building an effective statement of work · reduce cycle time add new features or services for...

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Building an Effective Statement of Work

Rob Handfield, PhD

Bank of America Distinguished University Professor

Executive Director

Supply Chain Resource Cooperative

November 30

Learning Objectives

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• What a Statement of Work (SOW) is/does

• Why a SOW is required

• What a SOW should contain and why

• The importance of clearly defined requirements

• The level of SOW detail

• Change Management Issues

• Service Level Agreements (SLA’s)

Copyright BManagement 2013

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The Cycles of a Contract

Requirements

DraftingNegotiation

Post-awardContractManagement

Where does the SOW Come Into Play?

Getting Started

When You Are Told to Prepare the Request For Proposal (RFP) …

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Or this…

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Pain is expected … Suffering is optional

What is a Statement of Work?The SOW is a detailed description of the work required to be performed by the Contractor and clearly defines and documents:

– All tasks to be performed

– All deliverables

– Price

– Project specifications

– Completion and acceptance requirements

Copyright BManagement 2013 6

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You work for Brookshire HathawayWrite a SOW for a horse

Why is an SOW required?The SOW serves three primary functions:

• Explicitly state what is to be delivered/provided

• Provide a binding contractual document

• Provide a control mechanism to measure performance, and set expectations

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The SOW/SLA/KPI Process

Five Phases• Strategy and Project Definition• Requirements Collection, Definition and Prioritization• Drafting and Integration• Negotiation• Monitoring and Managing

Basic Process for Developing and Managing a SOW

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1. Strategy / Project

Definition

2. Requirements Collection &

Definition

3. Drafting and

Integration

4. Building, Evaluating RFQs and

Award

5. Monitoring & Management

LET’S START!

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Strategy and Project Definition• What is the project?• What are the relevant points from the corporate strategy?• What are the relevant departmental strategy points?• Are there any tactical/transactional factors?• How will this project promote and enable those strategies

and tactical factors?• Is there a project charter?

• If not, create one• Is there a RACI chart?

• If not, create one

Key Customers MARKETINGUsage Description

Customer Value Customer Value Importance of values to customer

Not Imp ---- Very Imp

Customer -Specific Concern

Price Customer expects

consistent and best prices

compared with competitors1 2 3 4 5

Price is important, but willing to sacrifice price for quality and

availability.

Quality Customers expect reliable,

durable and undamaged

product1 2 3 4 5

Reliable product quality is important to product managers.

Service Customers expect products

to be delivered point of

desired delivery within. 1 2 3 4 5

Distribution to a centralized warehouse is acceptable.

Availability Customer expects product

to be available immediately1 2 3 4 5

Product availability is critical. Cannot ship the finished product

unless it has tires on it!

Product Variety Customer expects a wide

selection of:

- Brands

- Products

1

1

2

2

3

3

4

4

5

5

OEM defines type of product which lasts over life of product.

Technical Support Customer values good

technical product

knowledge and supplier

support

1 2 3 4 5

Minimal technical support - engineering knows the

requirements and it is an industry standard.

Brand Loyalty Customer will only look for

well known brands1 2 3 4 5

Aftermarket customers want same brand of tire.

Use a Stakeholder Map To Meet

With Your Key Constituents

Do you know what is important for your stakeholders?

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Is Supply Management Missing Out on Other

Sources of Value to Internal Partners?

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Category value objectives that link to internal partners.

Reduce Total Cost Increase Revenue Support Partner Goals

Lower risk of supply

disruption

Reduce purchase costRemove effort for

non-core activities

Improve process flow

and internal costs

Reduce fixed costs

Reduce working

capital

Provide process &

design cost ideas

Reduce cycle time

Add new features or

services for market

Reduce time-to-

market on NPD

Support marketing

in developing markets

Create “game-

changing” business

capabilities

Support marketing

negotiations

Drive budgeting and

pricing strategic plans

Improve visibility

to market trendsSafety and reliability

Subject matter

expertiseReliable workforce

Drive product and service

flexibility

Variableize asset

structure

Drive product and service

flexibility

Support sustainable

supply chains

Strengthen the brand

Drive second-tier supplier

integration

Adapted from Pierre Mitchell, Hackett Group, 2011.

