energica vendor consolidation | resourcing | approach strategic ...… · 2. vendor evaluation...

A Blueprint for Action

Move On Vendor Consolidation

MAY 2014

© Copyright 2014 Energica Advisory Services Private Limited (Energica ASPL). All Rights Reserved. The recipient agrees not to distribute, share or use any part of the material without express written permission of Energica ASPL. Any other company and product names mentioned are used for identification purposes only, and may be trademarks of their respective owners. Energica ASPL disclaims all warranties as to the accuracy, completeness or adequacy of such information. Energica ASPL shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice. Reproduction of this publication in any form without prior written permission is forbidden. www.energica-global.com

Energica

Ramesh Somasundaram CEO & Head IT Sourcing Mgt. & Managed

Governance Services ENERGICA ASPL

Vendor Consolidation | ReSourcing | Approach STRATEGIC SOURCING GOVERNANCE

THROUGH

YOUR EXTENDED PARTNER

Strictly private and confidential

IT SOURCING MANAGEMENT. GOVERNANCE. ADVISORY.

Governance Matters > Perfecting Partnership > Delivering Value

2 Energica IT SOURCING MANAGEMENT | GOVERNANCE | ADVISORY SERVICES © 2014 Energica ASPL

A risk common to all outsourcing relationships and considered a leading cause of their failure is the lack of effective oversight and governance. Outsourcing governance is critical to manage the provider in ways that advance the objectives of the outsourcing initiative through its lifecycle. Without good governance, there’s a greater chance an outsourcing strategy will be considered a failure because it did not deliver expected results.

Third-party business relationships (extended partners - enterprises, GIC, Captive Units, Shared Services, 3rd Party Suppliers, Customers) do come with risks, which need to be mitigated with a rigorous vendor compliance management framework.

Today many buyer organizations are coming under increased regulatory pressures and are re-evaluating and formalizing their risk management strategies. 3rd Party vendor risks are occurring more in regulatory intensive industries like Financial Services, Retail, Media and Healthcare.

Managing the 3rd Party Suppliers, IT Service Providers, Extended Partner’s, GICs and CSPs is becoming very critical considering the emerging risks in today’s multi geography, multi sourcing, multivendor environments for the buyer organization.

However, there is a disconnect between the policies and the practices followed. This directly affects the buyer organizations and their extended partners ( third-party supply risks). Energica Portrays a holistic approach of Enhancing your Risk Radar by periodical 3rd Party Supplier Risk Management Programs /Assessment.

The purpose of this Thought Paper (Enhance Your Risk Radar – An approach on 3rd Supplier Risk Assessment) is to share our risk assessment framework and information regarding the strategic nature of the Supply base risks management: This will help our clients (buyer organizations) to effectively manage the 3rd Party Supplier Risks more effectively by leveraging a comprehensive risk management frameworks & tools in a continual manner throughout the sourcing lifecycle.

Please contact Ramesh Somasundaram (Energica) with any questions or for specific consultative expertise | Advise in 3rd Party Supplier Relationship Risk Management.

Background: Move On Energica’s Approach towards Vendor Consolidation | Re-Sourcing*

Sourcing | Sourcing Management | Governance (SVM) :

Move On : Re-Sourcing |

Strategic Sourcing | Vendor Consolidation

Energica’ Vendor Consolidation Approach & Methodology


Service Delivery Issues and Poor Quality Management

Cost Pressure

Increase in IT Spend - Cost implications on ADM / other IT services & Business Processes

Focus on Cost Savings across all functions including Procurement/Sourcing and Vendor Management (SVM) and Category Management

Changes in the marketplace and external environment

Extraterritoriality - Expanding operations in emerging markets and developing countries

Increased regulatory demands due to BFSI, Retail, Telecom and Healthcare Industry Implications

Due to Data Theft & IT Security Risks.

Emerging Risks – Geo-political risks, Social and Innovation Risks

Move On: Re-Sourcing | Strategic Sourcing Vendor Consolidation : Strategic Levers

Lack of Successful Business Transformation achievements with current supplier landscape

Lack of Service Innovation

Change in Buyer’s Internal Strategy

Sourcing, Procurement and Vendor Management Strategies

Vendor Consolidation Initiatives

Contract /SLA/Price Benchmarking

Insourcing ( Captives, SSC, De-Risking)

Portfolio Consolidation (M&A, Geo-Expansion)

Managed services set up through shared operations and external partners

Business Drivers – Strategic Sourcing

The following are the strategic levers why Buyer Organizations are adopting strategic vendor consolidation roadmaps.

