1. About this document
It is split into main sections, covering:
- general information about the practice
- the practice’s processes and activities and their roles in the service value chain
- the organizations and people involved in the practice
- the information and technology supporting the practice
- considerations for partners and suppliers for the practice
ITIL® 4 qualification scheme
Selected content from this document is examinable as a part of the following syllabus:
- ITIL Specialist Drive Stakeholder Value
Please refer to the syllabus document for details.
2. General information
2.1 Purpose and description
Key message
The purpose of the supplier management practice is to ensure that the organization’s suppliers and their performances are managed appropriately to support the seamless provision of quality products and services. This includes creating closer, more collaborative relationships with key suppliers to uncover and realize new value and reduce the risk of failure.
Supplier management ensures effective use of third-party services by establishing a common approach to sourcing strategy and managing supplier relationships and by maintaining a single point of control over the active and planned supplier contracts and services.
The supplier management practice enables organizations to define strategies for the use of suppliers’ and partners’ services, to evaluate and select suppliers, and to ensure that consumed services meet or exceed agreed service levels, the cost of the consumed services is optimal, and associated risks are understood and controlled.
The sourcing strategy should support the overall organization’s strategy and define which of the organization’s resources should be created and managed internally and which may be obtained from and/or managed by third parties, and to what extent. It should also define the overall approach to managing third-party services; it can in turn be retained or delegated to a key supplier, or to a specialized service integrator. Policies and guidelines defined in the sourcing strategy have significant impact on the organization’s products and services, as well as on the organization’s structure and allocation of responsibilities. Regardless of the approach selected, no organization today is fully self-sufficient: every organization depends on third parties to some extent. Therefore, the supplier management practice is one of the key elements of overall success for the organization.
The supplier management practice ensures that the right supplier is evaluated and selected to deliver quality products and services that are aligned to the overall business objectives, essentially meeting the utility and warranty commitments. It ensures that suppliers enable the realization of the desired outcomes and meet or exceed the organization’s requirements for service and product quality, while minimizing the risks related to the delivery (in line with the overall risk appetite of the organization). Flexibility and agility are the key aspects of a modern organization and are also the key expectations from the suppliers.
The supplier management practice is used in close conjunction with other practices, including the relationship management, service level management, service financial management, risk management, and service configuration management practices.
2.2 Terms and concepts
Definition: Supplier
A stakeholder responsible for providing services that are used by an organization.
An engagement with a new supplier usually starts with assessing what suppliers are in the market and approaching them with a request for information, a quote, a proposal, a bid, or a demonstration (RfX).
Definition: RfX
This umbrella term is used to reference to request for information (RFI), request for proposal (RFP), request for quote (RFQ), request for bid (RFB), or request for demonstration (RFD).
A relationship with a new or existing supplier is generally defined by the contract that the organization has with them.
The contract typically includes the service level agreement between the organization and supplier, covering the utility and warranty aspects of the services, terms and conditions, and payment schedules. It details the parties’ commitments, including responsibilities and deliverables, the parameters that are to be used to measure the supplier’s performance, and related reward or penalty attributes.
2.2.1 Supplier evaluation and supplier performance
Contracting a supplier happens as a result of supplier evaluation and selection. To evaluate a potential supplier and consequently assess its performance, an organization must have a supplier assessment framework.
Before suppliers are selected to deliver products or services, they are evaluated based on several factors. Organizations must brief the suppliers on the evaluation process and criteria.
Organizations may have different approaches for different suppliers, depending on the type of relationship and level of trust. However, all suppliers must be evaluated and assessed for their performance and value realization.
The suppliers must be appraised against defined performance targets to assess their effectiveness. These performance targets usually include the utility and warranty aspects and metrics related to the co-creation of value. Organizations must brief the suppliers on the criteria and the scoring process in advance.
2.3 Scope
The supplier management practice focuses on three key aspects:
- evaluating, selecting, and onboarding suppliers, and maintaining of their information in the supplier management information systems
- negotiating of contracts and ensuring that suppliers adhere to them, meeting all contractual obligations and deliverables and managing the contracts through their lifecycle
- measuring, tracking, and reporting on supplier performance and triggering the reward or penalty aspects of the contract, ensuring that the organization obtains value for money from the contracts.
The scope of the supplier management practice includes:
- enforcing the supplier management policy
- creating and maintaining the supplier selection and performance evaluation criteria and procedures
- establishing and maintaining the sourcing strategy and supplier categorization standards in accordance with the sourcing strategy
- defining of sourcing requirements and evaluation parameters for supplier selection
- creating and maintaining standard contract terms and conditions
- evaluating and selecting suppliers
- developing, negotiating, and agreeing contracts
- reviewing, renewing, and terminating contracts
- auditing the suppliers’ adherence to the contract
- measuring and reporting on supplier performance
- creating, maintaining, and using supplier onboarding and offboarding procedures
- creating and maintaining supplier performance measurement criteria
- collaborating and resolving conflicts with suppliers
- maintaining the data in supplier management information systems
- categorizing suppliers and managing risk
- identifying, tracking, and reporting on continual improvement measures related to the supplier management practice or suppliers.
