Vrm Framework


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Insight into what a robust VRM framework looks like

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Vrm Framework

  1. 1. Hans van Eck-Casteels //+1-416-931-5241 or hcsv@rogers.comVendor Relationship ManagementStrategy and ExecutionCorporate ServicesMay, 2013
  2. 2. Hans van Eck-Casteels //+1-416-931-5241 or hcsv@rogers.comVendor Relationship Management1. Definition and Objectives of VRM2. VRM Process Description3. Project Timeline4. Next Steps
  3. 3. Hans van Eck-Casteels //+1-416-931-5241 or hcsv@rogers.comSRM….What Is It About3A discipline of working collaboratively with those suppliers that arevital to the success of the organisation, to maximize the potential value of those relationshipsVendor Relationship Management: What’s It All About?For Strategic, Material, Designated and Outsourcing Vendors: Develop a long term, strategic approach to managingthe relationships of the organization’s key strategicsuppliers (Relationship Management) Develop jointly agreed upon relationship goals andobjectives for targeted suppliers (Governance) Develop KPIs that support and monitor progresstoward achieving the overall joint relationship goals &objectives (Performance) Create conditions for safe and reliable operations(Risk Mitigation) Deliver value and managing costs (Performance) Invest in processes,technology and innovation(Continuous Improvement) Plan and implement onboarding, scorecarding andinnovation (Performance)VRM Actvity Clusters VRM Actvity PurposeStrategicSourcingContractManagementPerformanceManagementStrategicRelationshipManagementEnhance valueCapture valueAssure valueCreate New ValueInformInformPre-award Post-AwardVendorManagementCategory Management
  4. 4. 4Vendor Relationship Management ObjectivesCURRENT STATE OBJECTIVES Vendor Relationship Management practicesvary in quality and effectiveness across– no “source of truth” No formal process of vendor stratificationexists to ensure clear identification andoversight of ’s most critical / strategicor material vendors Lack of training, information, processesand tools to guide consistencyacross LOBs and support vendormanagers Critical vendor management requirementssuch as business continuity,security management, risk management,compliance, governance aremanaged as separate silos and notintegrated along with vendormanagement as core components ofvendor management Inconsistent, sporadic leverage of vendorcapabilities and innovation /innovative practices that couldleverage to create competitivedifferentiation Maximize Return On Expense (investment) Maximize the value of vendor relationshipsrelative to the expense to create,develop and maintain those relationships Enhance Knowledge of Vendor Business Drivers Impact on ’s revenue / revenue potential Impact of market conditions on the vendor /relationship Impact of emerging capabilities on vendoroffering Leverage Existing Vendor Relationships Systematic, streamlined, sustainable process /framework and toolsets to maximize thestrategic value of key CIVC / Vendorrelationships Outsourced relationships to be viewed as assets viewed by the vendor community as aclient of choice Leverage Vendor Processes / Innovation Shorten go-to-market cycle times and createcompetitive differentiation / advantageDRIVERS Increased complexity of relationships Ever larger reliance on outsourcers Increasing pressure from regulators,consumers and clients Leverage vendor innovation to createtrue business value - and shortengo-to-market cycle times A phenomenal increase in thevolume of activity that is doneoutside the four walls of theorganization Identify, Manage and reduce ormitigate risks
  5. 5. 5Vendor Relationship Management: BenefitsVendor Relationship Management (VRM) is about developing two-way, mutually beneficial relationships with ’s most strategicpartners that deliver effective risk management, greater levels of innovation and competitive advantage than could beachieved by operating independently.The VRM framework and supporting toolset is also used to manage High Risk and Material vendors, as well as Vendorsproviding outsourcing servicesBusiness Continuity:Ensure the continuityof servicesthrough earlywarning systemsand enhanced vendorinformationRelationships:Proactively addresscritical concerns byfacilitating bettercommunication andrelationships withvendorsRisk Management:Control potentialdisruptionsin our services chainand increase ourability to proactivelymitigate riskAssuranceMinimize or eliminateunplanned reactivecosts such as findingalternative vendorsat short noticeGovernance:Provide stakeholderswith reassuranceabout the controlhas over therisks in our supplychainValue CreationLeverage vendorinnovation to createcommercial differentiation,optimize margin or shortenthe Go-to-Marketcycle time
