<editor's note: This post has nothing to do with pumpkins or spice. The whole pumpkin spice thing has been overdone, to be frank. Except for this, which is great.>
Where has the time gone? As we push toward the end of the third quarter of 2019 we are inundated with pumpkin spiced everything, left to wonder if the Philadelphia Eagles have anyone on their team who can catch a football, and for the procurement professional, it's that time to start drafting category management plans for the upcoming year.
Information Technology Category Management, which is the focus of today’s post, can be particularly challenging for a number of reasons. Most IT teams have a dual mandate of balancing the day to day support of their businesses while looking to optimize and automate operations, create efficiencies, and of course, reduce costs. IT Procurement can go a long way to leading that mandate to success but it takes a lot of work building relationships, having solid insight to technology, and the ability to overcome obstacles with obstreperous stakeholders and resource limitations.
I see IT Category Management falling into three primary areas: Stakeholder Engagement, Contract Management, and Long-Term Strategies.
In some companies, Procurement has successfully become a member of the IT leadership team. In other companies, Procurement is still held at bay by CIO’s and Director level leads. IT Procurement will be far more effective if they are working with IT at the leadership level. If, as a Procurement professional, you cannot get the level of access you need to be effective, you should work with your management to get that message to your CFO to see if they can advocate for your department.
The benefits of having access to IT leadership will allow procurement to:
• Obtain visibility of new projects and ideas as they emerge and develop
• Become involved in project and budget planning
• Begin market research and technology evaluations of potential future suppliers
• Optimize its network and overview across the business, to identify requirements and suggest them as potential projects to the IT team.
From my view and experiences, the amount of resources that a company will dedicate to IT Procurement is very limited and this influences the extent to which it can apply a strategic approach to projects. Many IT stakeholders would prefer Procurement to be involved in all contract negotiations and procurement activities, but in practice, it is only possible for projects representing spend above a defined threshold, such as $100k. However, Procurement's involvement in projects and contracts with lower spend values may be justified when:
• They concern suppliers with which the company may place additional business. For example, a supplier is engaged for an evaluation trial. If the trial is successful, the outcome may lead to a complex, expensive deployment. Procurement can begin to build a relationship and complete preliminary reviews of licensing and data processing agreements
• The requirements are for IT solutions that are considered to be critical to the business
• There are specific risks and/or liabilities associated with issues such as data security.
That said, procurement may encourage the IT stakeholders to perform a level of self-service purchasing for some types of low-value services.
In talking to client’s IT stakeholders, they see the value that Procurement provides beyond cost saving is as being difficult. A couple of Procurement's activities that are recognized as being important is providing market intelligence and facilitating the delivery of innovation by suppliers. To emphasize this benefit, Procurement can host “Innovation Days” with key suppliers. The suppliers love having the ability to get to showcase their new solutions and in getting facetime with IT leadership. Procurement can also use feedback surveys and post-project reviews to objectively measure the value it provides; although this is not common practice.
Supplier relationship management (SRM) is typically Procurement's responsibility, even when the operational responsibility is placed with IT. However, if Procurement does not have sufficient resources, SRM may be conducted by the IT team.
In some areas of IT, like infrastructure and software, the company may have two dozen significant suppliers, for which it is impractical to fully apply SRM. The suppliers that are selected for SRM programs are typically only the top 10% of the supply base, and your company’s vendor management office should be able to provide the list of vendors who meet this threshold.
Improving IT Contracts
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In improving IT Contracts, there are several best practices:
• Outcome-based key performance indicators (KPIs) and metrics are recognized as being useful but are difficult to apply.
• Application deployment, system enhancement, and development contracts should apply milestones linked to business requirements within contracts, in order to monitor the performance and service delivery.
• Where possible, use your organization’s paper. This is nearly impossible with license agreements or SaaS subscriptions, but relying on suppliers’ contracts and in particular, performance measurements may result in your company missing valuable opportunities.
• If your company hasn’t had suppliers refresh their rate cards recently, have them provide an updated card. This should be a collaborative effort in which they learn of the types of resources and services they may need to provide in the next 12 months.
• An 'obligation tracker' tool may be used to monitor the compliance of suppliers with the contractual requirements. This is a useful tool for recording and regularly updating supplier performance against the contract, as well as factors such as scope and price changes. The overview an obligation tracker provides reduces the need to refer back to the contract to check details; and is also valuable during merger and acquisition activities.
Future IT procurement strategies are expected to be focused on consolidation, standardization and simplification. The trend for implementing software, platform and infrastructure as a service (SaaS, PaaS and IaaS) has not yet changed this centralized approach to IT strategies; but there is a preference for innovative solutions requiring minimal customization.
Companies are at varying levels of maturity in the implementation of cloud-based solutions. The lack of control and ownership of data are issues still to be addressed by some; but there is a general acceptance of the move towards cloud-based computing solutions. As such, Procurement needs to become close with their company’s data privacy and security officer. Having a solid understanding of GDPR and your organization’s policies will allow you to move contracts through the evaluation, compliance assessment, and negotiation processes more quickly.
Technological trends that are expected to have an impact on IT procurement but are not significantly influencing strategy development and execution include:
• The Internet of Things (IoT)
• Digital twinning
• Robotic process automation (RPA)
IT procurement professionals should continue to anticipate challenges regarding the solutions that are being promoted by suppliers as not needing involvement, approval or control by the IT team. CIO’s are struggling to eliminate Shadow IT (technology applications and services used in a business but not owned by IT) and suppliers are going directly to business stakeholders and trying to sell cloud-based services that they say can be easily implemented, integrated and operated. This will result in the fragmentation of IT applications, as well as disruptive changes or redundancy within the IT function. When standalone solutions are being used, IT still needs to control the quality standards and security, and have oversight of the architecture; for which governance policies and procedures must remain current.
The Bottom Line
• IT category strategies are being focused on standardization, consolidation and simplification.
• IT Procurement not may not have sufficient resources to meet the demand for its services from IT stakeholders. Project prioritization is critical.
• Look for creative way to obtain feedback from IT stakeholders to learn Procurement’s value.
• Using an obligation tracker for contract management and SRM.
• Recognizing that only a limited number of suppliers can be actively engaged in an SRM program, usually the tier-one suppliers that may be regarded as being business partners, for which regular meetings and senior-level communications are justified.