said their focus had moved on to contract management as everything has now been bid. He thinks the cycle will probably change again in a few years

  • There could be good items written into the contract but if no one is managing it to ensure the innovation, value add etc. is being delivered, it becomes a vanilla service contract

Strategic supplier management – the stakeholder dream

  • Get this correct and you satisfy all constituents

  • More distant stakeholders, press etc. are also satisfied

  • Very cost-focussed currently

  • A dream is to be able to tick all boxes within the strategic supplier management table and all parties be satisfied

Formal governance structure

  • This slide demonstrates a typical governance structure

  • Very often this is built into contracts and the three tier process is built in

  • Lots of different processes and inputs to make it a success

Retained organisation structure

  • Where do you start to draw lines and boundaries?

The model retained organisation - processes

  • Who owns different parts of the processes?

  • Who is responsible/accountable within the overall matrix?

  • Idea of RACI model – look at each element that has to happen and determine who is accountable

  • One participant said this is not easy, and best to agree ultimately to work as a team, deciding each element on a per project basis

Strategic supplier management - key tasks/processes


Observations/input from the group:

  • One participant has previously tried to adopt a RACI model, but quite often there is no one team/individual with accountability/responsibility. There is a lot of accountability within procurement, but supplier management is also responsible for some tasks

  • Another participant said there are lots of different areas that supplier managers wouldn’t touch

  • One participant spent days in workshops trying to develop a RACI matrix and gave up. They tried to pair teams up, so they can sub for each other etc. which worked well. It’s all about developing relationships within the organisation

  • Another said they hadn’t quite developed the above approach, but they work together as a team on a day to day basis

  • One participant used RACI models within previous organisations and there was a lot of ambiguity behind it. They have considered RACI for their current role but haven’t implemented it yet

  • Another participant has good engagement with the business, via service management, who has a relationship with procurement. Their model is relatively mature

  • The existing service delivery manager owns cost and quality of their contracts. If someone is required for differentiation, business partners are used

  • One participant said it becomes transactional when there is a problem. Every department gets involved when there is an issue

  • In one organisation there are multiple directors with relationships with the same suppliers and they are not communicating. One overall relationship owner is responsible for quarterly business reviews

  • All conversations are relatively compartmentalised, but not talking about strategy or formal governance perspective

  • Performance scorecard – key actions, plus strategy – sponsor sitting on top of those two

  • Supplier strategy and performance management feed back into this area

  • If you don’t document performance in a certain way, nobody does anything

  • Consider the risk that occurs if the supplier is looking for excuses to exit

  • One participant cited a recent software asset management audit as an example; often something needs to break before action is taken

Session three - integrating suppliers to optimise service

Lesley Michaelis led session three on behalf of Quantum Plus.

Having come from supply side, Lesley explained that sometimes suppliers can suffer from the silo’d approach that customers take. One of the account management responsibilities is to ensure everything is transparent from the supplier’s perspective.

Integrating suppliers to optimise service – the challenge

  • This is deemed to be mature, not just about service, but also transitioning out. There are different circumstances where you may want suppliers to work together

  • One participant asked what the default mind-set of suppliers working together is. Lesley explained that initially the suppliers will agree to work together, but they also need to protect their own business

  • One participant referred to the Boots/Cognizant deal, which involved two other partners offshore, and asked what the driver was to do this. Lesley explained that Boots drove the relationship - looking from an end-to-end perspective

  • Another participant asked what drives the supplier to collaborate? Lesley explained that part of the key strategies that suppliers are measured on, involves all key suppliers needing to work together to make the business successful. Not just about protecting their own, but seeing it from an end to end perspective

  • Angela explained that if, as an organisation, you put great store in suppliers as you collaborate, it becomes self-serving to collaborate

  • Peter explained that it’s a balance of commitment versus competitive tension. If they’re regarded as a strategic supplier and are hitting behaviour targets, they are securing a slot within the supplier management model. This is more powerful than 20% of service credits and has to be linked to trust both ways

  • One participant said they had found it difficult to get supplier collaboration without a significant amount of investment

  • Lesley explained that the client has to recognise there is a certain amount of investment required and it does have to be significant investment in order for both parties to benefit

Measures to facilitate collaboration

This slide looks at how the measures will work with both the client and also other suppliers. How do you test the collaboration during a selection process? Potentially with sprints and scrums, creating situations for the suppliers to work together. Or incident scenario within a workshop session to see how they work together.