Example for Freight

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UNDERSTAND WHO NEEDS TO BE ON THE TEAM AND WHYThe methodology is applied through a cross functional sourcing team

Procurement /Analytical Support Role:

Applies the strategic sorucing procurement methodology and processes to optimize the economic aspects of the agreement

Overall TCO analysis Economical analysis of

market/supplier Contract law Guides the contract

implementation effortInternal Customer Role:

Defines and evaluates min and max customer value

Input: Knowledge of internal

customers needs, processes, experiences

Analysis of customer related costs

Technical Expert Role:

Translates customer value in min and max technical needs and evaluates technical strengths of different solutions

Input: Technical knowledge,

innovations, market trends, … Analysis of technical related

costs

Other (to be invited) Role:

Represent other stakeholders, e.g. logistics, internal audit, human resources, …

Team Coordinator Role:

Organisor/Facilitator Manage team decision process Manage progress

Procurement

Pro(s)

Internal

User

Technical Expert

Team Coordinator

Other…

CORE TEAM

Stakeholder Analysis

For successful interaction with stakeholders procurement must

be able to understand the situation from a stakeholder’s perspective

Stakeholders Example Needs

Senior ManagementCreation and capture of both current and future valueAdherence to the corporate business strategy

OperationsAssurance of Supply and no discontinuity in deliveriesCompliance to GMP quality standards

Supply Chain ManagementReduction of temperature control deviations Inventory visibility and control of expired product

Strategic MarketingProduct characteristics satisfying brand equity criteriaSuperb product qualityCustomizable product design

Transactional ServicesTransactional service operational efficiencyFeasibility of the planned information sharing arrangements

Non-Direct Material Internal Customer (IT, Travel, Infrastructure, etc.)

Freedom to customize specificationLowest achievable purchase price and ownership cost

Procurement (Other Categories, Other Geographies)

Absence of possible negative effects on other categories / geographies

Recognize the Need – Understanding of Stakeholder Needs

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A Shift of Responsibility Must Occur

CMCP Chevron ActivityCategory

Manager, SPM Or Equivalent

LocalProcurement

Contract Owner/ Business Sponsor

Contract Holder / Business

Focal Point

Assess Demand & Supply

Determine the business needs A R C S

Establish clear roles and responsibilities for key personnel A R C S

Assess market conditions and risks A R I CProfile current and potential suppliers A R I CIdentify Value Opportunities A R S C

Develop & Select Strategy

Develop Cost Profile/Model and identify opportunities A R I C

Develop Value Initiatives A R S CDevelop Category & Sourcing Strategy A R I CConduct Peer Review A R I C

Endorsement of Category and/or Sourcing Strategy A R I C

Source & Award

Manage Sourcing Process A R I CEvaluate and Award Contract A R I C

Sign Contract(s) A R I C

Implement Contract **

Communicate contract details and create alignment I A/R C S

Localize contract I A/R C SPrepare systems for automation I A/R I COperationalize Contract I A R I

Re-confirm clear roles and responsibilities for key personnel I R A S

Conduct contract kick-off meeting and develop CMP I R A S/R

Execute & Manage Contract

Commence contract operation & manage contract execution

I R/S A R

Manage contract performance C S A R

Optimize Contract (Continuous Improvement) C S A R

Manage commercial impact on contract C R A S

Complete contract closure I R A S

Who Owns Contract Management?

Procurement can be responsible for contracting, as long as there are people who understand how to drive continuous cost improvement throughout the life of the contract, not just on the upfront price. Contract management is about focusing on risks, identifying non-value-added costs, and exploring opportunities for on-going productivity and efficiencies. - Tim Cummins, IACCM

Source: CommercialNegotiation SeparateContractPerson OperationalOwnershipResearch Procurement Business

Auto/IT Procurement LocalProcurement

BP Procurement BusinessIACCM Accountableforendtoend

Suncor1 CategoryMgmt CategoryMgmt

Suncor2 CategoryMgmt BusinessOwner

Exxon CategoryMgmt LocalContractMgrChevron CategoryMgmt ProcurementSRM

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Role of the Parties

The team should establish a contract management plan, which identifies specific performance targets and KPI’s that need to be reviewed by all team members (including the business stakeholder), not just procurement.