There are several activities and areas of responsibility that are not included in the supplier management practice, although they are still closely related to supplier management. These are listed in Table 2.1, along with references to the practices in which they can be found. It is important to remember that ITIL practices are merely collections of tools to use in the context of value streams; they should be combined as necessary, depending on the situation.
Table 2.1 Activities related to the supplier management practice described in other practice guides
Activity
| Practice guide | |
|---|---|
| Manage stakeholder relationships in supplier relations | Relationship management |
| Document relationships between the suppliers’ services, the organization’s services, and other configuration items | Service configuration management |
| Maintain and provide information on suppliers’ services to stakeholders in the organization | Service catalogue management |
| Analysis of innovation opportunities offered by suppliers | Business analysis |
| Define organization’s requirements to supporting services | Business analysis Service design Architecture management |
| Ongoing management and improvement of supplier performance, driving service improvement | Continual improvement |
| Design and control of financial models | Service financial management |
| Manage supplier risks | Risk management |
| Manage supplier-related projects | Project management |
| Manage supplier-related organization changes | Organizational change management |
| Capture and manage supplier knowledge | Knowledge management |
| Manage supplier’s access to resources and tools | |
2.4 Practice success factors
Definition: Practice success factor
A complex functional component of a practice that is required for the practice to fulfil its purpose.
A practice success factor (PSF) is more than a task or activity, as it includes components of all four dimensions of service management. The nature of the activities and resources of PSFs within a practice may differ, but together they ensure that the practice is effective.
The supplier management practice includes the following PSFs:
- ensuring that the sourcing strategy and guidelines effectively support the organization’s strategy
- ensuring that service relationships with all suppliers and partners are managed effectively and in line with internal and external regulations
- ensuring the effective integration of third-party services into the organization’s products and services.
2.4.1 Ensuring that the sourcing strategy and guidelines effectively support the organization’s strategy
As part of strategy management, organizations define their sourcing policy, including principles and criteria for sourcing resources. According to this policy, a sourcing strategy is developed and maintained to ensure the alignment of the business needs and supplier targets. Apart from the sourcing principles and criteria, it includes supplier categorization, requirements for suppliers of each category, and basic rules of supplier relationship management.
The sourcing strategy is supported with guidelines covering key aspects of the practice, including:
- the management of the service relationship at every step of the service journey
- the management of contracts and agreements with suppliers
- supplier performance management and reporting
- the integration of third-party services into the organization’s products and services.
Organizations need to have the right procedures to identify suppliers as potential sourcing partners and categorize them based on the sourcing strategy. These procedures establish a framework to drive contractual compliance by suppliers, conduct periodic audits, and measure, analyse, review, and report on the performance of each supplier. This forms the key input for the supplier reviews and for the organizations to reward or penalize suppliers based on their performance.
Organizations should be able to effectively formulate contracts and agreements, evaluate and negotiate contract terms, and review contracts for renewal and/or termination.
The contractual compliance and supplier performance can be measured in terms of: contract adherence, SLA performance, compliance, innovation and improvement commitments, resourcing commitments, and value co-creation.
Managing suppliers involves ensuring that contracts are cost effective and provide value for money. This can be measured in terms of the year-on-year benefit or the potential value (financial saving, innovation, transformation, and so on) that suppliers bring as part of their offering.
2.4.2 Ensuring that service relationships with all suppliers and partners are managed effectively and in line with internal and external regulations
Every organization acts as a service provider and as a service consumer. Service relationships with suppliers follow the same journey as service relationships with the organization’s service consumers, although the journey is perceived from the other side. The service relationship journey steps are shown in Figure 2.1 (see section 1.2 of ITIL® 4: Drive Stakeholder Value for more details on the service relationship journey).
Figure 2.1 The service relationship journey
When organizations act as the service consumer, they follow the customer’s side of the journey, and suppliers follow the service provider’s side. Each step of the journey should be supported with procedures, skills and competencies, information, and tools; sometimes external services are used too. Many of these are considered part of the supplier management practice, but input from and the involvement of other practices is needed at every step, as is shown in Table 2.2.
Table 2.2 Examples of how the supplier management practice enables the service relationship journey
| Processes and value streams Organizations and people Information and technology Partners and suppliers Explore Procedures for search and shortlisting of suppliers Skills and experience in procurement Specialized roles and teams Access to external and internal information about suppliers Information systems for procurement Agent services in searching and vetting potential suppliers Engage Procedures for assessment, scanning, and vetting suppliers Skills and experience in procurement Specialized roles and teams Offer Procedures for drafting, negotiating and improving contracts and agreements Negotiation Legal and contract management skills Specialized roles and teams Information systems to manage contracts and agreements Agree Onboard/offboard Procedures for the management of supplier onboarding, including effective integration with other practices Skills and knowledge for supplier onboarding Integration of the supplier’s services with the organization’s information systems, tools, and products External integration services, where appropriate Co-create Procedures for performance management Conflict resolution Collaboration and ongoing interactions Skills and knowledge relevant to the services Monitoring and reporting skills Conflict management Tools to collect and analyse data about performance of the services consumed Service reporting systems Conflict logging and resolution tools |
3. Value Streams and processes
3.1 Value stream contribution
Like any other ITIL management practice, the supplier management practice contributes to multiple value streams. It is important to remember that a value stream is never formed from a single practice. The supplier management practice combines with other practices to provide high-quality services to consumers. The main value chain activities to which the practice contributes are:
- engage
- design and transition
- deliver and support
- improve
- obtain/build
- plan.
