Outsourcing and Vendor management
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Transcript of Outsourcing and Vendor management
OUTSOURCING AND VENDOR MANAGEMENT
SUBMITTED BYGROUP#9 MBA-IT 2012-14
AGENDA
• Introduction to Outsourcing• Reasons for Outsourcing• Types of Outsourcing• What can be Outsourced• When to Outsource• How to Implement Outsourcing• Model Of Outsourcing • Vendor Management • Case Study Vendor management• TCO• Conclusion
INTRODUCTION
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Outsourcing denotes the continuous procurement of services from a third party, making use of highly integrated processes,
organization models and information systems
OUTSOURCERCOMPANYServices
OrganizationLevel
Agreement
ServiceLevel
Agreement
REASONS FOR OUTSOURCING
• Traditional role - reaction to problem• Reduction and control of costs• Avoid large capital investment
costs • Insufficient resources available
• Modern role – business strategy• Allows company to focus on
their core competencies• Keeping up with cutting-edge
technology• Creating value for the
organization and its customers • Building partnerships
TYPES OF OUTSOURCING
Businessprocesses
Application Development and Maintenance
IT-infrastructure
BPO: Business Process Outsourcing
ASP: Application Service Provider
DBRO: Design, Build, Run & Operate
ADM: Application Develop. & Maintenance
ITO: IT Infrastructure Outsourcing
ITS: IT Services, Managed Hosting
Administrative processes
APO: Administrative Process Outsourcing
Outsourcing models:
BPO
AMO
SDO
AMO - Application Management Outsourcing
SDO – SERVICE DELIVERY OUTSOURCING
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Services
Data Centers
Desktop Mgmt.
& Mobility
Technical Support
Network Services
Security SupplierMgmt.
Client Operations Management
Messaging & Collaboration
Technical Support
Desktop Management & Mobility
Network Management
Hosting
Sales Support and Mobilization
Security Operations
Delivery capabilities
• Security • End-to-end security services
including firewall management, intrusion detection, identity management and security policy
• Data Centers• Remote and on-site managed
server hosting• Data centers
• Technical Support • - Help desk, desk-side and self-
service support• - Global hubs
• Network Services • Managing data and voice
networks• Desktop Management and
Mobility• PC, laptop, hand-held, distributed
• Supplier Management
BPO-BUSINESS PROCESS OUTSORCING
REVENUE DISTANCE MODEL
GLOBAL DELIVERYMODEL
BUILD OPERATE TRANSFER MODEL(BOT)
BLENDED OFFSHORE OUTSOURCING MODEL(BOOM)
WHAT CAN BE OUTSOURCED
• System integration • Data network • Mainframe data center • Voice network,
internet/intranet • Maintenance/repair • Applications development • E-commerce • End-user support system
WHEN TO OUTSOURCE
GreyArea
Not Outsourced
In House if Possible
Outsource
Competitive
Strategic Non-Strategic
Non-Competitive
PricewaterhouseCoopers Model
HOW TO IMPLEMENT OUTSOURCING
• Program initiation • Opinions and ideas shared to
form draft contract• Program implementation
• Transferring staff • Service Level Agreement (SLA) • Establish communications
between partners • Actual transfer of the service • Establish management
procedures • Contract agreement
• Contract fulfillment
LEAD SUPPLIER MODEL
• LEAD SUPPLIER MODEL• Continuation of the
traditional outsourcing model
• One supplier – responsible for the the activity
• Activities carried out by subcontractors
• Cooperation and coordination between all the suppliers
COLLABORATIVE PARTNERING MODEL
• COLLABORATIVE PARTNERING MODEL
• Choice of several lead suppliers
• Clear parameters, roles, and responsibilities
• Usage of sub-suppliers for specifics activities
• Cooperation and exchange of knowledge
• Competitive environment
7 STEPS TO A SUCCESSFUL SOURCING STRATEGY
• Identify the company’s needs and determine the needs of your customers. • Carry out a SWOT analysis to evaluate the risks the company is exposed to • Set out and carefully choose one or multiple outsourcing partners through a
thorough and extensive • research • Once the supplier/s is/are selected, choose on an outsourcing model that
works best for the company’s need (near-shoring,off-shoring,multi-sourcing etc.)
