Besides cost saving potentials, IT-Sourcing enables an organization to utilize competencies which it doesn’t yet. To achieve such different goals, a structured approach and active management of sourcing is required.
This documents gives insights in sourcing strategies, how an organization for sourcing has to be set up and which roles it has to include, it describes governance mechanisms, required processes, helpful tools/templates and how the performance can be managed.
Agenda IT-sourcing best practice slide deck:
- Strategy
- Organization & roles
- Governance
- Processes
- Tools & templates
- Performance management & reporting
1. 2NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Best Practices
I T - S O U R C I N G
2. 3NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Disclaimer
This document provides an overview of the relevant building blocks of IT Sourcing. In
addition to this overview, it provides an explanation how to design these building
blocks and examples how the specific building block could be design. However, this
doesn’t provide any client-specific consulting or advice.
3. 4NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Strategy
Organization & roles
Governance
Tools & templates
Performance mgmt. & reporting
01
02
03
04
05
06
Processes
C O N T E N T
4. 5NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
IT sourcing strategy defines the future sourcing
IT SOURCING STRATEGY BUILDING BLOCK
Vision & mission
Objectives & guideliens
Functions
5. 6NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
The it sourcing vision describes the goal and
ambition
IT SOURCING VISION & MISSION DESCRIPTION
VISION
Describe the future, aspired state of
the IT sourcing
Valid for 5, 10 or 20 years
Example: „to organize the world’s
information and make it universally
accessible and useful.” Google
MISSION
Describe the purpose in an
understandable way via the key
questions "What", "For whom" and
"How“ on a high level
Describes the business, measurable
objectives and approach to achieving
these objectives
Applies for a short period (~2 years)
Example: "to provide access to the
world's information in one click"
Google
Differ from the vision regarding
validity, accessibility of mission
Overall
IT strategy
IT SOURCING VISION
Describes the goal and ambition
e.g. “We provide the best sourcing for the IT
organization and help to realize the optimal depth of
production”
IT SOURCING MISSION
Provide stability and orientation
Used to derive guidelines and principles for the
design of the organization
Provide a common purpose for employees
E.g. “We professionally manage the external IT
spending”
Sourcing
strategy
6. 7NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
The objectives & guidelines describes how the
mission should be achieved
IT SOURCING MISSION
OBJECTIVES
Realize overall
cost efficiency
Increase
flexibility
Enable focus
on future
topics
Reduction of
complexity
and risks
Increase IT
service quality
& IT supplier
performance
Ensure spend
transparency
GUIDELINES
Continuously improve
supplier service quality
Establish continuous
improvement process
Introduce standardized,
scalable processes
Keep to official process
and use existing guide-
lines, tools/templates
Describe and specify IT
service demand clearly
Bundle managed service
demands / sourcing
Focus on few key
suppliers
Focus on off-shoring
Enable competition
Prefer managed services
Manage supplier
relationship actively
Specify Demand
Standardize
processes
Consolidate supplier
landscape
OBJECTIVES & GUIDELIENS DESCRIPTION
OBJECTIVES
Describe how the mission can be
achieved on an operational level
Accomplishes each key objective with
3-4 measurable results which can be
tracked
GUIDELINES
Describe which basic principles are to
follow to achieve the objectives
Are mostly based on organizational
capabilites and best practices
7. 8NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
The IT sourcing functions describe the services
which are provided to internal clients
FUNCTIONS
TEMPLATES & STANDARDS
Templates
(RfI, RfP)
Standard
SLAs and
performance
indicators
Supplier
Technology
Roadmaps
Standard
Claim /
Escalation
Thresholds
IT SUPPLIERS CHECK
• Key
supplier
• Approved
Standard
contract
templates
EXTERNAL IT SERVICES PER CLUSTER
IT Consulting Project
management
Other
competen-
cies
8. 9NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Strategy
Organization & roles
Governance
Tools & templates
Performance mgmt. & reporting
01
02
03
04
05
06
Processes
C O N T E N T
9. 10NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
IT organization are defined based on principles
and operationalized through roles
IT SOURCING ORGANIZATION & ROLES BUILDING BLOCK
Principles
Main tasks
Suggested roles
Organizational scenarios
Organizational interfaces
10. 11NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Principles define the IT sourcing roles and
organization
SOURCING PRINCIPLES DESCRIPTION
Organizational sourcing principles
define the central objectives and
guidelines for the definition of the
organization which should be
considered during designing and
operating the sourcing
organization
Can be described in the sense of
hard, restrictive guidelines (e.g.