The contribution of the supplier management practice to the service value chain is shown in Figure 3.1.
3.2 Processes
Each practice may include one or more processes and activities that may be necessary to fulfil the purpose of that practice.
Definition: Process
A set of interrelated or interacting activities that transform inputs into outputs. A process takes one or more defined inputs and turns them into defined outputs. Processes define the sequence of actions and their dependencies.
The supplier management practice activities form two main processes:
- managing a common approach to supplier management
- managing supplier journeys.
3.2.1 Managing a common approach to supplier management
This process is focused on defining, agreeing, and promoting an organization-wide approach to managing suppliers. It includes the activities listed in Table 3.1 and transforms the inputs into outputs.
Table 3.1 Inputs, activities, and outputs of the managing a common approach to supplier management process
| Key inputs | Activities | Key outputs |
|---|---|---|
| Organization’s strategy Service relationship type Budgetary/financial considerations and related information Legal requirements, considerations, and related information Organization’s supplier management policy and process | Develop and agree the sourcing strategy Develop and agree the supplier management procedures Communicate and embed the sourcing strategy and procedures Review and adjust the sourcing strategy and procedures | Supplier management policy Sourcing policy Procedure for searching for new suppliers Supplier evaluation and selection criteria Contract framework Compliance and audit criteriaCollaboration framewor kSupplier dependency matrix |
Figure 3.2 shows a workflow diagram of the process.
Table 3.2 provides examples of the process activities.
Table 3.2 Activities of the managing a common approach to supplier management process
| Activity | Example |
|---|---|
| Develop and agree the sourcing strategy | The sourcing strategy defines the organization’s approach to supplier management, aligned with the organization’s strategy.The sourcing strategy and guidelines define how the organization deals with:supplier category and applicable service relationshipssupplier evaluation criteriasupplier shortlistingdue diligencesupplier selectioncompliance and regulationscontractingcontract compliance and audit standards and periodicityreward and penalty mechanismsservice integration/disintegration optionscollaboration guidelinesperformance measurementreporting and communication standards |
| Develop and agree the supplier management procedures | A team of stakeholders involved in supplier management further develops the sourcing strategy by developing and agreeing guidelines and procedures for:Identifying available suppliers: this defines how the preliminary requirements are developed and how the potential suppliers are identified.Engaging with suppliers and communicating demand: this defines how the potential suppliers are approached and engaged and what channels and forms are used for communications. Some organizations where the duties of supplier selection and operational management of suppliers are segregated can also define an empanelment procedure. Empanelment can run as an independent exercise or through the RFI. The supplier empanelment procedure covers the conditions and requirements for empanelment and the empanelment workflow.Supplier evaluation and selection: this defines how to evaluate suppliers during the selection process. The criteria describing supplier impact and importance, risks associated with the supplier, and costs and value offering can be used to score the suppliers. Each of the criteria can be scored based on a simple score or weighted score. In addition to the technical proposition, the evaluation parameters include the supplier’s service delivery track record, capability and references aligned to the services being outsourced. Additionally, the credit rating and organization’s size may be the other parameters to be considered during evaluation. Supplier contracting: this defines the steps to be followed during the negotiation, formulation, maintenance, and management of contracts. The structure for various types of contracts covering basic, cooperating, and partnership service relationship types needs to be documented. Contract frameworks acts as a model for all contracts related to the type of service and service relationship. The procedure for the maintenance and management of contracts covers the contractual compliance and audit guidance, periodicity of such audits and corresponding actions for non-compliance and the review process. It also provides guidance related to:requirements for contract amendmentcontract renewalcontract terminationcontract expiration.Supplier onboarding and offboarding: this defines how suppliers are onboarded and enabled to provide services in organization’s cultural, financial, and operational context. These procedures should also include enabling users and stakeholders to consume suppliers’ services. These procedures should include service integration to coordinate or orchestrate all the suppliers involved in the development and delivery of products and services. Service integration builds a supplier into the end-to-end provision of services, ensuring control of all interfaces and outcomes from suppliers, and facilitating collaboration between suppliers. Procedures should define how the suppliers are offboarded and how access, dependencies, changes to service integration, non-disclosures, and risks and compliance issues are handled.Managing consumption and monitoring supplier performance: this defines how the organization manages the ongoing service delivery by suppliers and service interactions. This includes procedures for managing stakeholder satisfaction, maximizing the value of the service consumption, decreasing the costs connected with service consumption, managing risks and compliance, improving collaboration and the service mindset, resolving conflicts, and service exceptions. Supplier performance monitoring, assessment, and review is an evaluation criteria that will be used for the ongoing monitoring of supplier performance, methods of monitoring and value realization assessment techniques, reporting procedures, exceptions handling, continual improvement, and periodic reviews.Supplier assessment and review: this defines the value realization assessment techniques, reporting procedures, exceptions handling, continual improvement, and periodic reviews.Managing supplier governance, risk, and compliance throughout the supplier journey: supplier risk management procedures must be created, outlining initial risk reviews and due diligence of the potential suppliers, ongoing risk management, monitoring compliance, and running supplier audits, metrics, and KPIs. The key aspect here is the design of the governance organization that steers the way suppliers’ risks and compliance are to be managed and suppliers governed. Therefore, the governance body for supplier management might be established based on the organization’s size, supplier ecosystem, and requirements. Such a body would be focusing on managing and governing:supplier riskscross-supplier collaboration and service integrationcontractual adherencecompliancesupplier audits. |
