OUTSOURCING AND VENDOR MANAGEMENT

SUBMITTED BY
GROUP#9 MBA-IT 2012-14
AGENDA
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•
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•
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•
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Introduction to Outsourcing
Reasons for Outsourcing
Types of Outsourcing
What can be Outsour...
INTRODUCTION
Services
COMPANY

OUTSOURCER

Organization
Service
Level
Level
Agreement Agreement

Outsourcing denotes the c...
REASONS FOR OUTSOURCING

• Traditional role - reaction to
problem
• Reduction and control of costs
• Avoid large capital i...
TYPES OF OUTSOURCING

Outsourcing models:
Business
processes

BPO: Business Process Outsourcing

BPO
Administrative
proces...
AMO - Application Management
Outsourcing
SDO – SERVICE DELIVERY OUTSOURCING
Client Operations Management
Delivery
capabilities

Security

Data
Centers

Technical N...
BPO-BUSINESS PROCESS OUTSORCING
WHAT CAN BE OUTSOURCED

• System integration
• Data network
• Mainframe data center
• Voice
network, internet/intranet
• M...
WHEN TO OUTSOURCE
Strategic

Non-Strategic

Competitive

Not
Outsourced

Grey
Area

Non-Competitive

In House
if Possible
...
HOW TO IMPLEMENT OUTSOURCING

• Program initiation
• Opinions and ideas shared to
form draft contract
• Program implementa...
LEAD SUPPLIER MODEL
LEAD SUPPLIER MODEL
• Continuation of the
traditional outsourcing
model
• One supplier –
responsible f...
COLLABORATIVE PARTNERING MODEL

COLLABORATIVE
PARTNERING MODEL
• Choice of several lead
suppliers
• Clear
parameters, role...
7 STEPS TO A SUCCESSFUL SOURCING
STRATEGY
• Identify the company’s needs and determine the needs of your customers.
• Carr...
CORPORATE GOVERNANCE
• Focus on outcomes not on
transactions
• Focus on the WHAT, not the
HOW
• Agree on clearly defined a...
PREPARING FOR OUTSOURCING
DO NOT FORGET TUPE
• TUPE stands for The Transfer of Undertakings (Protection of
Employment) Reg...
CASE STUDY
Insurance Company’s outsourcing challenge
• Multiple company locations across geographies
• Lack of accountabil...
ac
k
of
ac
co
un
ta
bil
ity
du
e
to
RESULTS
Some of the key result areas identified were:
 Annual revenue savings close to 60 percent
 Better process standa...
VENDOR MANAGEMENT
• Vendor management is a discipline that enables organizations to
control costs, drive service excellenc...
FOUR STEPS FOR SUCCESSFUL
VENDOR MANAGEMENT

Risk Analysis

Due Diligence
in Vendor
selection

Supervision
and
Monitoring ...
STEP 1: RISK ANALYSIS
Risk Analysis requires the Company to identify the importance of the
function to the organization, t...
STEP 2: DUE DILIGENCE IN
VENDOR SELECTION
• Due diligence requires a reasonable inquiry into a vendor's ability
to operati...
STEP 3: DOCUMENTING THE
VENDOR
RELATED CONTRACT ISSUES
All contracts should be in writing and, to the extent applicable, s...
STEP 4:ONGOING SUPERVISION AND
MONITORING OF VENDORS
• To adequately supervise a vendor, an officer must review
and be acc...
VENDOR MANAGEMENT – CISCO
CASE STUDY
CHALLANGE

SOLUTION

• More than 35000 employees, 100’s of
locations, Huge IT Infrast...
VENDOR MANAGEMENT – CISCO
CASE STUDY
S
ENGAGE : When changing business climates or
technologies generate the need for prod...
VENDOR MANAGEMENT – CISCO
CASE STUDY
NEGOTIAION : Low Prices, Strong Strategic
Partnership, clear deliverables and fair pr...
Life Cycle Of Vendor Management
Evaluate and Select the Highest
Value Vendors
• Standardize required phases and
steps.

