INSIGHTS PAPER DRIVING CUSTOMER SATISFACTION FROM SUPPLIER CONSOLIDATION AND MANAGEMENT. Prepared by: Steve Hayes, Service Management Consultant

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1 INSIGHTS PAPER DRIVING CUSTOMER SATISFACTION FROM SUPPLIER CONSOLIDATION AND MANAGEMENT Prepared by: Steve Hayes, Service Management Consultant 60 Lombard Street London EC3V 9EA T: +44 (0) E:

2 1. EXECUTIVE SUMMARY Businesses everywhere proclaim themselves as Customer focused and publish statements in their corporate brochures emphasising their commitment to a customer-centric service delivery model, both externally and internally. However, many of these companies have yet to back these statements up by investing in the core capabilities, processes and systems necessary to maximise the opportunity to deliver real customer value. At icore we believe that good Supplier Management and associated Relationship Management is key to ensuring there is effective and efficient delivery throughout the Supply Chain. A key element of this is to regularly ensure that suppliers are reviewed regularly to ensure they are providing value for money and also looking at options of consolidating the supplier base, establishing right-term contracts and leveraging spend potential. It is also absolutely critical to customer satisfaction that each supplier who represent the touch point with a customer is customer focused. Each customer touch point, in the supply chain, presents a marketing and differentiation opportunity for the business. The aim of this paper is to identify the key areas that IT Service Delivery teams could improve supporting the overall business aim and ensuring that best practices are being employed to give, not only customer satisfaction, but value for money and ensuring supplier performance is measured effectively and efficiently. It also gives the reader the necessary insight into how to manage suppliers to bring best of breed to your organisation. 2. INTRODUCTION It costs five times as much to win a new customer than to keep a current one. However, customers are not loyal by nature and research shows that emotion influences purchase decision six times more than rationale. Connecting to your customers on an emotional level is the key to establishing a lasting relationship with your brand. You must go beyond simply delivering your product, and develop strong bonds with your customers. It is essential that you provide a unique customer experience by proactively anticipating your customers needs and expectations and meeting or exceeding them, every time. Service excellence should be an attitude engrained in every department and it begins and ends with the people involved in the service delivery to the customer, from the first to the last interaction of each service transaction your customer experiences. Invariably within the world of IT, service delivery partners or suppliers are used in part or wholly to deliver services on the behalf of an organisation. So it is key to ensure that icore 2014 P a g e 1

3 your suppliers are delivering service excellence to your customers through both internal delivery teams and from suppliers. A consistent level of service should visible. 3. YOUR SUPPLIERS AND YOUR CUSTOMERS As part of a continual service improvement plan these questions should always be challenged within the IT service delivery organisation:- Do I know who all of my suppliers are, and who are they are delivering services to? Do I know if they are delivering service excellence to my customers, are my customers satisfied? Do I regularly meet with my suppliers and customers to discuss service performance? Do I receive and distribute regular service reporting information? Do I know what services my suppliers are delivering? Do I know what my supplier capabilities are? Do I know what commercial terms I have in place with my suppliers and customers? Do I know how valuable and critical the service is to my customers? If you couldn t honestly answer yes to all of the above questions, then work is required on the overall Service Management provision within your organisation, primarily around the Supplier Management function. In turn, this would bring benefit and control to your overall service provision. The customer s perception is your reality Kate Zabriskie Author of: Customer Service Excellence: How to Deliver Value to Today s Busy Customer There are a number of areas within the service delivery organisation that need to be managed to ensure there is control around the services. These are identified below and will be broken down into further detail in subsequent sections in this white paper. Service Portfolio What services are you offering to the customer base? Customer Base/Customer Satisfaction What services are being delivered where and how are you doing Cost Models - How much are you charging? Supplier Base What suppliers are you using to deliver these services? Supplier Commercial Agreements What contracts are in place with each supplier and the under what terms? Supplier Consolidation Who are you using? Supplier Management How are you managing each supplier? icore 2014 P a g e 2

4 4. SERVICE PORTFOLIO IT Service Delivery organisations should be able to clearly articulate the services they are delivering to their customer base and ensure that the customer understand what services they are receiving, an enabler of this, is the Service Portfolio. This gives the ability of the IT Service Delivery organisation to outline the makeup of their services being delivered and how these are being delivered to the business. In a more mature model, the service catalogue can be used for decision making as it can be used to measure demand and fulfilment requirements, which can lead to decisions such as retiring a low used service or to enhance or develop a high demand service. The typical components of a service catalogue should contain the following information about each service: Internally delivered Externally delivered (outsourced) Co Sourced (mixture of internally and externally delivered services) Managed Service It should also cover items such as Service Description, policies, SLA s and pricing. The catalogue does not need to be sophisticated. It can be setup in various guises, from a basic excel spreadsheet through to a fully integrated CRM solution. The catalogue not only describes the services available but the information also assist with the support of those services, in conjunction with for example the s the Configuration Management Database (CMDB), brings value to the business by improving Incident, Problem, Change and Service Level Management. 5. CUSTOMER BASE/CUSTOMER SATISFACTION What customers do you have? It is no surprise that not all service organisations within a company have a full picture of all of their customers. This can be very frustrating for the customer and for the sales and service teams when a customer phones the Service Desk for the first time, and there is no record of them. First impressions count, and from that initial call, the customer has a poor perception of service and the service organisation is then placed on the back foot for the current and future interactions. Whether it is an internal customer within your own organisation or an external end user customer, without customers there is no service. Without satisfied customers there is no customer retention and stability within the company or authorised material to reference. icore 2014 P a g e 3