| Communicate and embed the sourcing strategy and procedures | The agreed strategy and procedures are communicated and discussed with the supplier management stakeholders across the organization. Stakeholders may decide the level of formality for the training on sourcing strategy and supplier management. For the people involved in supplier management on a daily basis, policies and controls may be created for formal training as a prerequisite, as well as periodic awareness training.External communications on the sourcing strategy, supplier management procedures, service integration approach, and organizational principles and culture must be prepared and published in the channels agreed by the strategy.Technical details of the integration for potential suppliers should also be formulated and published. This includes technical standards and methods of integration used by the organization; for example, API management. |
| Review and adjust the sourcing strategy and procedures | Supplier management stakeholders monitor and review the adoption, compliance, and effectiveness of the agreed sourcing strategy and procedures; this is done on event-based (supplier-related incidents, conflicts, crises, and complaints on inadequate supplier base that cannot support products and services) and interval-based basis. Resulting findings and initiatives are used as input for continual improvement. |
3.2.2 Managing supplier journeys
This process is focused on managing suppliers through their journey. It includes the activities listed in Table 3.3 and transforms the inputs into outputs.
Table 3.3 Inputs, activities, and outputs of the managing supplier journeys process
- Compliance and audit criteria
- New contract or amendment requirements
- Identifying available suppliers
- Engaging with suppliers and communicating demand
- Evaluating and selecting suppliers
- Contracting suppliers
- On/offboarding suppliers
- Managing consumption and monitoring supplier performance
- Assessing and reviewing suppliersRf
- XShortlisted supplier
- Signed
- Contract
- Updated supplier dependency matrix
- Supplier conflict redressal
- Updated supplier dependency matrix
- Updated service catalogue
- On/offboarded supplier team members
- Updated risks register
- Governance organizations
- Performance, adherence, conflicts, and other supplier related reports
- Resolved conflict
| Key inputs | Activities | Key outputs |
|---|---|---|
| Business requirement for sourcing Service specification Service level requirements Service continuity requirements Supplier performance metrics and reports Budgetary/financial requirements Legal requirements Supplier categorization and selection criteria Contract framework Supplier performance measurement criteria constituting of: performance metricsmeasurement methodologyreporting methodology | ||
Figure 3.3 shows a workflow of the diagram process.
The process may vary, depending on nature of the service relationship type. Table 3.4 provides examples of the process activities
Table 3.4 Activities of the managing supplier journeys process
| Activity | Example |
|---|---|
| Identifying available suppliers | Fundamentally, at this stage members of the sourcing team draft the details of what needs to be sourced and assess the options that existing suppliers, internal providers, or the markets provide. Preliminary lists of potential suppliers can be formed at this stage, or preliminary selection criteria can be defined to enable automated filtering.It is important to analyse and understand the business requirements before initiating the supplier selection. The requirements may be due to:a new service a change to an existing service changes to the suppliers as result of supplier review, due to dissatisfaction from the services provided by the incumbent supplier, supplier consolidation exercise (could also be due to merger and acquisition may result in having multiple supplier with similar services), and so on.The extent to which the contribution from and involvement of the supplier is required forms the basis of the sound design of services and subsequently the successful service provision by the suppliers. This forms the foundation for the requirement from suppliers or the new contracts. Depending on the need, an approach to sourcing could be identified, including in/outsourcing, type of relationship preferred, service integration approach, and so on. Based on their relative importance and service relationship type, potential suppliers can be categorized as:generic or commodity suppliers mapping to the basic service relationshipoperational and tactical suppliers mapping to the cooperative service relationshipStrategic suppliers or ‘partners’ mapping to the partnership service relationship.These categories of suppliers are significant and are generally aligned to the long-term plan for the organization. |
| Engaging with suppliers and communicating demand | To engage with the suppliers, an organization may decide to involve an intermediary to create the RfX and to manage the entire supplier evaluation and selection process or may involve its internal sourcing/procurement management team to do the same. In case this is created internally, the supplier manager or contracts manager owns the creation and communication of RfX. Communication channels may differ for different suppliers, based on the type of relationship with them and level of formality or trust this type dictates.An appointed sourcing team member ensures that the RfX has the details of the selection process and criteria, overview of the business, detailed requirements and specifications (including service specifications, service level requirements, service continuity requirements, and so on), terms and conditions, and other details that would drive the selection of suppliers and the contract process.RfX is then placed in all the communication channels agreed by the sourcing strategy for supplier engagement. |
| Evaluating and selecting suppliers | When suppliers respond to the RfX according to the defined schedule, the sourcing team ensures that the response is evaluated based on the defined evaluation criteria.Based on the evaluation of the response, the predefined number of suppliers, generally the top two or three, are selected for the final round of evaluation and negotiation. The sourcing team communicates the decision to the selected suppliers.Besides the predefined selection criteria, the sourcing team may ask the potential suppliers to demonstrate the service or similar.Based on the detailed requirements, evaluation criteria, and results from further evaluation (proof of concept, demos, minimal viable products developed, and so on), one or more suppliers are chosen for contract negotiations. |