Source: RoleofProcurement RoleofBusiness CommentsResearch Leadership Engagedteammemberatallstages %ofprojectswithcontractplanakeyKPI

Auto/IT Leadership Procurementleadsatlocallevel Procurementownscommercial,engineeringownstechnical

BP Leadership Heavilyinvolvedincontractexecution ProcurementheavilyinvolvedonfrontandbackendUnitedLex Teammember Teammember SeniorManagementshouldhavecontractfacilitatorreporting

Suncor1 Leadership Teammember Believesmoreownershipbybusinessneeded

Suncor2 Accountablefornegotiation Accountableforcontractwork Bothpartiesconfirmallcontractualitemshavebeenfulfilled

Exxon Globallyleadscontracts Localteamdirectlyinvolved LegalexpertsembeddedinteamtospeedupcontractsChevron SRMTeam Teammember BeginningtotreatEPC'sasstrategicsupplier

Steps in identifying stakeholders

1. Draw a map of stakeholders – and check it with some of the stakeholders

2. For each stakeholder, identify their success criteria for the project

3. Check your perceptions of each stakeholder’s success criteria

4. Critically review all success criteria; ensure they are mutually consistent and in line with what you can deliver

5. Work with stakeholders to reconcile any differences or gaps

6. Check and amend success criteria on an ongoing basis

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Basic Process for Developing and Managing a SOW

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1. Strategy / Project

Definition

2. Requirements Collection &

Definition

3. Drafting and

Integration

4. Building, Evaluating RFQs and

Award

5. Monitoring & Management

How do we define stakeholders’needs and expected outcomes?


Requirements Collection, Definition and Prioritization• What are the requirements?• Are they collected?

• If not, how will they be collected?• Checklists?• Interviews?• Existing emails, meeting notes, formal documents?• Prior deals?

• Is there a consensus definition?• If not, build a consensus definition

• Prioritize objectives• Create a position paper• Socialize and ratify

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SOW Process: Functional/Technical Requirements

• Requirements define What is to be delivered or done.

• Requirements definition and management process– Convene Requirements Gathering Session for Stakeholders

• Business process owners effected by the proposed project

• Anyone needed to approve the proposed project

• Technical experts– Develop Standards and Specifications

• Definition of analysis

• Understanding of requested functionality– Project Timeline or Duration

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SOW Process: Define Overall Project Schedule

Milestones are identified to monitor a project’s actual progress against plan during the project lifecycle.

– Determine all checkpoints, stage gates and deliverables

– Determine and define deliverables

– Define delivery dates for all deliverables

– Define all parties’ dependencies and interrelationships

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Requirements: Kick it Off…

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1. Invite the right people

2. Provide the relevant background

3. Assume no one will look at your materials

4. Create an agenda

5. Empower attendees to modify the agenda

6. Review the initial technical approach/solution

7. Agree on the primary win strategy

8. Brainstorm as a team for evidence

9. Assign responsibilities & hand out the schedule

The Cognitive Webbing Process

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1. First: Identify the end result the customer seeks

2. Second: Brainstorm ideas, observations, facts, details, insights, comparisons, opinions, etc.

3. Third: Apply Structure– Use the N.O.S.C. pattern to structure the

basic content– Use the customer’s priorities to structure

within each category

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End Result:

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Home Depot will reduce costs while achieving customer service levels through a shared manufacturer integrated solution managed by Excel.

Home Depot

Will reduce costs while supporting

customer service levels through a

shared use manufacturer integrated

solution managed by Contractor

Brainstorm Approach Using N.O.S.E.

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Why ContractorSolution

OutcomesNeeds

Home Depot




solution managed by Contractor

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Cost Reduction/ Increase Profitability

Solution

Needs Outcomes

Why Contrator

Leverage regional facilities –domestic and international

How we commercialize our services

Put our money where our mouth is

Bench strength

Reduce Inventory while eliminating stock-outs

Increase end customer service to drive sales

Effectively manage product flow and extended supply chain

Increase of breadth of product on shelves

Growth

into new markets

Increased customer satisfaction

Keeping pace with growth

Reduce Costs and working capital

Increase fill rates

VisibilityReliability

Increased Responsivenes

s (Demand)On time Delivery

Packaging, size, quantity

Standardized returns process

Increased Consistency

Domestic

International

Product available when needed

Flexibility in responding to demand

Decreased inventory levels

Better control

One touch point for transportation and

handling

New Products

Existing Products

Reduce

customer turnover

rates

Reduction of stock outs

Increased inventory turns

Manage reverse logistics

case studies, biographies, references

Have the resources to support growth globally

C

Effectively manage an extended supply chain

Visibility

Increase speed in crediting retailer

Seasonal Changes

Reduce number of

store deliveries

Service Quality

Little intervention

Product OS&D

Order Accuracy

Activity Based Costing

Customer loyalty

Better Asset Management

Reduced Fixed Assists

Reallocate cash

Information management

Stock Outs

Having seasonal & promotional products at the right store at right time

Experience managing extended supply chain

Experience in re-designing end-to-end

supply chain solutions

Innovative supply chain

solution design -examples

Effectively Managed Product Returns

Vendor Compliance

Home Depot




solution managed by DHL

Improve service quality by managing product flow

Flexibility to meet promotional/ seasonal activities

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Needs





Growth into new markets






Flexibility

to meet promotional/ seasonal activities

Domestic

International


handling

C


Visibility


Seasonal Changes

Reduce number of

store deliveries

Service Quality

Little intervention

Product OS&D

Order Accuracy




Vendor Compliance

B

A

G

D

E

F

Home Depot




solution managed by Excel

Now…

Prioritize the content in order of importance to the decision maker.