divide roles of strategic procurement
and IT supplier manager) or slide
controller (e.g. sourcing
organization is rather central or
decentral) and formluated in a
sentence
CENTRAL ORGANIZATION The organization can be central or decentral
CENTRAL GOVERNANCE Decision can be made centrally or decentrally
CUSTOMER INTEGRATION Customers are more or less involved
IT INTERNAL COLLABORATION
The IT sourcing makes decision on its own or involves
different functions in the process
SUPPLIER CONSOLIDATION Best-of-breed or few strategic partners are favored
SUPPLIER COLLABORATION The relationship focuses steering or collaboration
ROLE SPECIALIZATION The sourcing functions are bundled in one or multiple roles
PROCUREMENT ALIGNMENT
The IT sourcing organization is more oriented towards
procurement or the IT function
SHORING MODEL Sourcing is onsite or off-shore
11. 12NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Main IT sourcing task range from strategic to
operative level
MAIN TASKS
STRATEGIC
OPERATIVE
Monitor supplier
performance and
compliance
Identify and
evaluate supplier
relationships and
contracts
Select supplier
Manage supplier
risk
Manage supplier
relationship and
contract
Define IT sourcing
strategy and
roadmap
Optimize sourcing
potential
Maintain continuous
improvement of
sourcing
Manage
relationship
regarding sourcing
Define which services
the sourcing organi-
zation provides and
which services are
sourced to which depth
Redefine sourcing
approach to realign it
with market & techno-
logy trends, benchmar-
king and capabilities
Continuously re-evaluate
of existing products,
services, or processes
Proactively involve
stakeholder in sourcing
processes and strategy
Identify suppliers and
associated contracts and
categorise them.
Evaluate the overall
supplier portfolio
Select suppliers to
ensure best fit based on
specified requirements
based on input from
potential suppliers
Manage, maintain and
monitor contracts and
service delivery
according to enterprise
and legal standards
Identify and manage risk
related to suppliers
ability to provide secure,
efficient and effective
service delivery
Address identified issues
regarding the overall
performance,
compliance, and value
for money
12. 13NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Sourcing manager and specialist as well as service
manager support the sourcing processes
SUGGESTED ROLES
STRATEGIC
OPERATIVE
Sourcing manager
Creation of the sourcing strategy and the sourcing roadmap considering IT strategy and business requirements.
Consulting and supporting of stakeholders. Development and implementation of guidelines and processes in the
sourcing area (sourcing governance)
Sourcing specialist
Creation of business cases, supplier selection from the strategic supplier pool, creation of decision bases based on
professional and technical catalogues of criteria and support of the invitation to tender
Service manager
End-to-end responsibility for a particular service or group of services in terms of content, cost and performance in
relation to the agreed service levels. Operational link between the supplier and the IT organization. Supporting of the
sourcing by preparing and transmitting information and accompanies the tendering process until the service takeover
13. 14NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
The process responsibilities are assigned to the
corresponding roles by the RACI matrix
RESPONSIBILITIES ACCORDING TO PROCESS AND ORGANIZATIONAL ASSIGNMENT
Rolle
Task
CIO
Sourcing
Manager
Sourcing
Spezialist
Service Manager Digital Architekt
Demand
Manager
Strategic
Define IT sourcing strategy and roadmap A R C I C I
Optimize sourcing potential A R C I C I
Maintain continuous improvement of sourcing A R I I I I
Manage relationship regarding sourcing A C I I I R
Operative
Identify and evaluate supplier relationships and
contracts
A R C C C C
Select supplier A R C C C C
Manage supplier relationship and contract A I R
Manage supplier risk A I R
Monitor supplier performance and compliance A I R
The involved roles and responsibilities can differ strongly depending on the IT organization model and the sourcing
principles.