• Begin talks and discussions with your outsourcing partner/s to clarify processes and procedures as well backup, recovery, and business continuity plans
• Set clear SLAs, Set KPIs and ROI evaluation systems• Evaluate carefully the expenditures on the outsourcing partnerships
CORPORATE GOVERNANCE
• Focus on outcomes not on transactions
• Focus on the WHAT, not the HOW
• Agree on clearly defined and measurable outcomes
• Optimize pricing model incentives for cost/service trade-offs
• Governance structure provides insight, not merely oversight
PREPARING FOR OUTSOURCING DO NOT FORGET TUPE
• TUPE stands for The Transfer of Undertakings (Protection of Employment) Regulations 1981. The Regulations were introduced to safeguard employees’ rights in the event of a transfer of an undertaking, business or part of a business. This includes:
– The obligation to inform and consult all employees in scope transfer
– Transferee inherits all claims and statutory rights– Continuity of employment is preserved for employees– Employees transfer on their existing terms and conditions
of employment– Transfer connected dismissals are automatically unfair
CASE STUDY
Insurance Company’s outsourcing challenge
• Multiple company locations across geographies• Lack of accountability due to inadequate and unclear• support delegation• High Turnaround Time (TAT)• Unclear support procedures• Customer dissatisfaction• Employee frustration• Growing resource costs due to delay• High incidence of repetitive and abandoned calls• Burden of regular training and technology updates for
support functions• Absence of data capture on requests, solutions
provided and follow-up
ack of accountability d
ue to inadequate and unclear
• support delegation
• High Turnaround Time (TAT)
• Unclear support procedures
• Customer dissatisfaction
• Employee frustration
• Growing resource costs due to delay
• High incidence of repetitive and abandoned calls
• Burden of regular training and technology updates for support functions
• Absence of data capture on requests, solutions provided and follow-up
RESULTS
Some of the key result areas identified were: Annual revenue savings close to 60 percent Better process standardization using a detailed manual on process maps / flow charts Leveraging core competencies and reducing onshore load Better efficiency at lower delivery cost following a continuous process improvement model Improved TAT through implementing a TAT monitoring system and access provisioning More flexibility to changing technology environment Specialized and continuous training programs to help staff stay current Value-add in business model through customer relationship building
VENDOR MANAGEMENT
• Vendor management is a discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal life cycle – “Gartner”
• Vendor management allows you to build a relationship with your suppliers and service providers that will strengthen both businesses.
• It is not negotiating the lowest price possible but it is constantly working with your vendors to come to agreements that will mutually benefit both companies.
• A well managed vendor relationship will result in increased customer satisfaction, reduced costs, better quality, and better service from the vendor
FOUR STEPS FOR SUCCESSFULVENDOR MANAGEMENT
Risk AnalysisDue Diligence
in Vendor selection
Supervision and
Monitoring of Vendors
Documenting the Vendor
Relationship Contract
Issues
STEP 1: RISK ANALYSIS
Risk Analysis requires the Company to identify the importance of the function to the organization, the nature of the activities the vendor will perform, and the inherent riskiness of the activity.
- What would be the effect on the company if the function failed or was not adequately performed ?
- Will outsourcing this function cause dependency on the third-party provider for an essential function?
- Are there other potential vendors that could quickly provide the same service if the current vendor fails?
STEP 2: DUE DILIGENCE IN VENDOR SELECTION
• Due diligence requires a reasonable inquiry into a vendor's ability to operationally meet the requirements for the proposed service and an inquiry into the vendor's financial ability to deliver on its promise
• Company should question operational issues, staffing, expertise, and the vendors internal control
• The Company must consider the financial condition of the vendor. It should analyse any available audited financial statements or balance sheets.
STEP 3: DOCUMENTING THE VENDOR
RELATED CONTRACT ISSUES
All contracts should be in writing and, to the extent applicable, should cover• Expectations and responsibilities• The scope of work and fees• Type and frequency of reporting on the status of work involved• Process for changing scope of work• Ownership of any work product • An acknowledgement that the vendor is subject to regulatory review• privacy and information security, and supervision and dispute resolution
Legal counsel should review all significant contracts
If the contract is a technology contract, a service level agreement (SLA) is essential. An SLA will establish the performance standard and service quality expected under the agreement.The term of the contract is another essential factor.
