INTRODUCTION AND SCOPE
Few IT services today are delivered in totality by the IT service provider. For example, services relying on networks for delivery are likely to depend on a telecom-munications provider for links between geographically dispersed sites; hardware maintenance will usually be in the hands of a third-party supplier; commercial software packages will be supported and maintained by external suppliers, often, but not always, the software vendor.
As discussed under service level management, the relationship between these external providers and the IT service provider is in part defined by underpin-ning contracts between the IT service provider and the third-party suppliers responsible for supporting services. However, supplier management, which seeks to ensure that suppliers and their services are managed in such a way that the con-tinuing quality and good value for money of IT services is ensured, is about much more than the one-off negotiation of a support contract.
SUPPLIER
A third party responsible for supplying goods or services that are required to deliver IT services.
Supplier management is all about getting the best from suppliers in order to ensure the delivery of services meet agreed service level targets at optimal cost.
It is about getting good value for money from suppliers. It recognises that there is more to a supplier relationship than the contract, seeing the relationship as a con-tinuing and dynamic asset that not only serves the needs of today, but also helps the IT service provider respond to new challenges and risks as the commercial, technological and social environment changes around it. It recognises the need for continual service improvement and the value of productive relationships as a platform for achieving higher service quality or better value for money or both of these things.
The scope of supplier management covers the management of all suppliers to the IT service provider. In practice, this does not mean that all suppliers should
IT SERVICE MANAGEMENT
be given equal attention. Some will have a lesser role in the delivery of IT services, those that provide minor services or commodity items that can be eas-ily sourced elsewhere. Some will have a much greater impact on the IT service provider, and these suppliers require more proactive management and attention, especially where their failure to deliver can have a profound effect on the ability of the IT service provider to deliver services.
PURPOSE AND OBJECTIVES
The purpose of supplier management is to manage suppliers and the services they deliver in order to ensure the organisation gets the best value from each supplier throughout the lifecycle of the relationship with the supplier. Given the complexity of modern IT service, it is common for individual services to be provided through a mix of internal and external suppliers. Supplier management has to manage the complexity of relationships with external suppliers in such a way that they all pull in the same direction and, in doing so, deliver services that underpin the service level targets enshrined in SLAs at a cost that represents best value for the organisation. A key outcome for supplier management is to ensure that the optimum value is achieved from the relationship with a supplier, and this rarely means squeezing suppliers until they have no more to offer. The purpose of supplier management is also about the longer term. The old confrontational supplier management approaches are hopefully outdated. Supplier management today has to be about building long-term relationships, ideally built around shared risk and reward models, where success in the relationship is a mutual goal.
This does not mean that the relationship between the organisation and its suppliers is casual. A key purpose of supplier management is to ensure that effective contracts are in place, ensuring that the supplier delivers according to the terms, conditions and delivery targets contained within the contract. What is understood by an effective contract is crucial. An effective contract is not about driv-ing the price down to a point where the supplier cannot sustain delivery or needs to claw back revenue by holding the organisation to ransom over essential contract variations.
EXAMPLE
One public sector organisation squeezed a key supplier on price to a point where everyone should have realised that service delivery would be at risk. Unfortunately, the organisation continued to congratulate its hard negotiating tactics until the inevi-table happened. The whole thing ended up in court with both sides blaming the other.
Irrespective of the outcome of the court case, the IT service collapsed and the organisa-tion was left to manage the mess.
The main objectives of supplier management are:
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to develop and maintain a supplier policy;•
to establish and manage constructive relationships with suppliers;96
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•
to negotiate and agree contracts with suppliers that align with the needs of the business and manage these contracts through their lifecycle;•
to ensure, in collaboration with SLM, that contracts that underpin the delivery of other services are aligned with the targets contained in SLRs and SLAs;•
to manage suppler performance to ensure they deliver good value for money;•
to develop and maintain a supporting supplier and contract management information system.GENERAL PRINCIPLES
Supplier management is, of course, about negotiating contracts that are consistent with the needs of the business and that support the achievement of targets in the relevant SLAs. It is also about managing the longer-term relationship with suppli-ers and their continuing performance. It requires positive management throughout the contract lifecycle, monitoring delivery and performance to identify and deal with issues and potential problems before they occur. It involves the renegotiation, renewal and even the termination of contracts as the needs of the business change.
It involves monitoring the extent to which contracts continue to deliver good value for money as the marketplace and technological options change over time and this in turn means maintaining a comprehensive base of information about the market-place and the suppliers that populate it.
In order to benefit fully from the relationship with a supplier, the IT service provider must have a clear understanding of where it wants to be. It needs to understand and articulate its own long-term goals in the context of the business it serves, and to define the services it must design and develop in order to achieve these goals. An analysis of its own resources and capabilities against the resources and capabilities needed to deliver these services will identify areas where external assistance may be required, and this analysis, along with an analysis of risks, will provide a foundation for the development of new or changing relationships with suppliers.