14. 15NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Main differences of the organizational scenarios
are the assignment to IT or procurement
ORGANIZATIONAL SCENARIOS (1/2)
LOCAL PROCUREMENT, BU ITHYBRID – CENTRAL PROCUREMENT, BU IT
BU PROCUREMENT BU IT
Corporate Business Unit
SourcingP
Corporate Business Unit
IT
Sourcing
Corporate Business Unit
Corporate Business Unit
P
IT Sourcing
IT P
IT IT
IT P Sourcing
Head IT S
IT P IT P
Markets ITP
Markets ITP Markets ITP
Markets ITP
SourcingIT P
Head IT S IT
Sourcing
SourcingIT P
Head IT S
15. 16NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Organization should be designed based on
relevance of benefit for strategy
ORGANIZATIONAL SCENARIOS (2/2)
+ Established link to Corporate
Procurement
− No dedicated BU IT in place
− No dedicated procurement
function for IT
− Additional coordination effort
due to many organizational
interfaces
+ Bundling of IT procurement
expertise/know how in BU
+ Strong interface to BU IT
+ Strong interface to BU
procurement (P)
+ Bundling of IT sourcing
expertise
+ Integration into
procurement facilitates
realization of sourcing
synergies within HC P
+ Centralization of functions
leads to reduced
coordination efforts within
IT Sourcing
− Split of IT sourcing expertise
into different organizational
units
− Medium coordination efforts
due to limited number of
organizational interfaces
− No integration into IT
− Lack of closeness to IT
business
− Increased management of
interfaces to IT required
+ Bundling of IT sourcing
expertise
+ Closeness to IT facilitates
collaboration with
requisitioners and service /
project managers
+ Strong interface to IT and
centralization of functions
within IT Sourcing leads to
reduced coordination efforts
HYBRID – CENTRAL
PROCUREMENT, BU IT
HYBRID – CENTRAL
PROCUREMENT, BU IT
HYBRID – CENTRAL
PROCUREMENT, BU IT
HYBRID – CENTRAL
PROCUREMENT, BU IT
− No integration into
procurement
16. 17NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
The sourcing organization is strongly linked to
other functions
ORGANIZATIONAL INTERFACES
IT
Cross
Functions
IT
Sourcing
HR
Legal
Requisitione1
IT Project
Manager
Central IT
IT Supplier Selection
IT Supplier Selection
IT Supplier Quality Mgmt.
IT Demand Definition
IT Supplier Quality Mgmt.
Risk & Claim Management
Contract Lifecycle Management
Contract Lifecycle Management
Order Management
Shared Service
IT Service
Manager
Order Management
Demand Management
Risk & Claim ManagementIT Supplier Performance Mgmt.
Finance
IT Security IT Demand Definition
17. 18NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Strategy
Organization & roles
Governance
Tools & templates
Performance mgmt. & reporting
01
02
03
04
05
06
Processes
C O N T E N T
18. 19NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Predefined sourcing community meeting will
improve the exchange of vital information
GOVERNANCE
NAME DETAILS OBJECTIVES PARTICIPANTS
Strategic
Sourcing
Strategy
Board
• Iternal
• Duration: 90 min
• Frequency: 6
month
Revision of the sourcing strategy and roadmap. Adaptation of the IT
strategy to optimally support the strategic goals.
• IT leadership team
• IT strategy responsible
• Manager of sourcing manager
• Sourcing manager
Sourcing
Strategy
Committee
• Internal, clients
• Duration: 90 min
• Frequency: 6
month
Communication platform in which planned sourcing activities are
validated and promoted in cooperation with internal clients. Veto
possibility for customers to avoid conflicts through sourcing projects.