5 IT SOURCING MANAGEMENT | GOVERNANCE | ADVISORY SERVICES © 2014 Energica ASPL Energica

Market Trends

Exit Strategy - Moving away from the current supplier

DeRisking: Captives (GIC) De-Risking their some of their portfolios towards 3rd Party Suppliers

Multi-Sourcing: Current market trend indicates an exit/transition to occur on one-to-many basis – where buyer implements multisourcing

Vendor Consolidation: Vendor Segmentation & Category Management lead towards Vendor Consolidation.

Mix of Services & Sourcing Strategy : Vendor Consolidation, RFx, New Vendor, Renewals, Negotiations, Insourcing etc.. .

Move On: Re-Sourcing - Strategic Sourcing | Vendor Consolidation Market Trends

© 2014 Energica ASPL 6 Energica IT SOURCING MANAGEMENT | GOVERNANCE | ADVISORY SERVICES

Outsourced

Products | Services |

Business Processes

Procurrement | Back

Office Contract

Admin | Legal

HR & Finance

IT Services

Vendor Consolidation - Sourcing Management & Governance Category Management IT Procurement | Sourcing (SVM)

Below are some typical IT procurement activities & services

Consolidated |

Categorized

Supplier Pool

Preferred

Suppliers

Transactional

Suppliers

Strategic

Suppliers

Facilities &

Operations

Commodity

Players

Move On: Re-Sourcing - Strategic Sourcing | Vendor Consolidation Strategic Levers

7 IT SOURCING MANAGEMENT | GOVERNANCE | ADVISORY SERVICES Energica © 2014 Energica ASPL

Vendor

Consolidation

Strategy

Sourcing

Design Vendor Finalyzation

Contract Mgt

RFx

1. Inventory of Vendors

• Client’ Current Vendor Lists

2. Vendor Consolidation

Strategy

•Current Sourcing Requirements | Business Objectives •Supplier Capabilities • Category Management

•Current Spend Analysis & Rate Structure • Market Research • Supplier Segmentation (Spend size, product/ service importance and risk exposure

3. Vendor Consolidation |

RFx

•Bidding (Re-Bid) | Go RFP •New RFP (RFx) •Consolidated Vendors

• Vendor Evaluation | Selection • Renew | Negotiations • Termination • Exit Strategy

• Reverse Transition | GIC

4. Finalize the Strategic Vendors

•RFP Solution Response Evaluation • Negotiation with Vendors & Contract T&C , Pricing, SLAs

• Finalize and Award the contracts

•Approved List of Vendors

5. Transition

•Transition •Cross Over Criteria • Service Commencement

Transition

Service

Management

& Governance

© 2015 Energica ASPL

Move On: Re-Sourcing - Strategic Sourcing | Vendor Consolidation Vendor Consolidation & Strategic Sourcing Approach*




Vendor Consolidation Approach & Methodology

3A1. Consolidation Approach with Existing Supply Base

Consolidate Existing Vendors


Smart Move - Energica’s Integrated Approach towards Vendor Consolidation | IT Strategic Sourcing | Approach with Existing Supply Base

Strategic Sourcing

Consolidate

Current Vendors

Evaluate Current Vendors

Renew Existing Contracts

Extend the Contract Term

Contract ReNegotiation

Contract Restructuring

Exit Strategy – Current

Supply

Base

Transition to New

Incumbents | Reverse

Transition (GIC | New

Supplier)

Vendor Consolidation

Strategy| Terminate

Current Contracts |

Bring New Vendors

In-Sourcing (GIC)

RFx | RFI | RFP © 2015 Energica ASPL

3

4

3A1

3A2

3A3

3B

3B1

3A

3A4






3A2, 3A3, 3A4. Consolidation Approach with

Existing Supply Base Contract Re-Newals | Restructuring Approach


Vendor

Consolidation |

Renewal Strategy

(Re)Sourcing

Design Vendor Finalyzation

Contract Mgt

RFx

Smart Move - Energica’s Integrated Approach towards Vendor Consolidation | Contract Re-Newals | Restructuring Approach*

Transition

Service

Management

& Governance

Fig – 3 Energica’ Vendor Consolidation | Contract Restructuring Strategy & Approach