  6. 6. Hans van Eck-Casteels //+1-416-931-5241 or hcsv@rogers.comLOB and CorporateServices Sourcing ValueCreationDifferent Types of VendorValue ManagementVendor Collaborationto create new vendorvalue beyond what isin the contractVendor performanceManagementto maintain and graduallyimprove valueNot-So-Benign-NeglectWithout rigorous contract management,75 percent of sourcing savings candisappear within 18 monthsTimeVendor PerformanceManagementto maintain andimprove valueVendor ScenariosIllustrativeValueContractSignedValue Capture from Sourcing Depends on How Well Manages VendorsVendor Relationship Management: Value Capture
  7. 7. 7Vendor relationship Management Program – Road MapRight Work, Done RightSatisfaction, Direction SettingValidate and Manage SpendEnsure Compliance• Service Delivery Requirements• Service Level Reviews• Problem Management• Project Monitoring• Change Management• Work Prioritization• Risk ManagementPerformance ManagementRelationship Management• LOB / Customer Satisfaction• Business Unit Satisfaction• Communications and Forums• Escalation Management• Issue Tracking• Innovation• Vendor CouncilsFinancial Management• Invoice Verification• Charge Back Management• KPI / SLA Management• Receipt of Service• Service Consumption Analysis• Demand / Affordability Mgmt.• Contract Compliance• Amendments / Renegotiations• Benchmarking• Document Management• Document Repository• Policies and Procedures• Tools and TemplatesContract AdministrationPre-Award Post AwardCategory ManagementVALUERequest newvendorproduct / serviceComplete strategicvendor riskassessmentAssess if vendor’srisk profile ishigher than legacyIf risk is highercomplete additionaldue diligenceif judged requiredAmend contract withappropriate termsand conditionsRequest newvendorproduct / serviceComplete strategicvendor riskassessmentAssess if vendor’srisk profile ishigher than legacyIf risk is highercomplete additionaldue diligenceif judged requiredAmend contract withappropriate termsand conditions
  8. 8. 8VRM: High Level Process IntroductionProcess StepsObjectiveActivitiesPotential PitfallKey ConsiderationStep 1VendorSegmentationStep 2Vendor RiskManagementStep 3PerformanceMeasurementStep 4ContinuousImprovement• Develop vision and createa prioritized roadmap forvendor relationshipengagement• Use segmentation tool toassign vendor to one ofthree vendor tiers• Determine mostappropriateplan of action with LOBand vendors• Choose suppliers and / orcategories for active VRMmanagement• Segmentation can be a majorstall point due to over-complication• Use the VRMsegmentation tool to quicklymove through phase 1with confidence• Beyond an information securityassessment (PIRT) – assessvendors for operationalrisk management• Understand risk factorsassociated with strategic /outsourcing or materialvendors• Design and implementvendor management activitiesreflective of risk scores• Design / amend scorecards• None known• Use the VRM risk managementtool to design a solid andfocused vendor managementapproach / mitigate risks• Deploy scorecards to measureperformance for strategic /material and outsourcingvendors• Create a standardized processto measure vendorperformance• Focus on past performance butalso on improvement andprocess improvementopportunities• Administer scorecard collectresponses and analyze results• Scorecard data analysis canbe very resourceintensive• Scorecard categories tied tothe VRM governanceframework components andperformed as a collaborativeLOB / VRM effort• Drive continuous improvementthrough scheduled vendorreviews meetings and actionplans• Communicate performanceexpectations and progress tovendors• Identify and execute onimprovements• Coordinate suppliermanagement activities acrossLOB’s to ensure “one voice”to the vendor• Manage innovation initiatives• LOB time is limited butparticipation is critical todrive improvements• VRM / VMO acts as processfacilitator while vendor andLOB own action tocompletionInitialTimeline 2 Weeks 4 Weeks Ongoing Ongoing
  9. 9. 9VRM Application of Tools to Various Vendor Management ActivitiesVendorPerformanceScorecardingVendorSegmentationRelationship /StakeholderMappingHolisticVendor PerformanceManagementCorporate ServicesGovernance BoardReviewVendorSegmentationVRM / LOBRoles andResponsibilitiesDefine MeasuresandHierarchiesSetExpectationsMeasure andReportGovern andAssureVendorPerformanceManagement ApproachSourcing Process Implementation / Vendor PerformanceOnboarding ManagementEnabling Tools