(Depends on design of the principle regarding interaction with
clients)
• IT leadership team
• Manager of sourcing manager
• Sourcing manager
• Clients
Tactical
Partner
Management
Board
• Internal and
external
• Duration: 90 min
• Frequency: 3
month
Exchange with strategic partners about collaboration, regulations,
collaboration, innovations, guidelines, strategic roadmap
• Sourcing manager
• Sourcing specialist
• External partners
Service Board
(for each
client group)
• Internal
• Duration: 90 min
• Freqency: 3 month
Design and detailing of the sourcing roadmap. Preparation of activity
planning and determination of responsibilities. Reporting to the
central sourcing governance. (Depends on design of the principle
regarding interaction with clients)
• Sourcing manager
• Sourcing specialist
• External partners
• Service manager
Operative
Lieferanten
Service Board
• Internal and
external
• Duration: 90 min
• Frequency: every
month
Regular exchange with focus on status and performance. Preparation
of a report and reporting of the results to the central sourcing
governance organization. Review of compliance and contractual
obligations.
• Sourcing specialist
• Service manager
• External partners
19. 20NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Strategy
Organization & roles
Governance
Tools & templates
Performance mgmt. & reporting
01
02
03
04
05
06
Processes
C O N T E N T
20. 21NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Define IT sourcing strategy and roadmap
OBJECTIVE
DESCRIPTION
Refined sourcing strategy and adjusted sourcing roadmap in alignment with IT strategy
Revision of the sourcing strategy with regard to the achievement of strategic corporate goals, as well as the support of
investment programs, business processes, IT services and assets. Direct derivation of fields of action in case of
discrepancies between the objectives supported by the sourcing strategy and the strategic IT objectives. Subsequent
prioritization of the fields of action and adaptation of the sourcing roadmap.
ACTIVITIES
• Number of achived strategic goals
[#]
• Number of derived sourcing goals
[#]
• Number of achieved sourcing goals
[#]
• Progress of implementation [%]
KPIS
1. Obtain input on IT strategy; current goals, changes, etc.
2. Revise of the current status quo of the sourcing strategy and the degree of
implementation
3. Consider of external influencing factors (e.g. market trends, political events)
4. Identify of fields of action and adaptation of the current sourcing strategy
5. Obtain approval of the adapted sourcing strategy and define agreement with all
stakeholders
6. Prepare an action plan and implement the adapted sourcing strategy
21. 22NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Optimize sourcing potential
OBJECTIVE
DESCRIPTION
Adjustment needs for sourcing volume identified and quantified
Regular validation of sourcing potentials as part of the design of the sourcing roadmap. Assessment and evaluation of
potentials based on defined criteria. Time planning of the detailed phase.
ACTIVITIES
• Identied sourcing potential [€]
• Number of adjustments to current
depth of production [#]
KPIS
1. Categorize delivery activities for sourcing and define sourcing groups
2. Estimate sourcing business case and identify sourcing enabler
3. Validate assumptions for the business case estimation with deliverable responsible
4. Detail transformation roadmap
5. Establish an HR transformation plan including a communication plan
6. Finalize the estimation based on validated assumptions and roadmap
22. 23NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Maintain continuous improvement of
sourcing
OBJECTIVE
DESCRIPTION
Products, services, or processes are refined continuously
Continuously re-evaluate of existing products, services, or processes as well as identification and realization of these
potentials
ACTIVITIES
• Realized cost savings[€]
• Increased client satisfaction [pt]
• Realized expected benefits during
lifecycle [%]
• Number of business disruptions [#]
KPIS
Depending on the choosen approach, the activities differs strongly
23. 24NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Manage relationship regarding sourcing
OBJECTIVE
DESCRIPTION
Improved client satisfaction with outcomes, increased confidence, trust in IT and effective use of resources
Manage the relationship with the sourcing clients (evtl. including business) to ensure a focus on achieving a common goal
within the constraint of budgets and risk tolerance. Base the relationship on mutual trust, using open and understandable
terms and common language and a willingness to take ownership and accountability for key decisions.
