United Parcel Service and General Motors delegate formal responsibility for vendor relationship management to ensure successful outcomes.
United Parcel Service’s top IT operations guy, Jim Medeiros, recently sat down with a key UPS hardware supplier to talk about deploying new application servers .
“I was listing out for him a bunch of things we want to make sure we do together, so this new technology will work properly,” says Medeiros, vice president of shared services for UPS in Atlanta. Among his queries:
• What are all the things that can go wrong?
• What skill levels are needed, from the vendor and from UPS?
• What items should be covered on a common status report?
• Should we have one person from each company who is not directly involved in the project to objectively review whether the project is successfully meeting its goals?
• What resources need to be assigned by both companies to ensure success?
• What other customers of the vendor have deployed this technology and are willing to provide feedback to UPS?
“I’d never get any of that information if all I did was sign a contract and install the product,” Medeiros says.
These are the kinds of questions that more network and IT professionals now are asking their vendors, and themselves. This awareness is being embodied either in new, more formal responsibilities for senior IT managers, or in new jobs with titles such as vendor relationship manager.
“Historically, the vendor-management role was shaped by software and hardware features and functions. Negotiations were around things like quantity, product features and so on,” says Diane Morello, vice president of business management of IT for Gartner. “Today, the conversation [with IT vendors] is more about intangibles, about such things as service levels that are being measured. It’s less about items and more about outcomes.”
Rationalize relationships
A viable vendor-management function can rationalize a web of relationships between a large company and a group of vendors, save money and time, and give the enterprise more control over meeting its project and business objectives.
Gary Wolfram of North Bend, Ind., is a former programmer and IT manager who’s been involved in vendor management since 1996. At that time, he was hired as an outside consultant to direct IS recruiting for a large company with a division that was starting to build out its IT group.
Wolfram set up a centralized system for managing the various recruiting companies that were supplying his client with contract programmers and IT staff. “We were able to save 25% of the hiring managers’ time, simply by the fact they no longer had to repeat themselves over and over to every one of these vendors,” Wolfram recalls.
At the same time, Wolfram worked with the IT and project managers who hire the contract programmers, to help them understand that a lower rate was not the sole criteria in making a decision. A less-experienced programmer would have a lower hourly rate, but might require more supervision or support, which could increase the project’s overall cost.
Communicate clearly
Managing these kinds of outcomes with IT vendors requires lines of communications beyond those of the traditional procurement process. IT groups are responding to this by setting up formal and informal communications between different levels of a company and their IT vendors.
Over the past six years, General Motors has created the role of mentor for each of its strategic IT vendors, about 20 companies in all. The mentor is a senior IT manager who acts as an adviser and sounding board for the vendor. “We keep this separate from the contractual and bidding activities,” says Dan McNicholl, chief strategy officer for IS and services at GM in Detroit. “The mentor doesn’t get in the middle of contract negotiations, for example.”
GM also demands of each of these vendors a corresponding contact who is separate from the vendor’s day-to-day account manager.
Once a year, GM’s top IT leaders, about 15 people, take off in a corporate jet to visit the top management of these strategic IT vendors. In nearly daylong meetings, the two groups review the business outlook, challenges and directions, and relate these to IT priorities and goals.
Finally, GM is the annual host of a supplier forum for its top IT vendors. One of the key events is the scorecard of each vendor’s performance. GM has about 18 categories that the mentors, consulting with other GM managers, use to evaluate how well each vendor is doing. The categories cover how responsive the vendor is to GM’s needs, cost-effectiveness and pricing. GM also collects industrywide scorecard data from outside sources and compares this data with its own performance ranking.
The vendors take the results very seriously, McNicholl says. “They’ve immediately changed their account-team leadership in response to low scores,” he says.
Share responsibilities
UPS now has two main levels to its vendor-management process. It designates relationship managers, which are duties assigned to midlevel IT managers who work daily with a given vendor’s products or services. Then there are executive sponsors, who are senior managers, typically vice presidents, as Medeiros is.
The relationship managers oversee issues around a new version of the vendor’s software or a glitch in deploying a product. The sponsors meet monthly with the vendor to review higher-level issues, such as long-range product plans and the status of pending technology decisions. The executive sponsor gives the vendors a voice in where UPS is going with technology, counsels them on internal UPS processes, and accurately and consistently explains what Medeiros calls “the rules of the game.”
The emphasis on a relationship as opposed to contract terms puts a premium on understanding each other, and understanding requires listening, GM’s McNicholl says. “They have to be listening, and so do we,” he says. “And listening is not a skill with which many IT executives are especially comfortable.”
In a recent incident, users on GM’s VPN were getting repeated logon errors. The VPN has components from four vendors. The GM relationship manager coordinated with the lead vendor, who brought in the other suppliers via an audioconference to sort out how to approach the problem. This team worked out a plan and assignments, and created an interim workaround, while they figured out the root cause, which turned out to be a software problem.
It was a two-way process. “A couple of things came home to me about how we [at GM] could do a better job on our side to prevent these problems,” McNicholl says.
