4.1

Overview

Sourcing and Supplier Management – Significance and Objectives

Sourcing and Supplier Management ensures that a company has the services that best fit its business purposes. The marketplace, however, is constantly evolving, and suppliers have to adopt technical innovations and create new services that must be provided with higher quality and lower prices.

By actively seeking out new opportunities and following market trends, a company can ensure that the quality and price level of the services provided by suppliers stay competitive. The other option is to acquire services and solutions via a tendering process.

Digitalization has also set in motion new trends that affect the marketplace, such as:

  • consumerism, which pushes for better user experience and easiness of use for business solutions, because the end users use the same devices (laptops, tablets and phones) and applications for both business and consumer purposes.
  • virtualization, which enables sharing the same computing and data storage capacity between a very large number of users which, in turn, leads to greater storage capacity at lower costs provided by large data and computing centres called clouds.

 

In order to keep up with market trend requirements and to ensure the business purpose fit and cost-efficiency of services, companies often prefer to source services instead of providing them in-house.

SSM_Retaltionship_Development_Sourcing2

Figure 4.1.1 The relationship between development and sourcing.

 

Sourcing strategy is defined based on the company’s business requirements. Companies may choose to outsource their IT services partially or in full, or in rare cases, decide to run IT as an in-house function. In all these cases, Sourcing and Supplier Management should have clear goals and a long-term perspective, and operate in a close relationship with the supplier ecosystem. Well-managed sourcing benefits both the buyer and the supplier. A healthy balance of supply and demand leads to a more sustainable and productive collaboration, in which Sourcing is the strategic coordinator.

Sourcing has two principal roles: the sourcing role refers to acquiring suppliers, solutions and services as specified by Service Portfolio Steering. The development role refers to finding and evaluating the emerging technology opportunities and solutions introduced by suppliers that may evolve into new business concepts. Adequate involvement of Sourcing in supporting or development roles ensures that no opportunities will be missed, and that serious flaws that could be challenging and costly to correct at later phases in Project or Service Management are avoided.

On the operational level of supplier management, Sourcing interacts with Service Integration within the Service Management function. The contribution from Service Integration to Sourcing can include, for example, the following:

  • providing reports on operational performance levels to Service Managers and Sourcing
  • assisting suppliers in optimizing their service delivery and improving their quality
  • monitoring the service contract and performance management, especially in multi-sourcing environments

 

When deciding on the sourcing of IT, the following points need to be considered: the company’s general sourcing principles with respect to service and quality requirements; the scope of operations; enterprise architecture; service scalability and flexibility regarding future plans; continuity; and total costs.

Active cost and performance control is mandatory, not only at the sourc­ing stage, but throughout the life cycle of the service.

Key Objectives of Sourcing and Supplier Management

  • Analyse the market and bring major technology innovations and opportunities for business and service development.
  • Organize and manage the supplier relationship with other stakeholders, such as Service Management, to continuously improve the cost level and quality of services.
  • Source services and solutions efficiently, appropriately, and timely from suitable suppliers, while actively maintaining quality and cost levels, a strong negotiating position, and market price awareness.

Sourcing and Supplier Management – Roles and Competence Requirements

Typically, the person responsible for Sourcing is a Sourcing Manager, CIO, Category Manager, IT Manager or Service Manager. Related to sourcing, the responsibilities of this individual include the following:

  • Bring out new technological or commercial opportunities
  • Plan, facilitate and steer the sourcing process
  • Review new con­tracts
  • Participate in all major sourcing decisions
  • Define and follow up on sourcing models and principles
  • Master the supplier ecosystem

 

In practice, the role requires expertise, negotiation skills and active participation to ensure that tendering and contracts are managed professionally and are in line with agreed principles. Even though the role includes defining these sourcing principles, the decision-making respon­sibility belongs to the Service Portfolio Steering, as defined in the company’s responsibility assignment matrix.

Sourcing and Service Management need to work together to regularly evaluate suppliers’ service levels, supplier-related risks, and future service needs. Generally, either the Sourcing or Service Manager is responsible for tactical supplier relation­ships, but in wide-ranging partnerships, it is often necessary to appoint a dedicated Supplier Relationship Manager.

The Legal Counsel, together with the Sourcing Manager, ensures that contracts and sourcing principles protect the interests of the company from a legal point of view. When necessary, Legal Counsel also participates in negotiations. ICT jurisprudence requires special expertise and is thus typi­cally outsourced.

Key Roles in Sourcing and Supplier Management

  • Sourcing Manager
  • Service Manager
  • Supplier Relationship Manager
  • Legal Counsel

In the IT Standard, sourcing is described as part of IT. However, the roles described above may also appear as a part of the company’s general sourcing function where IT constitutes a category within the centralized sourcing organization.

 

Sourcing and Supplier Management – Functions

Sourcing and Supplier Management cover the entire life cycle of sourced services. Sourcing organizes the tendering process for purchases, negotiates terms and conditions, and supports the daily management of projects and services, for example, through supplier benchmarking.

The Sourcing and Supplier Management stream consists of the following functions:

  • Ecosystem Management (part of Enterprise Development)
  • Concept Development (part of Enterprise Development)
  • Sourcing and Supplier Strategy
  • Service Architecture
  • Tendering and Negotiation Process
  • Supplier Relationship Management
  • Performance Management

SSM_Cooperation_Business_Sourcing_PM_SM

Figure 4.1.2 IT services require seamless cooperation between Business, Sourcing, Project Management and Service Management.

 

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