CATEGORISING SUPPLIERS
More time should be spent managing key suppliers and less time on less important suppliers. This implies that suppliers should be categorised and one way to do this is by their impact on, risk to and value of the services they support or deliver as shown in Figure 14.1. ITIL proposes the following categories:
•
strategic•
tactical•
operational•
commodity.IT SERVICE MANAGEMENT
Figure 14.1 Supplier categorisation (Source: The Cabinet Office ITIL Service Design ISBN 978-0-113310-05-1)
Risk and impact
Low Medium
Operational suppliers Commodity
suppliers Operational
suppliers
Tactical suppliers
Strategic suppliers
Low Medium
Value and importance
High
High
KEY ACTIVITIES
The supplier management process should include the following key activities:
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The development, implementation and management of a supplier policy.•
The categorisation of suppliers and contracts and associated risk assessment.•
Supplier evaluation and selection.•
Contract negotiation and agreement.•
Development and maintenance of standard terms and conditions.•
Dispute management and resolution.•
Development and maintenance of a supplier and contracts management infor-mation system (SCMIS).98
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THE SUPPLIER AND CONTRACT MANAGEMENT INFORMATION SYSTEM (SCMIS)
The supplier management process is governed by the IT service provider’s supplier policy and strategy. These determine how the organisation will use external suppli-ers and the rules of engagement when it does so. It should define how supplisuppli-ers should be selected and how relationships should be managed. In the public sector, for example, the rules for procurement from the private sector are enshrined in legislation in most countries and these rules should be incorporated into supplier policy.
In common with other SM processes, sound supplier management depends on the effective management of information. In supplier management, the key information base is the supplier and contracts management information system (SCMIS), which will hold information on all suppliers and contracts, and on the goods and services provided by each supplier. The SCMIS is best implemented as a part of the configuration management system (CMS), itself part of the IT provider’s service knowledge management system (SKMS). The integration of the SCMIS with the CMS enables suppliers and contracts to be linked to services, CIs and other ser-vice elements that depend on the supplier contract, enabling better risk and impact assessment and management reporting. The information in the SCMIS will also be included for reference in the service portfolio and service catalogue.
The SCMIS is used to manage suppliers and contracts throughout the contract lifecycle, providing information to, and being updated from, the key supplier man-agement activities. It holds details of suppliers, including key contacts along with contract details including renewal and termination dates.
RELATIONSHIPS WITH OTHER SERVICE MANAGEMENT PROCESSES Service level management
SLM in relation to the alignment of UCs with SLA and SLR targets, includes the renegotiation of UCs, where possible, to improve performance or reduce service costs and the investigation of breaches and near breaches of SLR and SLA targets because of unsatisfactory performance. Supplier management will also advise or liaise with SLM in relation to planned contract terminations and key supplier events such as failure, mergers and takeovers. Supplier management is also a source of information on third-party service costs, which will feed through into IT charges if relevant.
Other Service management processes
Relationships between supplier management and other SM processes include those with:
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Information security management (ISM) to ensure suppliers understand and comply with IT security policy and specific security requirements in their dealings with the organisation;•
Service portfolio management and service catalogue management to ensure that all details of suppliers, contracts and third-party services are accuratelyIT SERVICE MANAGEMENT
recorded and kept up to date. If these details are held with the CMDB, there will be a similar interface with CMS;
•
IT service continuity management (ITSCM) in relation to contracts held for business continuity services. ITSCM may also contribute to the risk assessment of suppliers by sharing the outcome of business impact analysis (BIA);•
Financial management to ensure there are adequate finances to cover contractual commitments and for supplier management to feed information into financial management for budget development;•
CSI functions in relation to supplier service improvement plans, which may underpin the achievement of service improvement targets;•
Service strategy processes in relation to supplier policy and strategy development and the more general formulation of IT strategy;•
Service design in relation to the options for using third-party suppliers to deliver proposed services or to underpin their delivery.In practice, it is also important for supplier management to work closely with busi-ness management, finance, procurement and legal services to ensure contracts are managed effectively throughout their lifecycle.
ROLES
Managing the relationship with a supplier should be the responsibility of a specific person from the IT service provider, the supplier manager, although this person may manage the relationship with a number of suppliers. The time and effort allocated to the management of a given supplier and the level at which this is managed within the IT service supplier’s organisation should reflect the importance of the supplier to the IT service provider’s business. A supplier of minor services will generally need less attention than does a supplier with strategic importance across a range of services. For suppliers in the latter category it is good practice to adopt an open management approach based on mutual trust, where each side shares its plans with the other. This enables both sides to prepare for new challenges based on an understanding of the needs, pressures and priorities of the other partner.
This approach generally has more potential for generating value in the relation-ship than the traditional confrontational approach, as the supplier becomes more involved in helping the IT service provider to deliver benefit to the business. The objectives are shared risk and reward rather than blame and animosity.
The supplier manager’s responsibilities include:
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maintaining a comprehensive SCMIS;•
ensuring contracts align with the business and offer good value for money;•
ensuring all suppliers and contracts offer an acceptable level of risk to the enterprise;100
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•
managing supplier performance to ensure contractual obligations are met;•
managing contracts throughout their lifecycle, including all changes and variations.TEST QUESTIONS FOR CHAPTER 14 SD 02, SD 15, SD 18, SD 28 A 15