  10. 10. 10Vendor spend segmentation is a question driven tool that helps to identify which vendors are strategic to (and why), drivingdifferentiated vendor management approaches and links to the sourcing playbookSegmentation is Step One of the VRM process•Defined segmentation criteria:•Strategic•Operational•Commodity• Segmentation ensures optimal alignmentof resources, roles and responsibilities• Eliminates unwarranted focus on non-valuegenerating vendors• Rules based program ensures segmentationframework is adhered to consistently• Enables management of different kinds ofrelationships with the same vendor• Guides strategy in deal structure, execution,evaluation and managementVRM Benefits Beyond EconomicsStrategicStrategicOperationalCommodityDefined Vendor Segments
  11. 11. 11Segmentation Operational Model and VRM Management AssignmentStrategicCommodityOperationalBusiness ImpactVendorSpendSignificance oneither criterion,not just in combination,drives tierStrategicOperationalCommodity• Vendors that are critical to ’s long term success• “Partnership” mindset – would allow to create succinct business value• Key group of vendors, difficult to replace• Integrated involvement with process and activities• Standard, most common relationship• Provides good and services that do not contribute to value creationBusiness Impact• Material, outsourced, or vendor integralto business performance• Uniqueness of services or product is evident• Opportunities for asset / cost-effectiveness,brand improvement, service improvement,marketing advantage and profit growthVendor Spend• Amount of money directly spent with the vendoror through third parties• Includes ancillary costs / benefits that impactthe value of the relationshipAxis DescriptionVRM / VMO ManagedLOB Managed / VMO AssistanceLOB Managed
  12. 12. 12Risk Identification for Strategic Vendors is Step Two of the VRM processProposedRisk filteringVRM Risk FilteringSegmentation process Leading to tailored VRMprocesses – scorecards weightedto risk mitigation, specific onboardingactivities and innovation managementSegmentationToolStrategic vendors,specially selected OperationalVendors, designated vendors andall Material, ITO/BPO will beadditionally risk and rank profiledTailored ProcessesAfter filtering, scores willbe matrixed,…Risks are filtered for identification and categorizationRisks are measured according to businessimpact and possibility of occurrenceResults of aggregate risk, measurement determineScorecard, contract and vendor engagement modelVRM Risk FilteringRiskFiltersRisk 112123Risk 4Risk 1Risk 2ImpactProbabilityL HRisk 5Risk 6Risk 3Risk 2 Risk 3 Risk 4 Risk 5 Risk 6HLRisk 1Risk 2Risk 3Risk 4Risk 5Risk 6EnvironmentalForeign CorruptStrategicOperationalFinancialRegulatoryMandatoryOptional36ChangeManagement Value6.1isthereaclearlydefinedchangemanagementprocessinlace?No6.2Arecurrentprocessesmodeledandserveasabaseline? No6.3Isthereachangemanagement/contractmanagementlinkinplace?No6.4DoesthechangemanagementactivityrequireupdatestoSLAandKPImetrics/scorecards,andaretheyeffectivelycapturedandmanaged?NoChange Mgmt.Problem Mgmt.Delivery Mgmt.Risk Mgmt.Financial Mgmt.Contract Mgmt.Balanced ScorecardStrategicBusinessImpactVendorSpendCommodityStrategicOperationalCommodity
  13. 13. 13Step Three: Governance Framework CertificationQuestionnaireGovernance Framework When certified “in compliance”, theframework components are supportedby a robust set of tools and templatesGovernanceFrameworkThe Governance componentsneed a certification of complianceDay-to-DayManagement ToolsBefore the governance framework can be leveraged, visibility is required to acsertain that all components – where applicable –are in place, supported by tools and templatesQuestionnaire based on the six VRM Governance Components3 FinancialManagement Value Mitigation / Actions3.1 Is a mechanism in place that monitors a vendors financial health? no3.2 Is a mechanism in place to benchmark the vendor againstcompetitors?no3.3 Is a process in place to ensure invoicing accuracy? Yes3.4 Is a process in place to apply discounts (based on volume or time)? Yes3.5 Is there a budget correlation mechanism in place? NoContract MgmtChange MgmtDelibery MgmtFinancial MgmtRisk MgmtProblem MgmtThresholds for Determining Criteria Scores4RiskManagement Value4.1Arevendorriskassessmentsperformedanddocumented? No4.2Isthereaclearunderstandingonwhoisresponsibleforriskmitigationactivity?No4.3Aresecurityriskissuesidentifiedforeachvendororcontractandareissueslogged,trackedandreporteduntilresolved?Yes4.4Isthereanentityinplacethatmonitorscompliancewithgovernmentandindustryregulations?No4.5IsthereamechanisminplacetoensurethatthevendoriscontinuallyalignedwithCIBCsecurityandriskstandardsandpolicies?Yes4.6Aretherebusinesscontinuityplansinplace,andistheBCPplantestedwithregularinterval?Yes4.7Isthereadisasterrecoveryplaninplace? No2 