Supplier Management Policy

From IT frameworks

This policy sets the rules for Supplier Management in the company.

Contents 1 Classification of suppliers 2 Acquisition of new suppliers 3 Managing existing suppliers 4 Acquisition of new technical solutions 5 Phasing in of this policy 6 Appendix A

Classification of suppliers

Suppliers are classified according to their financial volume per year:

Class A: Volume >5% of yearly IT budget

Class B: Volume >2,5% of yearly IT budget

Class C: Volume <2,5% of yearly IT budget

If the supplier is critical to the company’s business success, "Critical" is added to the classification – e.g. SupplierName is a Class B Critical supplier.

Acquisition of new suppliers

All new suppliers impacting IT shall be approved by the IT Supplier Manager.

A new supplier will be rated according to:

• Range of technical quality products and services
• Delivery quality, reliability
• Technical competence
• Availability of competent support
• Solidity (future of the supplier – where is the supplier in 5 years?)
• Risk (avoid dependencies on single person competence)
• Supplier independence (avoid vendor lock-in)
• That the supplier has given a specific contact person for the IT department
• That the supplier has given a specific contact person for the company customer
• The supplier must be ITIL aware and relate to the company as an ITIL organization
• Must be able to do e-billing
• For business critical suppliers:
  • Must have information on the suppliers internal administration and procedures
  • Must have a roadmap for the future of the supplier

In acquiring a new supplier, alternative suppliers must be evaluated. The set of criteria above can be put into a decision matrix where each element is given a weight. This is always done for Class A suppliers, and sometimes for Class B suppliers.

Each supplier to be evaluated is given a score or rank for each element. The weight and score for each element is multiplied and summed for a total supplier score (or rank). This would eliminate the risk of bad decisions based on irrational gut feeling. See appendix A for an example. The usual scale of 1-5 is used in the weighting of the criteria.

When applying score to each supplier on a criterion, the scale from 1 to 5 is also used. When evaluating by ranking, the scale is of course equal to the number of suppliers being evaluated.

References are always checked when acquiring new Class A or B suppliers.

It is desirable to be an important customer with the supplier in order to gain influence.

Suppliers are sanctioned by the Supplier Manager. He or she has authority when deciding which suppliers to acquire.

Managing existing suppliers

Class A Critical suppliers are managed intensively, with monthly meetings to ensure a low risk on the business operations.

Class B Critical suppliers are managed with quarterly meetings while other suppliers are managed as the Supplier Manager deems appropriate.

Before the review meeting, the supplier furnishes the following data (e.g. by e-mail):

• Key Performance Indicators (KPIs) for previous period
• Any SLA breaches
• Any relevant changes (technical, personnel, organizational)
• Upcoming activities or updated project plan or product road map

The meeting is convened with the following attendees:

• Supplier:
  • Commercial responsible
  • End user responsible
  • Technical IT responsible
• System Owner (Supplier Manager if IT itself is the System Owner)
• Supplier Manager
• System Responsible(s)
• Other stake holders

The meeting is convened by the Supplier Manager and led by the System Owner.

In the meeting the answers to this form is presented by the supplier. If any corrections are necessary, these are presented by the Supplier Manager. The Supplier Manager is responsible for the minutes of the meeting and for sending this as a report to all attendees no less than 14 days after the meeting.

Acquisition of new technical solutions

Before Supplier Management gets involved in acquisition of a new technical solution, the solution must be chartered (see the process chart for Service Strategy). The Service then enters the Service Portfolio pipeline. As part of Service Design, suppliers are evaluated to cover the needs for the technical solution. See the process chart for Service Design.

All technical solutions acquired must have an Underpinning Contract with a contract number.

It is called an Underpinning Contract when one is on the receiving end of a contract. If one is the sender, it is called an SLA.

If the supplier does not supply a good contract, the company’s own internal SLA will be used as the basis for the UC.

There should preferably be no automatic renewal for the contract. Exit options should be considered and included in the contract if possible.

Technical solutions are rated according to:

• Suitability (features complete for the company’s needs)
• Technical quality (stability and robustness, security, manageability)
• Product roadmap (future viability of the product)
• Several possible suppliers to limit vendor lock-in
• Availability of support
• Standards compliance
• Openness

Phasing in of this policy

Any suppliers acquired before this policy is in effect are to be treated as a new supplier and should in fact be evaluated and the appropriate underpinning contracts must be in place.

Appendix A

The following example shows an evaluation based on ranking (not on score) where one supplier gets first place on one criteria, the other supplier gets second place. Another way of evaluating would be to give a score (1-5) for the suppliers on each criterion. When evaluating one supplier against another, ranking is often the easiest. When you want to see a more objective score on each supplier, give them a score on each criterion instead. This is only an example:

Evaluation criteria for outsourcing partner

	Sum		32			37		Score given is summed up here. Lowest score wins.
Weight			Supplier A			Supplier B
3	The solution		1			2		1=best, 2=worst
	Robustness
	Flexibility							These show the content of the criteria
	Capacity
	Scalability
3	Project delivery capacity		2			1
	Access to resources
	Resource management
	Project management
	Project manager
3	Operational del. capacity		1			2
	Access to resources
	Resource management
	Proactivity
3	Structure		2			1
	Project methodology
	Operational methodology
	ITIL compliance
4	Cooperation		1			2
	In the project
	Operational
	Help Desk integration
	Service Level Manager
4	”Enthusiasm”		1			2
	Management commitment
	Organizational commitment
	”Fighting” for the contract
	Strategic importance
3	Price		2			1
	Project
	Operational
	Declining price structure