Want to know where to begin if you’re launching a program to get better leverage from your IT suppliers and in your buying processes? Start by establishing a baseline of your company’s IT supplier portfolio.
The baseline includes information on your suppliers, buying processes and cost structure, enabling you to fully understand the size and scope of your supplier portfolio.
The baseline may uncover surprises you may have more suppliers than you estimated or you may have several contracts with one supplier. You may also find many suppliers that don’t have contracts companies often find that more than 60 percent of their suppliers either never signed contracts or are operating under expired contracts. You may discover buying that’s being done without considering whether the product fits within your IT architecture. For example, one of my clients found that three business units were buying Sun servers even though the architecture specified Hewlett-Packard Co.
The baseline will provide the data that you need to develop an effective action plan.
But it may not be as simple as it seems. One of my clients was recently asked to assemble a list of its top 10 suppliers. After repeated attempts, it developed four separate lists, one from each business unit. Yet, all four neglected to include either IBM Corp. or AT&T Corp., which were Nos. 1 and 3 on the final list.
The effort required to set a baseline will vary depending on the complexity of your IT organization, but any baseline should include data on the following:
Supplier portfolio. How many suppliers you have, the products and services each provides, their importance to your operations, and the contract terms (such as maintenance fees and renewal periods).
Buying processes. How consistent are buying processes across the company, and who buys what.
Cost structure. How much the company spends per supplier, architectural component and business unit.
The baseline will help you uncover opportunities for volume discounts. You may also find redundant technologies (such as NT and NetWare) or processes (such as three ways of providing desktop support). This can lead you to streamlining your supplier portfolio by merging, consolidating or eliminating technologies and processes. The baseline will also assess how well you’re aligning your architecture with your infrastructure (or your blueprint with what you build). Ask yourself the following questions:
— How accurately does your infrastructure reflect your architecture?
— How well does your architecture support your business strategy?
— Is your architecture explicit enough to guide your IT buyers in their decisions?
The baseline will identify opportunities for savings, buying process improvements and infrastructure rationalization. Each opportunity must be analyzed to understand its costs, benefits and priority.
A baseline provides valuable data at any time but is particularly effective with:
Highly decentralized organizations. In these types of operations, you’re probably not getting maximum economies of scale from your suppliers.
A new CIO or CFO. “Quick hit” cost savings provide instant credibility with top management.
A CIO or CFO facing significant cost-cutting pressure. It’s better to cut costs through a supplier management program than through layoffs.
Mergers and acquisitions. A baseline can provide you with your best opportunity to rationalize two architectures and the supporting infrastructures.
Divestitures. Most contracts will have to be rewritten; a baseline will provide the data required to renegotiate them.
A transforming event. A new CEO or an unexpected competitive threat can cause widespread changes. A baseline will reveal strengths and weaknesses that can help you make your infrastructure more responsive to new requirements.
Your supplier portfolio contains many opportunities to reduce costs and align your infrastructure with your architecture. And a baseline provides a complete picture of your portfolio’s strengths and weaknesses, enabling you to choose the opportunities with the greatest return.
Bart Perkins, a former CIO at Tricon Global Restaurants Inc. and Dole Food Co., is managing partner at Leverage Partners Inc. in Louisville, Ky., which helps CIOs manage their IT suppliers. Contact him at [email protected].