Vendor Management (The Emerging Discipline for Contract Managers)

1. Vendor Management(The Emerging Discipline for Contract Managers) Entrusted Strategic Sourcing & Management of Vendor Relationships So that: Investments in purchases are maximised with least risk to the business Robert Barker Dated 3rd April 2012

2. Agenda Objectives of Vendor Management Business Observations & Issues Evolution of Vendor Management Vendor Management & Contract Management Transparency Business Discipline Execution Processes and Some Sample Tool Kits Benefits of Vendor Management

3. Objectives ofVendor Management Drive Value from your vendor over the life of the contracted engagement Reduce both internal and supply costs with cost efficient engagement processes Increase the consistency of quality service delivery and business unit satisfaction Seek new mutual opportunities and business success with minimal risk Ensure alignment with business strategy, adding value for shareholders “Without rigorous supplier management, 75 percent of benefits can disappear within 18months”Procurement Strategy Council

4. Business Observations & Issues • Many Clients today: • Confused strategies to drive cost efficiencies ie Seldom cost the RFP ‘Lag’ of RFP processes versus utilising existing vendors • Drive combative relationships with lack of transparency , impacting “trust”. • Focus on ‘rate reduction’ rather than understanding how a vendor can deliver real business value • Unsure of their pricing relative to the market • Seldom use performance management processes to drive continuous improvement • Present a disparate and multi-faceted approach which: • leads to vendor confusion or importantly, • encourages Vendor exploitation • Have SLA management processes that are non enforcable, non existent, and or irregularly reviewed • Have complex ‘irrelevant’ contracts, some focus on Legal versus Operational requirements • Desire to collaborate without being subservient • In addition Vendors: • Lack understanding of Business/Unit strategy and desired business outcomes • Do not understand the criticality of their services on their clients business operations or impact and cost of service disruptions • Misunderstand performance measurement frameworks • Continuously feel in reactive mode • Show little accountability for benefits realisation • Find Clients reluctant to share issues, especially relating to internal processes & strategic elements • Do not understand client internal billing, cost allocation, or ROI processes • Lack single accountability with multiple delivery silo’s • Tactically/Transactionally focussed (ie where is next sale) rather than positioning strategically to deliver real sustainable business value • Lose relationship knowledge with staff churn

5. Questions to consider: Where are you on the evolution path? Do your vendors contribute to your value chain? Are they so critical that their poor performance causes business disruption? Do Vendors meet your expectations? Are we increasingly outsourcing our services? Are Vendors aligned with your business plan? Do you have a consistent approach? Evolution of Vendor Management Source: Corporate Executive Board, 2006 • Typical Services Delivery Scenario is: • Focussed Operationally • Reactive to business demands • Minimum time for strategic thinking • Less time to drive real vendor value • >1988 “Transactional” • Process efficiency • Administrative and clerical support • Addressing low Vendor commitment • >1998-2002 “Commercial” • Price renegotiation • Strategic sourcing • Vendor reduction • Improvement in quality • >2002-5 “Proactive • Increase Vendor involvement • Longer term contracts • Total cost management • Outsourcing • >2005-8 “Strategic’ • Corporate Planning • Realignment of Vendor objectives to align with company needs • Shift to profit focus

6. Vendor Management and Contract Management • Procurement - ‘Internal’ Activity • Identify • Solicit • Source • Select • Accept • Approve Contract Management CONTRACT GOVERNANCE • Vendor Management – ‘Outside Activity’ • Monitoring • Developing • Problem Solving • Motivating • Produce • Quality services • Timely delivery • Cost efficient supplies • (After Contracted)

7. Vendor Management and Contract Management • EMPHASIS • Focus on a Mutually strong Strategic Relationship • Yet maintain separation • Relationship Management with Commercial Governance Exec GM The New World Order Vendor Management Office Vendor Manager Contract Manager Procurement Manager

8. Basic Requirement of Vendor Management - “Transparency” • Moving Vendors up the value chain necessitates: • Knowing and managing your Vendor • Structured relationship, governance, and communication processes. • Joint project scoping, signoff and understanding of ROI process • Joint Score carding to drive continuous improvement • Platform/s for Vendor to initiate value based offerings and solutions • Driving “Partnering for Business Growth” • Mutually Agreed Risk Mitigation and Compliance Processes • Simplified yet relative commercial and contract frameworks ie Conditional PSA • Joint development of the Vendor Account Plan • Driving Collaboration versus Combativeness – make Vendors want to engage! • Updating Vendor Knowledge to align and support business strategy • Transparency engenders a “Trusted Relationship”