| Contracting suppliers | The purpose of this activity is to develop, negotiate, review, update, finalize, and award supplier contracts. Organizations should also have an appropriate structure for formulating contracts, evaluating and negotiating contract terms, and reviewing the contracts for renewal and/or termination.The type of relationship with the supplier dictates how the organization manages the risks associated with the supplier and therefore affects the level of formality in contracts (less trust: more formality). Generally, contracts need to clearly document:the roles and responsibilities of the partieswarranty targetsutility targetsservice experience targets other service specific requirements and terms of service consumption as well as deliveryContract management covers the creation of new contract, contract amendment, contract renewal, and termination of contracts.After the suppliers are selected, due diligence is conducted, and the appointed sourcing team member, such as the contracts manager, shortlists the final supplier based on the outcome. The negotiation covers a detailed description of services and service performance, a statement of work (for waterfall projects), some form of scope framework (for Agile development), technical schedules, payment schedules, and so on. During negotiations, the contract is legally framed.The contracts manager frames the new contract based on the RfX requirements and the supplier’s response. This covers all of the technical schedules or statements of work. It is a master services agreement covering the terms and conditions, performance baselines and expectations, and reward and penalty mechanisms.On the other hand, there may be a need to amend an existing contract, which may be trigged as a result of:dependency on a new contract being framedrequirement changes in an existing contracttechnological changesmergers and acquisitions or spin-offsnew services or changes to an existing serviceperformance levels achieved during the contract review periodnew performance metrics and measurement methodologies to be introducedIn the case of multi-supplier environment, suppliers collaborating towards realizing the common end objective of the business is critical and is also a key element towards value co-creation. Therefore, the new contract or an amendment can have the set of collaboration or service integration clauses directed at ensuring that suppliers are accountable for collaborating with each other or agreeing to the existing service integration structure. This is especially important for cooperative and partnership relationship types.After the contract or the amendment is finalized, it is signed by the signing authority of the parties involved. Once the contract is signed, the overall execution, monitoring, and management of the contract is performed by the contracts manager. This is an ongoing activity during the entire lifecycle of the contract.If the organization takes a decision to not continue with the supplier’s services, then it results in contract termination. This may be due to supplier’s performance not being in-line with the organizations’ expectations, supplier consolidation, mergers and acquisitions, or other reasons that may result in a need to discontinue the supplier’s services. The supplier manager initiates the termination of the contract and the contracts manager terminates the contract as needed. Generally, in cases where the services are being retired and are no longer needed, a contract may be allowed to expire. |
| On/offboarding suppliers | The requirement for a new supplier and/or supplier’s services to be onboarded or offboarded is registered by the supplier on/offboarding coordinator under the direction from the supplier manager. The onboarding and/or offboarding requirements may cover the services and sub-services, supplier’s processes and tools, and supplier’s team members. The onboarding and/or the offboarding plan is created along with the cutover plan leading to the go-live of (or switch to) new supplier services. Also, associated risks are identified, documented, and tracked as part of the risk register.It is important that the supplier dependency mapping of services to the service providers and to the contracts is updated with the new supplier and/or service details or with the details of the supplier and/or services being offboarded.When onboarding a supplier, the organization’s resources that the supplier will have access to must be detailed. The supplier manager or a sourcing team member (for example, the supplier on/offboarding coordinator) ensures that these activities are performed. The supplier team members are onboarded and required access provided. The supplier onboarding coordinator ensures that the service catalogue is updated with:new servicesthe mapping of services to the supplier and appropriate supplier teams. Also, as part of onboarding, the sourcing team categorizes the supplier based on their relevant importance to the organization, which depends on the service relationship and the associated risks. Therefore, the categorization ensures that the time spent on managing the suppliers is in line with their significance in the supplier ecosystem.It is important to remember that, along with the supplier onboarding, the organization runs user onboarding and enablement, but this is out of scope of this practice.As part of supplier offboarding, the supplier offboarding coordinator identifies the organization’s resources that supplier was leveraging, as well as their integration.During offboarding, the following activities are performed:the organization’s access to supplier’s resources is revokedthe supplier’s access to the organization’s resources is revokedall relevant people are made aware of the offboarding.These activities are completed in accordance with the supplier offboarding procedure and are tracked by the offboarding coordinator or other appointed sourcing team member. |