Observations/input from the group:

  • Lesley explained that Quantum Plus had previously ran an Agile development SIG, where we discussed agile teams and development to work effectively in a multi-supplier environment

  • One participant asked whether we see supplier collaboration, or whether it is more a case of one supplier managing another i.e. for a particular project, Supplier X will manage Supplier Y. Lesley explained not, due to the risk associated with it; who will take the risk/responsibility for the other party?

  • Lesley mentioned that something that can/does work well is a bonus pot for suppliers when collaboration works successfully

  • Angela mentioned that spirit clauses are also coming back in, where expectations of the parties are set out in black and white. Whilst you wouldn’t go to breach with the spirit clause, it could be leveraged and used by a judge/arbitrator, and with complex supplier landscapes there is some merit in it

  • One participant’s business had a new end-to-end solution that required supplier collaboration. There was a bonus pot for early delivery, no spirit clauses, but as part of the preferred supplier solution, they had to buy into principles of how the organisation would run the project. That was from the perspective of winning the project, rather than a service perspective

  • Another participant suggested that having an award of excellence is a good motivator

  • A different participant suggested that being “visible to all” was difficult as you’re not comparing apples with apples. The suppliers are not being measured against the same services and may not encounter the same issues


Service integration and management (SIAM)

Lesley explained the principles of SIAM, where one supplier takes overall responsibility. The model is fairly immature and proves very difficult for one supplier to take complete control. The public sector appears to be adopting this very successfully.

  • One participant said their organisation had outsourced SIAM to IBM as prime contractor, and have been picking it apart ever since

  • Another participant said they had lost control by handing responsibility over to a supplier

  • Peter suggested there would be a lot of tier 2 clients adopting the SIAM approach, as they do not have in-house capability

SIAM specific services

  • Lesley explained she doesn’t feel there is a best in breed case study for SIAM currently

  • Angela has observed many clients setting up their own SIAM processes and functions internally and one participant said that, within her previous role, the organisation mapped the SIAM framework internally

  • From a service perspective, when you have 9 or 10 strategic suppliers collaborating, how do you glue it all together and who manages the glue? Who understands the end-to-end supplier infrastructure? There is a need to build internal capability for end-to-end supplier management

Wrap up session

During the wrap up session we asked for general feedback on the afternoon and a consensus of whether people wished to continue the Supplier Management SIG and what topics they would like to be covered during the next session.

Observations/requests from the group:

  • Continuing to review and develop a best practice Supplier Management Framework

  • How do we sell supplier management into the wider organisation? How to prove it and demonstrate its value?

  • Switching view of supplier management around; looking at it from the supplier viewpoint

  • Exit planning, testing and management

  • Best practice – running exit testing throughout the life of the contract – building this into the contract Ts&Cs to obtain agreement from the supplier

  • What can we learn from other business categories about supplier management? For example, marketing and agencies exploiting them

  • One participant said there are very large contracts that sit outside of IT which are not currently being managed at all

  • Another participant pointed out that their organisation has a huge contract for loss prevention which no-one is currently managing

  • What can we learn from other categories?

  • What is important to suppliers from a supplier management perspective?

Next Steps:

It was generally felt that the session had been very informative and useful and that the group would value meeting again to continue to discuss topics of mutual interest. Quantum Plus will plan to run another Supplier Management SIG, early in the New Year.