STEP 4:ONGOING SUPERVISION AND MONITORING OF VENDORS
• To adequately supervise a vendor, an officer must review and be accountable for the performance of the vendor
• Monitoring and supervision should include ongoing (at least annual) review of the vendor's financial condition and insurance coverage
• The vendor's contingency plans should be reviewed to be certain that they remain in place and have been adequately tested.
VENDOR MANAGEMENT – CISCO CASE STUDY
CHALLANGE• More than 35000 employees, 100’s of
locations, Huge IT Infrastructure Budget, Each office has complex requirements
• Cisco uses its own products and services wherever possible, but still spends US$500M a year globally on other IT products and services.
• Lack of Consistent Processes and Strategic Planning cost CISCO significant amount of money
• It had signed multiyear contracts for products that became obsolete as they moved to new technologies
SOLUTION• Global vendor Management
Office(VMO) within CISCO that supports strategic vendor relationships across IT Organizations
• VMO has Defined Seven Phases of CISCO Vendor ManagementENGAGEINVESTIGATEEVALUATENEGOTIATECONTRACTCOMPLIANCERENEW
VENDOR MANAGEMENT – CISCO CASE STUDY
S
ENGAGE : When changing business climates or technologies generate the need for products or services within Cisco, the VMO leads the engagement of vendors to help ensure consistency and fairness of communications
INVESTIGATE : The VMO also works with sales, marketing, development, business units, finance, and procurement to identify potential vendors, and investigate possible solutions.
EVALUATE : The VMO initiates a bid process. The VMO will issue a RFI to gain more information from vendors if needed; or a more detailed RFP
VENDOR MANAGEMENT – CISCO CASE STUDY
NEGOTIAION : Low Prices, Strong Strategic Partnership, clear deliverables and fair prices of product deliverable
CONTRACT: Cisco purchasing group confirms the contract, working closely with the Cisco legal department to resolve any contract issues. Contract length no more than 24 to 36 months
COMPLIANCE : VMO generates quarterly reviews that compare commitments and performance with established criteria
RENEW : VMO proactively reengages with vendors and Cisco client groups to restart the process
Life Cycle Of Vendor Management
Evaluate and Select the Highest Value Vendors
• Standardize required phases and steps.
• Capture key documents and information.
• Enforce review and approval processes to ensure stakeholder buy-in.
• Capture critical information supporting decisions for historical and compliance purposes
Life Cycle Of Vendor Management
Life Cycle Of Vendor Management
Manage and Measure
• Centralize vendor information.
• Track and monitor vendor commitments — contractual or otherwise .
• Establish alerts to ensure commitments are met, issues addressed, and renewals tackled.
Life Cycle Of Vendor Management
Life Cycle Of Vendor Management
• Systematically score vendors across multiple categories of performance, while allowing stakeholders to rate vendors in the categories that apply to them
• Conduct period-over-period performance reviews of like vendors to identify consolidation opportunities.
Optimize and Consolidate
Perform portfolio-level analysis and reporting to support a fact-based, systematic program for strategic IT vendor management. Life Cycle Of Vendor Management
BMC Supplier Management Tool
TOTAL COST OF OWNERSHIP
TCO is Philosophy, Methodology and tool for analyzing all the relevant
quantitative and qualitative cost of acquisition of project
in IT in order to make decision.
NEED OF TCO
• Performance measurement• Framework for cost analysis• Benchmarking performance• More informed decision making• Communication of cost issues internally and with
suppliers• Support external teams with suppliers• Better insight/understanding of cost drivers• Support an outsourcing analysis
METHODOLOGY TO CALCULATE TCO
• Advisory services• Vendor performance• Time and effort for acquiring Etc.
Acquisition Costs
• Hardware• Human resources • infrastructure• Communication system Etc.
Ownership Costs
• Maintenance• Disaster recovery and maintenance Etc.
Post Ownership Posts
TCO BASED ON OUTSOURCING SECTOR
CASE STUDY
CONCLUSION
• Invest in Planning
• Focus on Total cost of Ownership
• Manage costs holistically
• Use real time expertise to provide offshore knowledge and process management
THANK YOU