ACTIVITIES
Client satifscation with service level
performance directly influenced by
sourcing activities [pt]
KPIS
Depending on the choosen approach, the activities differs strongly
24. 25NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Identify and evaluate supplier
relationships and contracts
OBJECTIVE
DESCRIPTION
Improved client satisfaction with outcomes, increased confidence, trust in IT and effective use of resources
Identify suppliers and associated contracts and categorise them into type, significance and criticality. Establish supplier
and contract evaluation criteria and evaluate the overall portfolio of existing and alternative suppliers and contracts.
ACTIVITIES
• Number of key suppliers [#]
• Ratio of key suppliers to total
suppliers [%]
• Share of services reaching their
service level agreement [%]
KPIS
1. Establish and maintain criteria relating to type, significance and criticality of suppliers
and contracts to identify key suppliers
2. Establish and maintain supplier and contract evaluation criteria to enable overall review
and comparison of supplier performance in a consistent way
3. Identify, record and categorise existing suppliers and contracts according to defined
criteria to maintain a detailed register of preferred suppliers that need to be managed
carefully
4. Periodically evaluate and compare the performance of existing and alternative suppliers
to identify opportunities or a compelling need to reconsider current supplier contracts
25. 26NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Select supplier
OBJECTIVE
DESCRIPTION
Improved client satisfaction with outcomes, increased confidence, trust in IT and effective use of resources
Select suppliers according to a fair and transparent practice to ensure a viable best fit based on specified requirements.
Requirements should be optimised with input from potential suppliers.
ACTIVITIES
• Share of completed RfIs and RfPs
[#]
• Share of validated references [#]
• Time from RfI to signed contact
[days]
KPIS
1. Review all RfIs and RfPs
2. Evaluate RfIs and RfPs in accordance with the approved evaluation process/criteria, and
maintain documentary evidence of the evaluation. Verify the references of candidate
vendors
3. Select the supplier that best fits the RFP. Document and communicate the decision, and
sign the contract.
4. Obtain legal advice on resource development acquisition agreements regarding
ownership and licencing of intellectual property
26. 27NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Manage supplier relationship and contract
OBJECTIVE
DESCRIPTION
Stable and contractually fixed relationship to suppliers
Formalise and manage the supplier relationship for each supplier. Manage, maintain and monitor contracts and service
delivery. Ensure that new or changed contracts conform to enterprise standards and legal and regulatory requirements.
Deal with contractual disputes
ACTIVITIES
• Number of supplier relationships per
sourcing specialist [#]
• Number of implemented
improvements at supplier [#]
• Number of solved contractual
disputes [#]
KPIS
1. Assign relationship owners for all suppliers and make them accountable for the quality of
service(s) provided
2. Specify a formal communication and review process, including supplier interactions and
schedules
3. Agree on, manage, maintain and renew formal, correct contracts with the supplier
4. Evaluate the effectiveness of the relationship and identify necessary improvements
5. Define, communicate and agree on ways to implement required improvements to the
relationship
6. Use established procedures to deal with contract disputes based on effective relationship
7. Define and formalise roles and responsibilities for each service supplier
27. 28NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Manage supplier risk
OBJECTIVE
DESCRIPTION
Transparency over supplier related risks
Identify and manage risk related to suppliers ability to provide secure, efficient and effective service delivery
ACTIVITIES
• Number of identifed risks per
supplier [#]
• Share of mitigated risks [%]
• Share of risks incurred [%]
KPIS
1. Identify, monitor and, where approporiate, manage risk relating to the supplier’s ability
to deliver service efficiently, effectively, securely, reliably and continually.