• ...
Life Cycle Of Vendor Management

Manage and Measure
• Centralize vendor information.
• Track and monitor vendor
commitment...
Life Cycle Of Vendor Management
• Systematically score vendors across
multiple
categories
of
performance,
while
allowing
s...
BMC Supplier Management Tool
TOTAL COST OF OWNERSHIP

TCO is
Philosophy, Methodology and
tool for analyzing all the
relevant quantitative and
qualitati...
NEED OF TCO

• Performance measurement
• Framework for cost analysis
• Benchmarking performance
• More informed decision m...
METHODOLOGY TO CALCULATE TCO
Acquisition
Costs

• Advisory services
• Vendor performance
• Time and effort for acquiring E...
TCO BASED ON OUTSOURCING
SECTOR
CASE STUDY
CONCLUSION
• Invest in Planning

• Focus on Total cost of Ownership
• Manage costs holistically

• Use real time expertise...
THANK YOU
Outsourcing and Vendor management
Outsourcing and Vendor management
Outsourcing and Vendor management
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Outsourcing and Vendor management

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Outsourcing and Vendor management

  1. 1. OUTSOURCING AND VENDOR MANAGEMENT SUBMITTED BY GROUP#9 MBA-IT 2012-14
  2. 2. 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
  3. 3. INTRODUCTION Services COMPANY OUTSOURCER Organization Service Level Level Agreement Agreement Outsourcing denotes the continuous procurement of services from a third party, making use of highly integrated processes, organization models and information systems 3
  4. 4. 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
  5. 5. TYPES OF OUTSOURCING Outsourcing models: Business processes BPO: Business Process Outsourcing BPO Administrative processes AMO SDO Application Development and Maintenance IT-infrastructure APO: Administrative Process Outsourcing ASP: Application Service Provider DBRO: Design, Build, Run & Operate ADM: Application Develop. & Maintenance ITO: IT Infrastructure Outsourcing ITS: IT Services, Managed Hosting
  6. 6. AMO - Application Management Outsourcing
  7. 7. SDO – SERVICE DELIVERY OUTSOURCING Client Operations Management Delivery capabilities Security Data Centers Technical Network Desktop Supplier Support Services Mgmt. Mgmt. & Mobility Sales Support and Mobilization Hosting Technical Support Services Network Management Security Operations Desktop Management & Mobility Messaging & Collaboration • 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 selfservice support • - Global hubs • Network Services • Managing data and voice networks • Desktop Management and Mobility • PC, laptop, hand-held, distributed 7 • Supplier Management
  8. 8. BPO-BUSINESS PROCESS OUTSORCING
  9. 9. 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
  10. 10. WHEN TO OUTSOURCE Strategic Non-Strategic Competitive Not Outsourced Grey Area Non-Competitive In House if Possible Outsource PricewaterhouseCoopers Model
  11. 11. 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
  12. 12. 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 •
  13. 13. 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 •
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. ac k of ac co un ta bil ity du e to
  19. 19. 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
  20. 20. 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
  21. 21. FOUR STEPS FOR SUCCESSFUL VENDOR MANAGEMENT Risk Analysis Due Diligence in Vendor selection Supervision and Monitoring of Vendors Documenting the Vendor Relationship Contract Issues
  22. 22. 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?
  23. 23. 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.
  24. 24. 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.
  25. 25. 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.
  26. 26. VENDOR MANAGEMENT – CISCO CASE STUDY CHALLANGE SOLUTION • 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 • Global vendor Management Office(VMO) within CISCO that supports strategic vendor relationships across IT Organizations • VMO has Defined Seven Phases of CISCO Vendor Management ENGAGE INVESTIGATE EVALUATE NEGOTIATE CONTRACT COMPLIANCE RENEW
  27. 27. 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
  28. 28. 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
  29. 29. Life Cycle Of Vendor Management Evaluate and Select the Highest Value Vendors • Standardize required phases and steps. • Capture key documents and information. Life Cycle Of Vendor Management • Enforce review and approval processes to ensure stakeholder buy-in.
  30. 30. Life Cycle Of Vendor Management Manage and Measure • Centralize vendor information. • Track and monitor vendor commitments — contractual or otherwise . • Life Cycle Of Vendor Management Establish alerts to ensure commitments are met, issues addressed, and renewals tackled.
  31. 31. 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 Life Cycle Of Vendor Management Perform portfolio-level analysis and reporting to support a factbased, systematic program for strategic IT vendor management.
  32. 32. BMC Supplier Management Tool
  33. 33. 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.
  34. 34. 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
  35. 35. METHODOLOGY TO CALCULATE TCO Acquisition Costs • Advisory services • Vendor performance • Time and effort for acquiring Etc. Ownership Costs • Hardware • Human resources • infrastructure • Communication system Etc. Post Ownership Posts • Maintenance • Disaster recovery and maintenance Etc.
  36. 36. TCO BASED ON OUTSOURCING SECTOR
  37. 37. CASE STUDY
  38. 38. CONCLUSION • Invest in Planning • Focus on Total cost of Ownership • Manage costs holistically • Use real time expertise to provide offshore knowledge and process management
  39. 39. THANK YOU

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