5 Commonly used approaches such as Customer Satisfaction Questionnaires, Customer Service Review Meetings and customer telephone calls will give an indicator of how well you are performing as a service organisation, and where the key areas of focus should be. Invariably, if these customer feedback events are not performed regularly or indeed too regularly, the customer will become disengaged and could be inclined to consider other suppliers if they are not feeling valued by your services organisation. Don t be surprised with the feedback you receive, it is what you do with the feedback and how you act on it that counts. If you are in regular communication with your customer then invariably the relationship will be stronger. Clearly, there will be difficult times such as major service outages, but if you are already fully engaged, then these are resolved in a more positive and collaborative way. From a customer perspective it is important that the engagement level and the information provided is structured and formalised, so it is clear that the customer knows exactly what to expect from you and your service organisation. It should be clearly documented in either the service schedule or within the service definition documentation what the customer can expect. Items would include: Service Review Meetings Frequency, attendees and content of the meeting - What will be covered Service Reporting What to expect Service Contacts Who they can contact Escalation Management Who to contact when things go wrong Continual Service Improvement Plans Joint plans between you and your customer 6. COST MODELS Unsurprisingly, in a vast majority of service organisations, structured formal cost models do not exist. Each opportunity is invariably costed individually, with no economy of scale and therefore margins can vary widely. By introducing cost models, services can be costed with more exacting detail, correctly costing all elements of service provision per opportunity and therefore realising the true margin potential, rather than off the cuff cost base versus sale price which the sales organisation will put to the customer to win the business. The cost model ownership is retained within the services organisation and therefore gives greater control over how services are sold and signed off for bids and existing services. For not for profit organisations, it is still important to understand the cost base and have the ability to measure this in the marketplace to ensure services are cost effective. Cost models should take into account all service elements, not just supplier costs, but internal service cost overheads should also be included as there will always be engagement on any service from various departments to deliver the service. Fixed costs such as your internal service management team and the cost to manage icore 2014 P a g e 4

6 suppliers are the cost of doing business which needs to be taken into account rather than an invisible overhead. 7. SUPPLIER BASE Where there are a number of suppliers delivering services on your behalf, the key items to consider are: What suppliers are being used? What commercial terms are in place? Are there Operating Level Agreements (OLA s) in place for internal suppliers? How are they performing? Using the service catalogue, suppliers can be mapped onto the services delivered, adding another piece to the jigsaw of the overall service delivery model for your organisation. There will need to be engagement with your commercial/contracts teams to understand what suppliers are in place, and to understand the commercial terms with each supplier. Once these are established, they can be added to the service catalogue so it is clear as to which services the suppliers align to with regards to capability and service provision to your services organisation. Where you have internal service providers delivering services you will need to have a level of contractual management over these suppliers, these have historically taken the form of Operating Level Agreements (OLA s), these determine the relationships among the internal support groups of an organisation working to support the overall SLA delivered to your customers. The objective of the OLA is to present a clear, concise and measurable description of the service provider's internal support relationships. Invariably, where there is lack of control over suppliers and the management of supplier organisations this will lead to a silo ed approach to service delivery using many suppliers. This can lead to multiple suppliers delivering the same services to different customers. These type of occurrences are very common where there is no central management of suppliers and will lead to poor cost control, poor service delivery and poor customer retention. 8. SUPPLIER COMMERCIAL AGREEMENTS The first step before engaging with an existing supplier is to ensure you have reviewed the commercial terms of the agreement your organisation has signed up with them. This will give you visibility of any potential pitfalls in commercial or contractual negotiation with them before engaging with them on a service perspective. This is important from both a contract renewal perspective more appropriately, to discuss any poor performance. There is little point going down a path of setting up specific detailed service improvement plans, if you have only signed up for their most basic of service offerings. icore 2014 P a g e 5