2. When defining the contract, provide for potential service risk by clearly defining service
requirements, including software escrow agreements, alternative suppliers or standby
agreements to mitigate possible supplier failure; security and protection of intellectual
property (IP); and any legal or regulatory requirements
28. 29NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Process: Monitor supplier performance and
compliance
OBJECTIVE
DESCRIPTION
Supplier portfolio with high value, performance and compliance
Address identified issues regarding the overall performance, compliance, and value for money
ACTIVITIES
Number of defined service level
performance criteria per SLA [#]
KPIS
1. Monitore service level performance and ensure that the supplier regularly and
transparently reports on agreed-on criteria
2. Monitor and review service delivery to ensure that the supplier is providing an acceptable
quality of service, meeting requirements and adhering to contract conditions
3. Review supplier performance and value for money to ensure that they are reliable and
competitive, compared with alternative suppliers and market conditions
4. Request independent reviews of supplier internal practices and controls, if necessary
5. Record and assess review results periodically and discuss them with the supplier to
identify needs and opportunities for improvement
6. Monitor and evaluate externally available information about the supplier
29. 30NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Strategy
Organization & roles
Governance
Tools & templates
Performance mgmt. & reporting
01
02
03
04
05
06
Processes
C O N T E N T
30. 31NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Templates and tools support lean sourcing
processes
IT SOURCING TOOLS & TEMPLATES BUILDING BLOCK
RfI template
RfP template
TCO calculation tool
Framework template
Standard contract template
Deliverable template
31. 32NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Predefined standard templates can be reused and
adapted quickly
RFI TEMPLATE RFP TEMPLATE (PER CLUSTER) TCO CALUCLATION TEMPLATE
Specific total cost of ownership
calculation sheets for time & material
and fix price offers
Supporting structure to ensure
decisions are made based on TCO
Request for proposal to collect
detailed information about the
request service
Marks to ease changing and adapting
the document for specific use cases
Example fill-ins to ease the filling
process and increase quality of
responses
Individual versions per service cluster
(e.g. infrastructure services or
specific application development
capabilities)
Request for information to collect
information from various suppliers
about their capabilities in an early
stage prior to the RfP
Marks to ease changing and adapting
the document for specific use cases
Example fill-ins to ease the filling
process and increase quality of
responses
Covers typically the following main
chapters:
• Introduction
• Objectives and Background of demand
• Instructions & conditions
• Requirements of proposal participants
• Evaluation Procedure
32. 33NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Predefined standard templates can be reused and
adapted quickly
FRAMEWORK TEMPLATE STANDARD CONTRACT TEMPLATE
Standard contracts for description of
specific product or service delivery
Marks to ease changing and adapting
the document for specific use cases
Individual versions per service cluster
(e.g. infrastructure services or
specific application development
capabilities) including service level
agreements
General framework agreement to
accelerate setup of delivery specific
contracts at standardized, negotiated
cost structures
Marks to ease changing and adapting
the document for specific use cases
Individual versions per service cluster
(e.g. infrastructure services or
specific application development
capabilities)
DELIVERABLE TEMPLATE
Formal acceptance of all agreed
deliverables
Lists all deliverables plus filename
and storage/upload location/link per
work package/stream
To be signed by the sourcing
organization, the IT requester and
the supplier project managers at
project or phase end (depending on
project size)
33. 34NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Strategy
Organization & roles
Governance
Tools & templates
Performance mgmt. & reporting
01
02
03
04
05
06
Processes
C O N T E N T
34. 35NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Performance mgmt. & reporting is used to steer
the supplier
IT SOURCING PERFORMANCE MGMT. & REPORTING BUILDING BLOCK
Functions of KPIs
Performance metrics
Escalation path Accountability
Performance evaluation
Performance Management Dashboard
35. 36NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Clearly defined and measured KPIs enable a
consequence steering of suppliers
DEMAND DESCRIPTION NEGOTIATION
KPIs and service level
agreements are the key
aspect during negotiation
KPIs and service level
should be defined in
several dimensions
• Measurement period
• Measurement method
• Escalation path
• Bonus and malus
depending on service level
performance
Escalation processes are
part of the contract or
framework agreement
negotiation
Early definition of KPIs
enable a clear description
of the service/product
required
Comprehensive, KPI-
based description of
service/products ensure
alignment of service with
it’s objectives
ESCALATION
Defined and aligned
escalation processes are
part of the SLA
SLA fulfillment can trigger
a common continuous
improvement initiative
SLA MONITORING
KPIs and service level
performance are
monitored as agreed in
the negotiation
Fulfillment, deviation and
breaches are captured
and reported by supplier
as well as sourcing
organization for
escalation processes
Bonus and malus are paid
as defined in the
negotiation
FUNCTIONS OF KPIS
36. 37NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
The performance metrics cover different
perspectives on sourcing performance
STRATEGIC (OPTIONAL, DEPENDING ON RELEVANCE)
OPERATIVE
Innovation
How does the supplier
support future planed
innovation?