| Managing consumption and monitoring supplier performance | After the supplier is onboarded, the organization must ensure effective and efficient service consumption by following procedures defined by the sourcing strategy, including procedures for managing stakeholder satisfaction, maximizing the value of the service consumption, decreasing costs connected with service consumption, managing risks and compliance, improving collaboration and the service mindset, resolving conflicts, service exceptions, and contract deviations, and ensuring effective supplier monitoring.Rating the supplier based on their performance is a key for effective service delivery, especially in the multi-supplier ecosystem that is prevalent in nearly every organization today. Therefore, defining the criteria based on which the supplier performance would be measured, forms a critical aspect of supplier management. With the digital enterprises and new generation delivery models like bi-modal IT, DevOps, and so on, the importance of a multi-facet supplier measurement system becomes even more important.Performance measurement criteria include performance KPIs and related metrics, expected performance, measurement methodology for each KPI, and the way the performance would be reported. This includes reports, dashboards, and supplier scorecards. Once the supplier performance criteria are implemented and operationalized, a team member is responsible for monitoring the supplier and the supplier’s performance. As part of this activity, the team collects the performance metrics and creates, and publishes the supplier performance reports, dashboards, and scorecards.Businesses need to be protected from poor supplier performance or disruption; for example, the availability of services does not need to be compromised due to supplier performance. Organizations should establish the appropriate structure and governance to drive contractual compliance by suppliers, conduct periodic audits, and measure, analyse, review, and report on the performance of each supplier. This forms the key input to the organizations to reward or penalize suppliers based on their performance.Supplier performance reports and scorecards serve as an input into periodic supplier reviews. |
| Assess and review the suppliers | Based on the reports from supplier monitoring and other related service consumption data, supplier value realization assessments are made. These assessments drive supplier reviews. Supplier reviews lead to improvement initiatives to the sourcing strategy, policy and procedures, evaluation and selection procedures, supplier performance monitoring, and audits. |
4. Organizations and people
4.1 Roles, competencies, and responsibilities
The practice guides do not describe the practice management roles such as practice owners, practice lead, or practice coach. They instead focus on the specialist roles that are specific to each practice. The structure and naming of each role may differ from organization to organization, so any roles defined in ITIL should not be treated as mandatory, or even recommended. Remember, roles are not job titles. One person can take on multiple roles and one role can be assigned to multiple people.
Roles are described in the context of processes and activities. Each role is characterized with a competency profile based on the model shown in Table 4.1.
Table 4.1 Competency codes and profiles
| Competency code | Competency profile (activities and skills) |
|---|---|
| L | Leader. Decision-making, delegating, overseeing other activities, providing incentives and motivation, and evaluating outcomes |
| A | Administrator. Assigning and prioritizing tasks, record-keeping, ongoing reporting, and initiating basic improvements |
| C | Coordinator/communicator. Coordinating multiple parties, maintaining communication between stakeholders, and running awareness campaigns |
| M | Methods and techniques expert. Designing and implementing work techniques, documenting procedures, consulting on processes, work analysis, and continual improvement |
| T | Technical expert. Providing technical (IT) expertise and conducting expertise-based assignments. |
Two practice-specific roles may be found in organizations: supplier manager and supplier coordinator. These roles are often introduced in organizations where the number of suppliers and contracts to manage is high. These roles can be combined or separated depending on the organizational structure and amount of supplier management work.
4.1.1 Supplier manager
The supplier manager is typically responsible for:
- gathering business requirements for outsourcing or seeking products or services
- approving prerequisites for supplier selection
- involving intermediaries for creating RfXs and/or managing the RfX process
- categorizing suppliers based on their importance to the organization
- approving RfX-sent suppliers
- handling due diligence and the contract negotiation process
- providing direction to onboard or offboard suppliers and/or services
- designing and instituting governance and compliance organizational and conflict-resolving procedures
- chairing and conducting governance and compliance and supplier review meetings
- ensuring the inclusion of clauses related to conflict resolving as part of the contract
- providing decisions on conflicts, rewards, penalties, and exceptions
- defining, agreeing, and implementing supplier performance criteria
- contributing towards performance clauses during contract or amendment creation
- monitoring supplier performance and publishing supplier reports, dashboards, and scorecards
- providing recommendations for performance appreciation, rewards, and penalties
- providing inputs for contract review, renewal, and/or termination
- orchestrating contracts finalization and required approvals.
4.1.2 Supplier coordinator
The supplier coordinator is typically responsible for:
- formulating prerequisites for supplier selection
- collating business requirements for RfXs
- releasing RfXs to suppliers and communicating the updates related to the selection process and eventual decisions to the suppliers
- coordinating with various stakeholders and assisting the supplier manager during the RfX process
- maintain supplier information in supplier management tools
- drafting and publishing agenda for the governance and compliance, supplier review meetings, and relevant information/details
- documenting and publishing minutes of governance and compliance and supplier review meetings
- preparing performance reports and details of pending actions and the exception requests
- keeping a supplier risk register
- creating or maintaining a supplier dependency matrix along with the mapping of tools
- onboarding and offboarding suppliers, people, process, services, and tools
- feeding updates to the service catalogue
- tracking progress of knowledge acquisition, knowledge transfer, and training
- ascertaining that delivery risks are appropriately captured during supplier onboarding and offboarding
- ensuring that the access to supplier team members are invoked or revoked as applicable
- recovering assets assigned to or managed by supplier team members
- transferring licenses from suppliers, if applicable
- publishing on/offboarding statuses and reports
- monitoring and auditing adherence to contracts
- capturing requirements for new contracts or amendments
- making decisions on contract renewal, termination, or expiration and ensuring timely review and renewal or termination of contracts.