7 Commercial agreements should include the specific service details that have been signed up as part of the overall agreement, these are normally detailed as service schedules and are appended to the commercial terms, these service schedules will detail the exact nature of the service provision and service levels agreed between you and the supplier. Key to this is ensuring all signed agreements are in place and categorised through the service catalogue. Where there aren t signed agreements in place, then a plan of action will need to be setup with your commercial team to remedy. Without these, your organisation is at the mercy of your suppliers own T&C s which invariably gives you little room for improvement. From this point, discussion with the suppliers regarding service delivery is much easier and a stronger position can be taken. 9. SUPPLIER CONSOLIDATION The commercial agreement and service schedules for each supplier will give a breakdown of the costs by service of each supplier. This will help in benchmarking your costs against competition, it will also help to look at what suppliers are charging and where there is room for commercial discussions to drive costs down. Often, where there is lack of control, there will be local agreements in place that may not be as cost effective based on the service being offered and the costs for delivery of the services, these will need to be addressed with the commercial teams. Using customer satisfaction feedback, you can then identify each supplier s service delivery performance and the impact this is having on your contract base. Given that potentially, you could have a poor performing supplier who is delivering a large proportion of your services which will directly impact both yours, and their, annuity based revenue streams. It is therefore important that you have knowledge of the customer experience being delivered by your suppliers to ensure you understand the landscape of performance from your supplier base. This puts you in a stronger commercial position to derive best value for money and compare suppliers against services and satisfactory service delivery. Where unintended duplicate service provision from different suppliers is observed, your aim should be to assess the commercial makeup of each supplier and the scale and potential service delivery capability with a view to choosing to move services from one supplier to another. This can be performed in conjunction with the commercial teams to ensure that any contractual obligations on your part are covered and you are not financially exposed in the termination process. Consolidating services to a smaller supplier base will give greater control of service provision to your customers and will enable a greater level of engagement with your suppliers. This, in turn, will lead to better customer satisfaction from an overall service delivery perspective. Having a large number of active suppliers operating at low capacity can be a drain, both on the suppliers, and on the businesses they are icore 2014 P a g e 6

8 supplying. Supplier consolidation is one way to combat the problems caused by such a situation. Some of the benefits include: Risk avoidance - Risks associated with utilising a large number of low capacity suppliers Lower prices - Supplier consolidation offers other benefits, both to your organisation and to the surviving suppliers. Greater integration Brings streamlined business processes and related costs, fewer contracts to administrate, vendors to manage, invoices to pay, and resources associated with all of these items. Improved accountability With fewer suppliers and reduced finger-pointing between what was too many suppliers. Security - Reducing the number of individuals with access to a company s systems and data, and confining access to a select group of cross-trained technicians. When performing supplier consolidation, the following risks also need to be taken into account: Eliminating some suppliers may also eliminate a certain amount of competition, giving the customer less choice. In the long term, suppliers eliminated during supplier consolidation may not be in business if or when additional suppliers are once again needed. 10. SUPPLIER MANAGEMENT Regardless of supplier consolidation, there is the need to ensure you are managing your suppliers effectively. Engagement with your preferred suppliers is crucial to ensure you are in control of overall end to end service provision, and you have a clear plan of activity to improve services where they are failing, and to ensure that reporting on all aspects of the service are documented and defined. The key to supplier management is ensuring the right level of relationship is formed, the right people in place within your services organisation that understand the principles of supplier management, and can demonstrate effective delivery of key areas such as Incident, Problem, Change, Release Management and Service Introduction and Transition. You need to trust your suppliers to do their job and empower them to deliver to you, as previously stated, if they are not engaged and brought into the party, then their service will deteriorate and ultimately you will lose your end user customers and icore 2014 P a g e 7

9 consistently be chasing escalations internally where your internal customers are receiving poor service. Where you implement processes that cross into your suppliers do not make them too detailed, as this will cause disconnects. There is great potential and major benefits from a structured supplier management function within your organisation such as: Improved and consistent supplier service quality that delivers against your requirements Commercial terms in place and agreed with clear deliverables stated within the agreements Regular Service Review meetings Joint Continual Service Improvement Plans (CSIP) Structured Service Level Management Reporting information Greater transparency of costs between the organisations Reduction in risk to service delivery due to a more engaged supplier Bringing greater stability to annuity based contract revenue and leading to a greater level of engagement into other areas of the supplier ultimately a higher level of goodwill between organisations. The size of your organisation may dictate the type of Supplier Management you will adopt. The function does not necessarily mean you have to hire a number of staff just to manage your suppliers, it can be carried out by specific individuals within your services organisation as long as the same methodology is used across the board. Suppliers will also need to categorised into their criticality to your organisation for the services they deliver on your behalf. This is focused more on how the supplier is positioned to deliver services, as the perspective of the relationship between you and your suppliers will not always match up. It could be that the supplier sees your organisation as low spend and therefore low importance, whereby you will see them as high cost and possibly high importance, so it is key for the supplier management function to ensure that the supplier does not adopt a take it or leave it approach which will not benefit either organisation. Once your suppliers are fully engaged and on-board with you, the benefits you can achieve from this newly found partnership can lead into other business opportunities that your suppliers can deliver from their previously unknown portfolio. icore 2014 P a g e 8

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