DeliveryManagement Value2.1 Are in-scope goods and services clearly defined andaccompanied by accountabilities to facilitate performancemanagementYes2.2 Is there a mechanism in place to measure performanceagainst SLA and KPIs?Yes2.3 Is there clear understanding on who is responsible forperformance management?Yes2.4 Is there a mechanism in place to determine correctivemeasurements against performance issues?Yes2.5 Has the vendor the capability to engage with CIBC incollaborative innovation activities?Yes2.6 Is there clear understanding on whom is responsible foridentifying performance trends and issue identification?No2.7 Are performance scheduled with the vendors? No2.8 Does the vendor have a mechanism in place to correctperformance issues if those issues are due to third partyvendors?NoDelivery ManagementRisk ManagementProcessInPlace NoYesApply ContractualClauses and ProceedPut missing componentsin placeDeficienciesRemediedNo YesChange MgmtContract MgmtProblem MgmtFinancial MgmtRisk MgmtDelivery MgmtVRM GovernanceProcessesMaterial Contracts Top 50 VendorsSRM “High” Risk_Performance& ManagementFocusGovernance& ControlFocusChange MgmtContract MgmtProblem MgmtFinancial MgmtRisk MgmtDelivery MgmtVRM GovernanceProcessesMaterial Contracts Top 50 VendorsTop 50 VendorsSRM “High” Risk_SRM “High” Risk_Performance& ManagementFocusGovernance& ControlFocusExample
  14. 14. 14Step 4: ScorecardingVRM/ LOB Scorecard Focus … Balanced, Risk-Weighted Scorecard Improves Management Focus….Vendor / LOB Input LOB / VRM-VMO RequirementsCreate relevant risk-weighted scorecardEnter results into HiperosCollect transactional performance dataConduct criteria-based assessmentCreate Vendor Performance reportVendor performance communicationsStudy PerformanceCreate Improvement PlanImplement Improvement PlanMonitor ImprovementsIsPerformanceClass-Leading?NYQuality, cost, delivery andresponsivenessmeasurements are eithersolicited from the LOB orBusinesses, or areextracted from thecomputer systemConduct measurements,quality of serviceservice delivery , developmentassessments.Measurements commensurategovernanceframework componentsAuditable plans arerequired for assessment;SLA / KPI or class-leadingperformance may negateThe need for repeatcriteria-based assessmentsComplete balancedscorecard containingquality, risk, costs,delivery andresponsivenessMeasuresEach period review(monthly / quarterly /semi-annually or annually)report prior tosending to vendorImplement business or servicesperformanceImprovement strategy, plansand activitiesAs defined by VRMbenchmarking100%0%Targeted forStrategic VendorsVRM ScorecardTargeted forOperationalVendors(Scorecard Light)Ad-hoc measurement(Annual / as required)CommodityVendors• Ensures overall scorecard frameworkremains relevant as score metrics arefine-tuned• Facilitates scorecard adoption, includingnumerous pre-set metrics• Enables comparability across vendorswhile capturing relationship-specificissuesNudging Towards Standards
  15. 15. 15VRM Governance: Principles and Enabling ToolsetVRM governance will:• Outline the relationships between all internal and external groups involved with strategic /material / outsourcing vendors• Describe the proper flow of information regarding vendor management activities to all stakeholders• Ensure the appropriate review of issues encountered• Introduce a series of tools and templates allowing for the effective management of those components within the frameworkwhich were identified as “essential”CLASSIFICATION CATEGORIESVRMCONTROLSManagement StructureChange ManagementCLASSIFICATION CATEGORIESVRMCONTROLSRelationship managementContract ManagementFinancial managementRisk ManagementDelivery ManagementProblem ManagementChange ManagementStrategicSupplierServiceSupplierCommoditySupplierAuxiliaryCS Led ActivityBusiness-Led activityHigh RiskAs-is process – no change otherthan linkage to sourcing approachdatabaseCS – Led all-phase VRMProcess plus extendedRelationship managementCLASSIFICATION CATEGORIESVRMCONTROLSManagement StructureChange ManagementCLASSIFICATION CATEGORIESVRMCONTROLSRelationship managementContract ManagementFinancial managementRisk ManagementDelivery ManagementProblem ManagementChange ManagementStrategicSupplierServiceSupplierCommoditySupplierAuxiliaryCS Led ActivityBusiness-Led activityHigh RiskAs-is process – no change otherthan linkage to sourcing approachdatabaseCS – Led all-phase VRMProcess plus extendedRelationship managementCLASSIFICATION CATEGORIESVRMCONTROLSManagement StructureChange ManagementCLASSIFICATION CATEGORIESVRMCONTROLSRelationship managementContract ManagementFinancial managementRisk ManagementDelivery ManagementProblem ManagementChange ManagementStrategicSupplierServiceSupplierCommoditySupplierAuxiliaryCS Led ActivityBusiness-Led activityHigh RiskAs-is process – no change otherthan linkage to sourcing approachdatabaseCS – Led all-phase VRMProcess plus extendedRelationship managementVRM ValueAndAlignmentVRMPerformanceMeasurementVRMRiskManagementVRMAccountabilityVRMGovernanceVRM Governance Principles VRM Enabling Toolset