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31


Needs





Growth

into new markets







Domestic

International

One touch point for

transportation and handling

C


Visibility


Seasonal Changes

Reduce number of

store deliveries

Service Quality

Little intervention

Product OS&D

Order Accuracy




Vendor Compliance

B

A

G

D

E

F




Increase fill rates






Better control

New Products

Existing Products

Reduce customer turnover

rates




Customer loyalty


Reallocate cash


Stock Outs


Outcomes

A

B

C

D

E

Home Depot





Home Depot





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Needs





Growth into new markets






Flexibility

to meet promotional/ seasonal activities

Domestic

International


handling

C


Visibility


Seasonal Changes

Reduce number of

store deliveries

Service Quality

Little intervention

Product OS&D

Order Accuracy




Vendor Compliance

B

A

G

D

E

F




Increase fill rates

Improve service

quality by managing product flow





Better control

New Products

Existing Products

Reduce customer turnover

rates




Customer loyalty


Reallocate cash


Stock Outs


Outcomes

A

B

C

D

E

Solution

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3333


Home Depot

Will reduce costs while supporting customer service levels through a shared use manufacturer integrated


Solution

Needs Outcomes

Why Contractor

Leverage regional facilities –domestic and international

How we commercialize our services

Put our money where our mouth is

Bench strength





Growth

into new markets




Increase fill rates








Domestic

International




Better control


handling

New Products

Existing Products

Reduce

customer turnover

rates




case studies, biographies, references

Have the resources to support growth globally

C


Visibility


Seasonal Changes

Reduce number of

store deliveries

Service Quality

Little intervention

Product OS&D

Order Accuracy


Customer loyalty



Reallocate cash


Stock Outs


Experience managing extended supply chain

Experience in re-designing end-to-end

supply chain solutions

Innovative supply chain

solution design -examples


Vendor Compliance

C

B

A

G

D

E

F

A

BD

E

A

B

C

Home Depot





D


C

Issues, Needs

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• Increase end-customer service to drive sales• Cost reduction / increased profitability

– Reduce number of store deliveries– One touch-point for transportation and handling– Activity-based costing– Better asset management– Reduce inventory while eliminating stock outs

• Effectively manage product flow and extended supply chain– Increased responsiveness (demand)– On-time delivery– Visibility– Seasonal changes– Increased consistency

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Issues, Needs (Cont.)

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• Service quality– Little intervention– Product OS&D– Vendor compliance– Order accuracy

• Effectively managed product returns– Packaging, size, quantity– Standardized returns process– Increase speed in crediting retailers

• Growth into new markets– Domestic– International

• Increase breadth of product on shelves***Flexibility to meet promotional/seasonal activities

Outcomes, Areas of Impact

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• Increased customer satisfaction

1. Product available when needed

2. Customer loyalty

3. Reduce customer turnover rates

• Reduce costs and working capital

1. Reallocate cash

2. Increased inventory turns

3. Reduced fixed assets

4. Reduction of stock outs

5. Decreased inventory levels

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Outcomes, Areas of Impact (Cont.)

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• Improve service quality by managing product flow

1. Reliability

2. Visibility

3. Manage reverse logistics

4. Flexibility in responding to demand

5. Increase fill rates

6. Stock outs

7. Information management

• Having seasonal and promotional products in the right store at the right time

• Keeping pace with growth

1. New products

2. Existing products

• Better control

BREAKOUT EXERCISE

Pick one of the SOW Examples shown below (Flow Serve, Set point, CB&I, Richard Design)

• Identify key clients

• Describe key needs for each internal customer

• Develop key outcomes for each internal customer

• Develop measures and importance of each relative to each customer

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Flowserve Example 1

Flowserve Example 2

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Set point Example 1

Set point Example B

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CB&I Example 1

CB&I Example 1 Budget

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Richard Design Services Example

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Meyer & Associates Example

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