Most organisations recognise the importance of having a rigorous supplier selection process and focus a lot of attention on supplier acquisitions. However, many underestimate the importance of having a supplier termination process. Since the IT supplier portfolio must match a dynamic business strategy and ever-changing IT architecture, an untrimmed portfolio will continue to expand. It's essential that your supplier portfolio be reviewed and pruned regularly to remove suppliers or products that are no longer needed. Careful pruning will reduce costs and infrastructure complexity.
But in most organisations, getting rid of an IT product, service or vendor is an unusual event, and there's no clear process to follow. One client with a rigorous selection process described his company's approach to supplier management this way: "We greet our suppliers at the door with a two-by-four to the head. Afterwards, those who are still standing are invited in and never asked to leave." He's not alone. My company's studies show that the average supplier portfolio is at least 50 per cent larger than our clients estimate. In other words, most companies don't know just how many vendors they really use! An audit of one client's portfolio revealed 3000 suppliers, after the client estimated 300.
When your supplier portfolio mushrooms out of control, it often indicates that you've also lost control of your procurement process and your architecture. And supplier management costs skyrocket. A well-trimmed portfolio can be managed for less than 5 per cent of total external spending, but the cost of managing an overly large portfolio can amount to 20 per cent of total external spending. Support costs will also be higher than necessary.
Review your supplier portfolio, searching for suppliers who are underperforming or whose products no longer meet your architectural specifications. Target unnecessary products, even if you can't eliminate the supplier entirely. Then take steps to terminate them, using these guidelines:
1. Check contracts to make sure there are no penalties, givebacks or other repercussions for termination.
2. Create a migration plan. If you have a portfolio baseline, it will identify all the systems, projects and people who rely on the product or service being jettisoned. Determine how those affected will be supported, before termination begins.
3. Use your vendor management group to manage the termination process. A good vendor management group will assure that the process is consistent and fair for all parties.
4. Explain the decision and the rationale to the supplier directly. No one deserves to learn of his own dismissal by chance or gossip or, worse, from an industry publication.
5. Assess the cultural impact. Individuals can be fiercely loyal to a particular technology that they helped create or feel is unique. Provide special hand-holding to ease the pain and draw dissenters into the fold.
6. Make terminations visible. Publicise the new IT architectural standard in the department newsletter, on the corporate intranet or through other channels. Everyone needs to know about the termination before the next architectural decision or the next salesperson's call.
7. Pay attention to termination details. Protect yourself from security breaches by remembering to change passwords and take access cards from vendor personnel. If you're dropping all of a supplier's products, remove the supplier from the accounts payable system.
8. Be creative if obstacles arise. One client faced enormous pushback from its applications group, which had opposed a decision to migrate to new hardware. After more than a year of requests for cooperation, the vice president of operations took a new approach: he announced that the old hardware had been sold and would be loaded onto a truck on a specified date. The applications group finally rose to the occasion and scrambled to convert everything to the new hardware and succeeded with three days to spare.
9. Every superfluous part of your supplier portfolio increases costs, complicates your procurement process and adds unnecessary complexity to your infrastructure. Leverage your supplier management efforts by reviewing your portfolio regularly and terminating any extraneous suppliers and products.
Bart Perkins is managing partner at Leverage Partners and is a former CIO