Inventory of

Vendors

Current Sourcing Strategy | Redefined


Vendor Consolidation Approach : Current Sourcing Requirements | Business Objectives

Supplier Capabilities

Category Management

Current Spend Analysis & Rate Structure

Market Research

Supplier Segmentation (Spend size, product/ service importance and risk exposure

New Suppliers, Vendor Segmentation, Category Management

Contract Renewals | Refresh | Revamp SLA , Pricing, Services, T&C

Contract Terminations | Exit Strategy |

Disengagement

Transition

Contract Renegotiations

Establish Clarity of Purpose

Build Internal Alignment

Demonstrate a Credible Threat

Consider the Service Provider’s Point

of View

Reality Recognition from Ground Zero

Contract Restructuring

Contract Restructuring Approach

Business drivers and objectives going forward — such as cost savings, service improvement, contract flexibility and improvement

The design and execution of an appropriate sourcing management strategy

>Renew the contract with the incumbent.

> Review and amend the current scope of services and/or the current service provider mix.

>Go to market via the RFP route.

> Terminate the contract and bring the services back in-house or 3rd Party SP.

>Consider a combination of the above.


3

3A1,

3A2 3A3 3A4 3B1





4 A1 4A2 4A3 4A4 Consolidation Approach

via Strategic Sourcing Multi Sourcing Via RFx Route


Smart Move - Energica’s Integrated Approach towards Vendor Consolidation | IT Strategic Sourcing | Multi Sourcing via RFx Route

Strategic Sourcing

RFx | RFI | RFP

Evaluation of Existing

Vendors

Customer’


Strategies

Customer’

Current Strategic Sourcing

Objectives

RFI

RFI Solution Response from

Vendors

Short List based on Vendor Scoring

RFP

RFP Evaluation

Evaluate Vendor RFP Solution

Response

Due Diligence & Site Visit Contract Negotiations

Finalize Vendors

Transition


4

5

4A1

4A2

4A3

4A4




Vendor Consolidation Life Cycle & Setting the Stage

VCL1. Vendor Consolidation Life Cycle & Phases


Sourcing Strategy Sourcing

Design

Supplier

Management

Sourcing

Execution

Develop Transition

Clusters | Plan Prepare the RFP

Design Service

Delivery Model

Identify efficiency and effectiveness benefit

Develop business case Gain management

support and buy-in

Select delivery models for services to be outsourced-

Develop detailed transition clusters & plan

Develop sourcing bundles and approach to market

Develop proposal requests

Negotiate with supplier(s)

Finalize and sign sourcing contracts

Sourcing Strategy Various stages of the Sourcing Lifecycle | Management process

Vendor Consolidation Lifecycle | Sourcing Management & Governance Strategic Sourcing | Re-Sourcing | Vendor Consolidation Lifecycle

Sourcing Lifecycle : Leveraging the Sourcing Lifecycle

1. Sourcing +

Vendor

Consolidation

Strategy

2. Vendor

Evaluation &

Selection

4. Transition

Management

3. Contract

Development

SL

VCL

Smart Move - Energica’s Integrated Approach towards Vendor Consolidation | IT Strategic Sourcing | Multi Sourcing via RFx Route

5. Sourcing

Management &

Governance




Vendor Consolidation Life Cycle & Setting the Stage

VCL1. Vendor Consolidation Life Cycle & Phases


Sourcing Strategy Various stages of the Sourcing Lifecycle | Management process

Vendor Consolidation Lifecycle | Sourcing Management & Governance Strategic Sourcing | Re-Sourcing | Vendor Consolidation Lifecycle

1. Sourcing +

Vendor

Consolidation

Strategy

2. Vendor

Evaluation &

Selection

4. Sourcing

Management

3. Contract

Development

Smart Move - Energica’s Integrated Approach towards Vendor Consolidation | IT Strategic Sourcing | Project Phases

VCL1

VCL2

VCL3

VCL4

VCL

1. Sourcing +

Vendor

Consolidation

Strategy

2. Vendor

Evaluation &

Selection

4. Transition

Management

3. Contract

Development

5. Sourcing

Management &

Governance

4. Transition

Management

VCL5


Sourcing & Vendor Consolidation Strategy

Vendor Consolidation /or/ Re-Sourcing strategies are mostly buyer driven.

Vendor Consolidation initiatives are being triggered due to category management, internal and external changes, service delivery issues, IP conflicts, Issue-Disputes, and Broken Commitments from Service Provider Relationships.

