effective strategies for managing service providers

Effective strategies for managing service providers

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Agenda Introduction The hidden costs of outsourcing Developing effective service level agreements Establishing KPI’s and managing service provider performance Working with service providers to reduce costs Key points Questions

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The outsourcing life cycle

Establish

ManageDevelop

The outsourcing lifecycle ©

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The hidden costs of outsourcing Its NOT just transaction costs Significant costs are often overlooked:

Market research costs – identifying suitable service providers RFQ costs – undertaking the RFQ process Establishment costs – negotiating and developing the outsourcing agreement Transition costs – changing from internal operations or moving to a new service provider Management costs – ongoing service provider performance monitoring and management

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Developing effective SLAs

Establish

Terms and Conditions

Scope of Work

Service Level Expectations

Pricing Schedule

Performance Measures

Static

Dynamic

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Establishing KPIs

Establish

What gets measuredgets done

What gets rewardedcounts

What gets done getsrewarded

What counts getsmeasured

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Establishing KPIs

Combination of Activity, Cost and Performance A common denominator with Targets and Limits Meaningful but Minimal Agreed by both parties Must be managed

Establish

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The right pricing methodology

Low

High Performance Based

Activity Based

Cost Plus Based

Supplier’s IncentiveSupplier’s Value

Establish

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Managing performance

Control

Cost Process

Collaborate Strategy Solutions

The Process of Supplier Management ©

Manage

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The process of management

Manage

Schedule

Weekly Operational

Review

Monthly Operational

Review

QuarterlyStrategicReview

• Verbal update – usually voicemail• Activity and exception reporting via email

• Summary review of activity• Summary review of performance• Document and agree corrective actions or initiatives

• Detailed review of activity and cost• Detailed review of performance• Document and agree corrective actions or initiatives

• Summary review of activity, cost and KPI• Share company information• Explore process improvement and cost reduction opps• Document and agree corrective actions or initiatives

Process

DailyOperational

Reporting

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The value of collaboration

Collaboration is "mutually beneficial cooperative problem solving and opportunity exploitation -- beyond traditional, predefined trading partners, to foster new, different and innovative ways to solve business problems"

The Gartner Group

Develop

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Conventional vs Collaborative

Develop

Dimension Conventional CollaborativeSupplier relationship

Design process

Communication

Adversarial Partnership

Number of suppliers Many, more is better Few or single

Contract tenure Short Long

Sporadic Continuous

Quality assurance

Order quantities

Impact of inventory

Source – Adapted from Logistics and Supply Chain Management – Martin Christopher

Design independently Seek input & design

Inspect & re-inspect No inbound inspection

Large Small

Asset Liability

Information flow Not shared Shared

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The prisoners dilemma

You

Partner

Confess Don’t Confess

Confess

Don’t Confess

PartnerYou

Years in Jail

2 2

PartnerYou

Years in Jail

1 5

PartnerYou

Years in Jail

5 1

PartnerYou

Years in Jail

0 0

Source – Adapted from Logistics and Supply Chain Management – Martin Christopher

Develop

42

13

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Reducing costs

Ability to reduce costs directly related to how well the relationship has been established, managed and developed.

agreements that reward process improvement the right KPI disciplined process of management collaborate with your service providers

Talk to your customers

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Key Points Don’t neglect the hidden costs of outsourcing Develop flexible SLA’s Service provider management is all about rhythm Don’t be conventional - start collaborating Cost reduction is not just about lower rates