effective strategies for managing service providers
TRANSCRIPT
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