9. Vendor Management - the new “Business Discipline” • The New World – THE VMO Office on the Org Chart • Investment: • Business invest heavily in managing internal resources (ie HR processes, performance reviews etc) • Why not Vendor Management? • Requires Management Support – as role extends across business silos • Advises and reports Senior Management • Vendor Management – Role Aspects: • Needs to ‘punch in the same division’ as the senior executives from the vendor, and: • Is ‘trusted’ to fixing the dysfunctional relationships that will exist • Has vendor awareness to contribute in the joint development of the vendor account plan • Has a broad understanding of the dynamics and trends of the market place and business performance of the vendor • Where possible be party to the vendors own strategic product and development plans • Be Analytical • Has experience and Maturity to drive Collaboration versus Combativeness • Has the Knowledge to align business strategy • Vendor Independence – Mandatory • Required to facilitate both internal and external resources to drive results Give Vendor Management Power – If Vendors know they are dealing with Decision Makers – they LISTEN!

10. Vendor Management is multifaceted: • Evaluation & Selection • Contract Lifecycle Development • Delivery Management • Relationship Management Execution • Implement Functional Processes that: • 1.Deliver: • Vendor Strategy & Objectives • Vendor Alignment & Categorisation • Vendor Engagement & Governance • Risk Mitigation & Compliance • Demand Management • Asset Management & Financial Control • Executable Commercial & Contract Management • Measurable Performance Management • 2. Drive cost savings and efficiencies with utilisation of: • Common tools/templates & processes across enterprise • 3. Yet - Maintain the Balance: • Business as usual v Achieving the future state • Implementing Continuous Improvement v Implementing Innovation • Separation of Relationship Management with Commercial Governance

11. Execution – Processes & Tool Kits • Vendor Strategy • Evaluation & Selection metrics • Financial Planning • Spend Management • Benchmarking • Vendor Alignment • Categorisation • Business Strategy & Requirements • IT Services Requirements • Joint Account Planning • Vendor Engagement • Relationship/Executive • Operational/Service Delivery • Commercial/Contractual • Accountability & Timeframes • RACI Models • Vendor Governance • Roles, Responsibilities, & Reporting • Compliance & Escalation • Benefits realisation • Service Delivery Management • Risk Management • Vendor Performance Management • SLA & Warranty Management • Joint Score carding • Vendor Self Assessment • Demand Management • Continuous Improvement • Commercial & Contract Management • RFP & Bid Management • Commercial & Legal Framework • Contract Management • Project Management • Consistent Repeatable Approach Business Unit Business Unit Vendor Management Business Unit Business Unit Business Unit

12. Categorisation and Engagement

13. RACI process – Defines key Functions, Activities and Tasks that must be performed and WHO must perform them Individual (s) who perform an activity—responsible for action/implementation. The degree of responsibility given by the accountable person. R’s can be shared. Responsible “Doer” Accountable “Buck Stops Here” Consulted “In the Loop” Informed “FYI” The individual who is ultimately accountable includes yes/no. Only one “A” can be assigned to an activity/decision. The individual (s) to be consulted prior to a final decision or action is taken. Two-way communication. The individual (s) who needs to be informed after a decision or action is taken. One-way communication.

14. RACI Example

15. Scorecard Example

16. Vendor Management – Benefits • For Client: • Understand Vendor Capability & derive Value • Vendor Solution Options aligned to addressing Business Issues • Enables a preferred focus on Business Core Competencies • Strategy • Customer Delivery • Receive improved Quality of Service • Cost Effective Engagement with minimised Risk • Contract Value not diminished over life of contract • For Vendor: • Understand Clients Business & IT Strategies and Services • Delivers an engagement platform for architecting Solutions • Ensures a focus on Business Alignment • Provides feedback for improvement • Encourages Efficient Engagement • Increased Revenue Opportunities Business Unit Business Unit Vendor Management Business Unit Business Unit Business Unit

17. Questions? Business Unit • Contact Details: • Robert Barker, Practice Leader, Vendor Management • Email id: rbarker@strategicdirections.com.au • Mobile: 0400 506 136 Business Unit Vendor Management Business Unit Business Unit Business Unit