Examples of other roles which can be involved in the supplier management activities are listed in Table 4.2, together with the associated competency profiles and specific skills.
Table 4.2 Examples of roles with responsibility for supplier management activities
Identifying available suppliers
| Activity | Responsible roles | Competency profile | Specific skills |
|---|---|---|---|
| Managing a common approach to supplier management | Managing a common approach to supplier management | Managing a common approach to supplier management | Managing a common approach to supplier management |
| Develop and agree the sourcing strategy | Supplier manager Sourcing manager Contracts and procurement manager Product manager Service delivery manager PMO representative Finance manager Supplier coordinator Development team representative Services portfolio manager | LMCA | Good understanding of the organization’s strategy, stakeholders, key services, and supplier ecosystemExpertise in sourcing, supplier, procurement, contracts management |
| Develop and agree the supplier management procedures | Supplier manager Sourcing manager Contracts and procurement manager Product manager Service delivery manager PMO representative Finance manager Supplier coordinator Development team representative Services portfolio manager | MCA | Expertise in sourcing, supplier, procurement, contracts management Good understanding of the organization’s strategy, stakeholders, key services, and supplier ecosystem |
| Communicate and embed the sourcing strategy and procedures | Supplier manager Sourcing manager Contracts and procurement manager PMO representative Finance manager Supplier coordinator Services portfolio manager | CA | Good understanding of the organizational culture and internal stakeholders. Good knowledge of the agreed strategy and procedures.Excellent leadership and communication skills |
| Review and adjust the sourcing strategy and procedures | Supplier manager Sourcing manager Contracts and procurement manager Product manager Service delivery manager PMO representative Finance manager Supplier coordinator Development team representative Services portfolio manager | CMA | Good understanding of the organization’s strategy, stakeholders, key services, and supplier ecosystem Decision making Expertise in sourcing, supplier, procurement, contracts management |
| Managing supplier journeys | Managing supplier journeys | Managing supplier journeys | Managing supplier journeys |
| Identifying available suppliers | Supplier coordinator Sourcing coordinator Contracts and procurement coordinator Project manager Service delivery manager Development team representative Service level manager Service owner | TC | Business analysis Assessment techniquesCommunicationsKnowledge of market and supplier ecosystem |
| Engaging with the supplier and communicating demand | Supplier manager Sourcing manager Contracts and procurement manager Product manager Service delivery manager PMO representative Finance manager Supplier coordinator Development team representative Services portfolio manager Service level manager Service owner | CT | Communication |
| Evaluating and selecting suppliers | Supplier manager Sourcing manager Contracts and procurement manager Product manager Service delivery manager PMO representative Finance manager Supplier coordinator Development team representative Services portfolio manager Service level manager Service owner | TCA | Decision making Business analysis Assessment techniques Communications |
| Contracting suppliers | Supplier manager Sourcing manager Contracts and procurement manager Product manager Service delivery manager PMO representative Finance manager Supplier coordinator Service level manager | TAC | Negotiation and contracting skills Communications Understanding of the technical details of the needed and supported services |
| On/offboarding suppliers | Supplier coordinator Sourcing coordinator Contracts and procurement coordinator Project manager Service delivery manager Development team representative Service level manager Service owner | TCA | Knowledge of the proceduresCommunicationsTeams orchestration |
| Managing consumption and monitoring supplier performance | Supplier coordinator Sourcing coordinator Contracts and procurement coordinator Project manager Service delivery manager Development team representative Service level manager Service owner | CTA | Knowledge of the procedures Communications Teams orchestration Monitoring techniques Knowledge of key stakeholders, organization’s personnel, and roles and responsibilities |
| Assessing and reviewing suppliers | Supplier managerSourcing managerContracts and procurement managerProduct managerService delivery managerPMO representativeFinance managerSupplier coordinatorDevelopment team representativeServices portfolio managerService level managerService owner | TCA | Decision making Business analysis Assessment techniques Communications |
4.2 Organizational structures and teams
It is unusual to see a dedicated organizational structure for the supplier management practice. Typically, the supplier manager and coordinator roles are associated with a formal job title under the supplier, vendor, or procurement management function, while the contract manager role is often associated with the legal function. Some organizations create committees (service committee, service quality committees, supplier governance committees, procurement committees, and so on) to address the strategic and tactical aspects of service performance and supplier governance.
