Managing vendors. Crafting the optimal partnership October 2013

Transcription

1 Managing vendors Crafting the optimal partnership October 2013

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young LLP is a clientserving member of Ernst & Young Global Limited in the US. This presentation is 2013 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. The views expressed by panelists in this session are not necessarily those of Ernst & Young LLP or its professionals. Page 2

3 Agenda What vendor is offering: Service System Product Measuring success: Performance assessment procedures Interface quality between vendor and buyer Mutual accountability Cost benefit analysis Role of service-level agreements (SLAs) Page 3

4 What is the vendor offering? Page 4

5 What is the vendor offering? Service: Geographical location of delivery People effecting delivery local, regional, international Quality measurement method (deliverables, people, surveys) System: System location IT challenges Data privacy and back up emergency systems Product: Sign-off by IT, legal, risk Vendor technological support for the product Vendor updates for the product Page 5

6 Measuring success performance assessment procedures Page 6

7 Measuring success Performance assessment procedures: Constructing solid SLA at the time of writing the contract Establishing method for tracking SLA provisions achieving/violating targets Making SLA clear on performance and delivery financial consequences if services fall below collaborative expectations Page 7

8 Measuring success SLA Service level expected Service level minimum Measurement frequency Service credit Percentage of employee payroll payments distributed on time 100% 99% Monthly Up to 24 hours late: $1, to 48 hours late: $3,000 More than 48 hours late: $5,000 Page 8

9 Measuring success Performance assessment procedures: Example vendor engagement Consider you are contracting this vendor to pay 6,575 employees in six countries: Great Britain: 450 employees India: 5,000 employees Hong Kong: 550 employees Italy: 25 employees Canada: 450 employees UAE: 100 employees Page 9

10 Measuring success The vendor forgets to submit the payment file to pay the 25 employees in Italy and fails to notify the customer. The customer finds out when employees call on payday (Friday) with no pay in their accounts. It will take a full business day to submit the standard payment file, so wire payments are made to the employees that day. The customer reports the issue to the vendor, who assures the customer that the payment file was submitted just an hour ago (on payday). The customer has already made the payments, so employees will receive a duplicate payment the following business day (Monday). The customer payroll team has to collect the overpayment from employees. Page 10

11 Measuring success What penalty will the vendor pay in this case? Performance assessment procedures: Create, with the vendor, potential future examples that would trigger clauses within the SLA Use specific language in the SLA Don t allow the vendor to push its standard terms, which it may use across all clients Reassure your vendor that the intent is not for the client to profit from the SLA Contract with the vendor to revisit, and if necessary, revise the SLA annually Page 11

12 Measuring success SLA Service level expected Service level minimum Measurement frequency Service credit Percentage of employee payments distributed on time will be calculated as the number of regular cyclical employee payments in country distributed on time divided by the total number of payments made in country, expressed as a percentage. All dates are found on the mutually agreedupon processing calendar for specific countries. If the vendor realizes the payment file deadline has been missed based on the mutually agreedupon calendar, the vendor must contact the customer and ask for instructions whether to release the payment file. 100% 99% Monthly Credit incurred if the vendorprocessed payroll is not available to customer employees in a given country on the scheduled pay date; there are additional considerations if customer must process or retract payments: If vendor payroll distribution is greater than 24 hours late: $5,000 If vendor payroll distribution is missed and process eliminated because customer must manually pay employees: $7,500 If vendor payroll distribution is up to 24 hours late, but customer must also manually pay employees, which also means overpayment retractions: $10,000 Page 12

13 Measuring success Performance assessment procedures: What penalty will the vendor pay in this case?: $10,000 penalty: the payroll distribution by the vendor was more than 24 hours late, the customer manually paid employees and had to handle overpayment retractions. Also, the SLA specifies that the measurement is per country not for the global total population. This penalty may cover some of the customer additional expenses, but more importantly, it should raise awareness within the vendor organization that there is an issue. It should get the two organizations talking through solutions to prevent this in the future. Page 13

14 Measuring success interface quality between vendor and buyer Page 14

15 Measuring success Interface quality between vendor and buyer: Clear roles and responsibilities in each organization and the working relationship(s) Definition of account management Clear escalation path for advanced issue resolution Within customer organization Between vendor and client SLA clauses followed under difficult and routine situations Page 15

16 Measuring success mutual accountability Page 16

17 Measuring success Mutual accountability: Keep channels of communication open In the statement of work, schedule joint meetings and discussions: SLA review Score review Consider case management and general updates: Determine meeting frequency based on teams involved, seniority, type of service and frequency of business interaction Participate in vendor user group discussions, learn about future deliverables, and contribute to future modifications Page 17

18 Measuring success cost/benefit analysis Page 18

19 Measuring success Cost/benefit analysis: Despite great delivery and exceptional relationships between vendor and client, the client may still wish to assess whether the contract and pricing is still competitive. Contracts should be renewed at least every two to three years. Your internal supply chain partners and legal department should review contracts. You should go out to proposal before renewing your contract with your existing provider as it will give you insight as to other market offerings and pricing. Page 19

20 Thank you Page 20