PERFORMANCE METRICS DESCRIPTION
Performance metrics should be
derived by the sourcing objectives,
thereby guaranteeing a strong
alignment of the sourcing project with
the overall IT and sourcing strategy
Sourcing metrics should be broken
down into strategic and operational
measures to identify implications on
the roadmap
Strategic metrics focus on a future-
oriented perspective while operational
measure focus past or current state
and have a higher closeness to
current operations
The number of categories and KPIs as
well as the granularity of data
capturing should be adequat
regarding the relevance and maturity
of the sourcing initiative
Strategic alignment
How does the supplier
support the overall
strategy?
Risk and complexity
How does the supplier
influences risk and
complexity?
Quality
How does the supplier
influences the quality
of service delivery?
Flexibility
How does the supplier
impacts the flexibility
of service delivery?
Cost
How does the supplier
influences the overall
cost structure?
Further service specific dimensions to be added
37. 38NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Predefined escalation path ensure a adequate
problem solving approach
ESCALATION PATH ACCOUNTABILITY
ESCALATION LEVEL SUPPLIERSOURCING
SENIOR EXECUTIVE LEVEL
CIO
CFO
Head of Sourcing
Supplier CEO
STEERING COMMITTEE
CIO
CIO directs
Sourcing manager
Key account manager
Depending on supplier
SERVICE LEVEL
Service manager
Sourcing specialist
Service level manager
Project manager
OPERATIONAL LEVEL
Service manager
Work package/stream
lead
Service manager
Work package/stream
lead
38. 39NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
Supplier are responsible for fulfilling the service
level agreement
MEASURES
PERFORMANCE EVALUATION DESCRIPTION
For each service, a target level is
defined (e.g. 99.95% service
availability) for each criteria and
weighted
Bonus and malus are formulated in
relation to this target achivement
Corrective actions are taken
dependingf on the performance level
achieved
Identify
corrective
actions
Define
roadmap
Apply
sever
malus or
penalty
Identify
corrective
actions
Malus or
penalty
Grant small
bonus
PERFORMANCE
CLASSIFICATION
Very low
performance
Low
performance
High
performance
Very high
performance
Grant large
bonus
EXAMPLES <92% target
achievement
92-98%
target
achievement
98-100%
target
achievement
<100 %
target
achievement
39. 40NuggetHub 2018. All rights reserved |Presentation Title | Author | Date
A comprehensive sourcing dashboard can provide
a detailed overview of the supplier landscape
PERFORMANCE MANAGEMENT DASHBOARD
VOLUME PER SUPPLIER CLASSIFICATION
Volume
Number
VOLUME PER CLUSTER
CONTRACTS PER PER CLUSTER
SERVICE PERFORMANCE
Supplier Quality Flexibility Cost Strategic
Service 1 Supplier 1 1 2 2 1
Service 2 Supplier 2 2 3 4 1
Service 3 Supplier 1 1 3 2 1
Service 4 Supplier 2 2 2 2 1
Service 5 Supplier 2 1 1 1 1
Service 6 Supplier 1 3 2 2 1
Service 7 Supplier 2 2 3 3 1
Service 8 Supplier 2 1 1 2 1
Service 9 Supplier 3 1 1 1 3
Service 10 Supplier 3 1 1 1 3