5. Information and technology
5.1 Information exchange
The effectiveness of the supplier management practice is based on the quality of the information used. This information includes, but is not limited to, information about:
- customers and users
- services and their mapping to suppliers
- the organization’s requirements for the services and service dependencies
- existing partners and suppliers, including contract, SLA, and KPI information on the services they provide
- policies and requirements which regulate supplier management, supplier on/offboarding, supplier collaboration, contract formulation and governance, and conflict resolving and performance management
- improvement initiatives by suppliers and related value realization
- on/offboarding status, contract adherence, supplier performance, and conflicts
- stakeholder satisfaction with the suppliers
- market state and trends, emerging technologies, services, and suppliers.
This information may take various forms. The key inputs and outputs of the practice are listed in section 3.
5.2 AUTOMATION AND TOOLING
In most cases, the supplier management practice can significantly benefit from automation. Where this is possible and effective, it may involve the solutions outlined in Table 5.1.
Table 5.1 Automation solutions for supplier management
activities
| Process activity | Means of automation | Key functionality | Impact on the effectiveness of the practice |
|---|---|---|---|
| Managing a common approach to supplier management | Managing a common approach to supplier management | Managing a common approach to supplier management | Managing a common approach to supplier management |
| Develop and agree the sourcing strategy | Collaboration and communication tools | Collaboration, information exchange | Low |
| Develop and agree the supplier management procedures | Mind mapping, brainstorming toolsWorkflow modelling and visualization tools, communication and collaboration tools | Workflow modelling, visualization activities, and mapping responsibilities | Medium/high |
| Communicate and embed the sourcing strategy and procedures | Communication and collaboration tools, presentation tools, portals | Support of promotion, training, and awareness | Medium |
| Review and adjust the sourcing strategy and procedures | Collaboration and communication tools, reporting tools, visualization tools | Collaboration, information exchange, report creation and distribution | Medium |
| Managing supplier journeys | Managing supplier journeys | Managing supplier journeys | Managing supplier journeys |
| Identifying available suppliers | Requirement management tools Market research tools | Definition and capture of business requirementsMarket research, analysis | Low to medium |
| Engaging with the supplier and communicating demand | Supplier management tools Portals | Creation and distribution of RfX documents | Medium to high |
| Evaluating and selecting suppliers | Supplier management tool, assessment tools, risk management tools | Registration of suppliers and RfX collectionRisk register, requirements assessment | High |
| Contracting suppliers | Contract management tool, CRM tools, legal documents management tools | Contracts lifecycle management, CRM | Medium |
| On/offboarding suppliers | Communication and collaboration tools Portals, dashboards Knowledge management tools | Information exchange, knowledge sharing, reporting, dashboards | High |
| Managing consumption and monitoring supplier performance | Communication and collaboration tools Portals, dashboards Knowledge management tools Feedback gathering tools Business analysis, monitoring, reporting, and dashboard tools | Information exchange, collaboration, knowledge sharing, feedback processing Monitoring and analysis processing and reporting, dashboards, information visualization | High |
| Assessing and reviewing suppliers | Business analysis, reporting and dashboard tools, and actions tracking tools | Analysis processing and reporting, dashboards, information visualization, decision making support, decision and action tracking | Medium |
6. Partners and suppliers
Very few services are delivered using only an organization’s own resources. Most, if not all, depend on other services, often provided by third parties outside the organization (see section 2.4 of ITIL Foundation: ITIL 4 Edition for a model of a service relationship). Relationships and dependencies introduced by supporting services are described in the practice guides for portfolio management, service financial management, information security management, service continuity management, and service level management. Information about dependencies on third-party services is used in supplier management as part of requirements for the sourcing of partners and suppliers, evaluation of partners and suppliers, contract negotiation, and contract formulation.
The supplier management practice enables the evaluation, selection, and sourcing of the suppliers and partners supporting the organization’s requirement for services. Therefore, it cannot be outsourced. However, some activities of supplier management may be delegated in certain cases, as shown in Table 6.1.
Table 6.1 Outsourcing of supplier management activities
| Activity | Outsourcing opportunities |
|---|---|
| Definition of requirements and drafting of requirements documents | A third party may act as an agent to collect the requirements and draft the requirement documents on behalf of the IT organization |
| Manage supplier selection process | A third party may act as an agent for day-to-day operational coordination with potential supplier and partners participating in the selection process |
| Supplier and partner response evaluation and selection | A third party may act as an agent to do the initial evaluation of supplier response and thus assist in supplier and partner selection |
| Contract drafting and negotiation | A third party may act as an agent to assist in drafting the contract as well as assist in contract negotiation |
| Contract and performance audits | A third party may act as an agent to do an independent audit to measure and report on contractual compliance and performance of contracted suppliers and partners |
7. Important reminder
Most of the content of the practice guides should be taken as a suggestion of areas that an organization might consider when establishing and nurturing their own practices. The practice guides are catalogues of topics that organizations might think about, not a list of answers. When using the content of the practice guides, organizations should always follow the ITIL guiding principles:
- focus on value
- start where you are
- progress iteratively with feedback
- collaborate and promote visibility
- think and work holistically
- keep it simple and practical
- optimize and automate.
More information on the guiding principles and their application can be found in section 4.3 of ITIL Foundation: ITIL 4 Edition.