Moving away from the current supplier is not an “easy affair”.

It involves cost implications, overheads, extraneous effort on Governance, Transition and Contract Management

Vendor Consolidation is “ not about just change in supplier”; /or/ Moving IT Services or products or processes from one supplier to other. It Requires a Strategic Focus.

Define a long term sourcing strategy/re-sourcing strategy/vendor consolidation strategy

Consider the current and future business and sourcing requirements, supplier relevant issues, sourcing governance challenges and refine the Re-Sourcing business case to move towards a vendor consolidation roadmap.

Leverage your in-house and external expertise.

Share your Consolidation Approach* with your strategic and preferred vendors.

Make use and take advantage of who is best in each and every specific area of IT Services, your industry specific business units and the locational coverage of your business operations (Region, Country).

Use a Re-Sourcing/Vendor Consolidation business case and regularly manage/update this business case in order to achieve the required business outcomes and benefits

Smart Move - Energica’s Integrated Approach towards Vendor Consolidation | IT Strategic Sourcing | Project Phases - VCL1


Sourcing & Vendor Consolidation Strategy

Consolidation Strategies executed in Isolation will yield NO long-term benefits

Consolidation Initiatives that are being viewed and executed in isolated mode (e.g. consolidation within a portfolio etc..) will not Yield significant cost savings, business benefits and core objectives

CIO’s should redefine /refine their Sourcing/Re-Sourcing/Vendor Consolidation strategy across the enterprise as a whole rather than look at the short term cost savings and benefits.

CIO’s should not adopt the same sourcing or consolidation strategies based on their previous experience. Every Buyer organizations’ sourcing , vendor and IT services landscape, sourcing governance and supplier governance challenges would be different besides the contract, SLA and pricing strategies.

Focus on Partner’s Competence and Capabilities

Focus on price, competences and capabilities from a long-term sustainable relationship aspects

Moving from Vendor to Partner.

Identify your Strategic Partner(s) and Build your relationship with Partnership attitude.

Enhancing your SVM - Governance Capabilities

Enhance | Refine your SVM | Supplier Governance | Sourcing Governance capabilities to monitor, report and to achieve the sourcing business objectives.



Vendor Evaluation and Selection

Focus on Partner’s Competence and Capabilities

Setting the stage, specify the exact scope, enterprise transformations, expected outcomes and the anticipated benefits/

Focus on price, competences and capabilities from a long-term sustainable relationship aspects

Define the right SLAs & KPI's – Measurable, monitoring and Reporting Mechanism

Bring in Competitiveness with your supply base.

Extend your supplier selection beyond the current supplier landscape to bring in a competitive vendor landscape.

Vendor Accountability Matrix

Define the Vendor accountability matrix and TCO are achieved throughout the sourcing life cycle

3rd Party Advise

Obtain 3rd Party or external advise and assistance to get the most out of the exercise and to ensure your contract is solid



Contract Development

Contract Duration

Ensure that the contract durations are optimal (neither long term nor short term).

Ensure that the vendor(s) make appropriate investments during the sourcing lifecycle to achieve the desired business outcomes beyond the conventional performance measures.

Contract Provisions

Make sure that the appropriate contract provisions on Performance Measures, service Credits, Audits , Benchmarking, Exit Strategy and price changes are included in the contract(s).



Transition Management

It only starts after the contract has been signed. Focus more on (and invest in) quality in transition because less quality in transition means more problems in operation afterwards

Ensure there is enough contact on the operational / tactical and strategic level to follow-up progress and provide steering. Have weekly steerco's in the beginning with senior leadership from client and supplier present

Prepare well. Discuss project structure and key people in advance. Know how your internal IT looks like and what this means for the upcoming transition

Make sure you have your own experienced staff engaged



Sourcing Management & Governance

Make time available for this during the entire contract lifecycle (not only the start and end) and do not underestimate governance. Consistently maintain/manage governance quality.

Allow for enough budget to setup a governance organisation and ensure you have the right profiles for this. Work on the operational, tactical and strategic level

Have dedicated resources manage the supplier, the contract and service delivery. Involve business managers in the governance

Leadership training for middle management

Consider making your secondary suppliers subcontracting with your primary for end2end



Critical Success Factors The following are the critical success factors for successful vendor consolidation engagement.