  16. 16. 16Current Process Versus Proposed Process - CONCEPTUALCurrent VRM ProcessPossible VRM ProcessEnabled by NNNAn on-demand (SaaS) solution to measure, monitor,and manage the collection of relationships (e.g. suppliers,partners, outsourcers, re-sellers, brokers, and affiliates)that contribute to a company’s value chain.BreadthRegistration  pre-award  post-awardDepthPerformanceRiskCompliance/CRInformation Mgmt No defined vendor segmentation model Entirely manual process, with information dispersedin various process components within , not alwaysreadily accessible Current focus on a selected few vendors that haveno clearly defined spend owner Continual manual input – no data-driven prompts Vendor management ad-hoc No clear view of vendor risk, other than informationsecurity risk management (PIRT) No formal onboarding process Governance framework components are defined, butnot supported by tools and templates Some components are “common process” within thesourcing cycle, but the activities are not coordinated,accessible or measured Holistic reliance on vendor self assessment, making thescores suspect Only 1 resource currently dedicated to VRM – nocommon-accessible database
  17. 17. 17Proposed Organizational Structure: Corporate Services Governance Board and VMOCorporate ServicesGovernance BoardVendor ManagementOfficeGovernance andComplianceVendorRelationshipManagementInformationSecurityManagement
  18. 18. 18VRM: A Multi-level View of Performance (Scorecard)VRMLOBVendorReviewCommitteeStartEndIs theRelationshipVRM managed?Create relationshipand allow access toeveryone who willcreate scorecard forthis supplierCreate and buildLBO standardKPI and SLA groupsand advisecontract managementand LegalAgree onKPI / SLAmeasurementsRelationshipcreatedand accessmanaged atthis levelCreatescorecardtemplateForvendorCreate LOBspecificKPI / SLAand importintocardAdjusttargetswithspecificmeasuresIf required,addlocationsto cardInputSectionsweighingsAgreecardIf Hiperos –Access siteIf manualFill out Vendor cardComponentsmanuallyCompletecardSubmitcardReceive rejctedCard andComplete furtherSeePerformancereportSolicitPerformanceInputAnd sendCard tovendorReviewcardRejectCard?ApproveScoresReviewWithVendorNoYesYesNo
  19. 19. 19VRM Governance Toolset Workflow DiagramsDeliveryManagementRiskManagementContractManagementProblemManagementFinancialManagementChangeManagementLOB or VRM conductsRoot CauseanalysisLOB or VRM contactVendor to reportIncidentVRM Logs andtracks Incidentand AssignsidentifyerConduct RegularService ReviewsUpdate incident trackingReport and checkif refunds are dueExecute Root CauseAnalysis Documentand logresultsPeriodically conductFinancial Health checkUse financial datacontract date andmatch with invoiceApprove Invoicefor processingEnsure discounts areTaken when dueReview vendorSpend againstcontractConduct quarterlyTeam meeting(scorecarding)Conduct vendorReview meetings asscheduledFormally submitChange requestDetermine impactof proposedchangeReview change requestto determine trendsApprove or DenieChange request andillustarte reasoningDetermine contractSLA / KPI impactpotential and adjustaccordinglyImplement / roll outapproved requestAssess completioneffectivenessand update finalstatusVendor and LOB /category manager toreview businessrequirementsLog and track issues withthe agreementDetermine what contractamendmends arerequiredDetermine if the changesrequire a formalchange contractprocedureDraft amendmendsto the applicablecontractAdvise reuestorof the changesEscalate if agreementis unlikelyFiollow usualcontractmanagementprocedures forsign-offEvaluate the 6VRM riskcomponentsTailor VRM managementand scorecard focusTo “high risk”componentsCommunicate riskconcerns andmitigation strategiesto vendorIndicate riskcompliance statusReview incomingReports and escalateissuesDesign and implementa risk mitigationprogram- Different than thePIRT process, whichis focused oninformation securityrisk management