Right Vendor for Right Services: Judiciously choosing products from disparate vendors enables businesses to benefit from an increased variety of capabilities that can deliver improved performance

Strategic Vendors: multivendor strategy and choosing strategic vendors as a part of vendor consolidation provides the flexibility to choose alternatives when specific products are not easily available in different regions of the world.

Interoperability among vendors

Strategic coherence internally and with supplier

Streamline the Sourcing Governance

Product road maps for different Business Units, on-site, cloud and other strategic initiatives and implementations

Projected Total Cost of Ownership (TCO) over the period of time (contract duration), which includes costs for:

System amortization

Hardware and software support

Hardware infrastructure upgrades

Software new release upgrades

System maintenance

Move On: Re-Sourcing - Strategic Sourcing | Vendor Consolidation Critical Success Factors


Benefits The following are the key benefits anticipated out of Vendor Consolidation

Cost Pressure – Cost savings across all functions including procurement, Sourcing and Vendor management (SVM), F&A, HR etc. (TCO) cut across different types of IT Services, Region and Location

Cost Reduction

Leverage the Price & SLAs

CAPEX Improvements across Procurement/Sourcing/Category Management

Streamline the Sourcing Governance

Effective Risk Management

Enhanced IT Security

Strategic Consolidation across Domain (Industry) and Geography

Leverage Economies of Scale across Supplier Relationships

Service Delivery Improvements

More sustainable products or processes

Improved customer satisfaction

Expanding Geographies and Operations - Increased IT Service coverage due to expanding operations in emerging markets and developing countries

Minimizing the Geo-political risks, Social and Innovation Risks

Move On: Re-Sourcing - Strategic Sourcing | Vendor Consolidation Benefits


In Closing… Way Forward.

▲How Energica Can help the Buyer Organization on 3rd Party Vendor Risk Assessments across the Sourcing and Vendor Management (SVM) Value Chain?

▲Energica’ Approach and Methodology* on 3rd Party Vendor Risk Assessment will be refined based on the client’ actual scope, requirements, sourcing and vendor landscape etc.. v going forward.

▲Enegica’s 3rd Party Relationship Risk Assessment (Risk Radar) methodology varies depending

on the size and scope of the client’s outsourcing contract(s).

▲ Energica considers several environmental factors when evaluating the scope of 3rd Party Relationship Assessments | Audit project, including: the sourcing landscape, number of deals, geography, country, business units, IT services, service provider, maturity of the relationship, degree of VRM Risk Management Strategy, Process and 3rd Party Vendor Risk Management programs, maturity of the Vendor Risk monitoring processes, practices and reporting.

▲ Energica will provide you with Assessment reporting that includes an executive summary, our approach, Risk Assessment | Audit findings and practical recommendations for the 3rd Party Relationship(s) audited as well as other sourcing agreements that you may have with similar vendors.

▲We would welcome the opportunity to further discuss about the 3rd Party Supplier Risk Assessment /or/ about our managed governance services with you. Please feel free to contact Ramesh Somasundaram @ +91 99620.55678 or write to [email protected] /or/ [email protected]

Move On: Re-Sourcing - Strategic Sourcing | Vendor Consolidation Way Forward

© Copyright 2013 Energica Advisory Services Private Limited (Energica ASPL). All Rights Reserved. This document is confidential and is intended solely for the use and information of the client to whom it is addressed. The information contained within this document is proprietary to Energica ASPL and it reserves the right to all information provided. The recipient agrees not to distribute, share or use any part of the material without express written permission of Energica ASPL.. The recipient would treat this material as Confidential Information. The information contained herein has been Collated/obtained from sources believed to be reliable. Energica ASPL disclaims all warranties as to the accuracy, completeness or adequacy of such information. Energica ASPL shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice. Reproduction of this publication in any form without prior written permission from Energica ASPL is forbidden.

www.energica-global.com

Energica

Move On Energica’s Approach* towards


Sourcing Mgt & Governance IT Vendor Management & Managed Governance

Services

Sourcing Governance Through Your Extended Governance Partner

IT SOURCING MANAGEMENT. GOVERNANCE. ADVISORY.

Governance Matters > Perfecting Partnership > Delivering Value

Ramesh Somasundaram CEO & Head IT Sourcing Mgt. & Managed Governance Services, (C) +91.99620.55678 Email: [email protected]

ENERGICA ASPL Energica Advisory Services Private Ltd

MAY 2014

EASPLMGS052014002

energica vendor consolidation | resourcing | approach strategic ...… · 2. vendor evaluation...

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