Supercharge your supplier relationship
In analysis / By Howard Smith / 12 February 2018
When you start work with a new managed IT service provider (or any other outsource supplier for that matter), you’re at the beginning of what should be a long, close and mutually profitable relationship.
A proven structure throughout your tender process, will get you off to a great start towards making this happen.
But the work doesn’t stop there. As with any enduring partnership, there are measures you can take to nourish the relationship and give it the stability it’ll need to cope with unforeseen challenges further down the road.
Start by defining what the end looks like
Once you have a clear idea of what the end goal of the relationship is, you can start setting short, medium and longer term milestones. This will give you a framework to discuss the resources you require, operational options and, of course, the financial details.
As a minimum, be sure to talk with your provider about:
- People - Determine what skills, sector experience and level of seniority/sign-off authority you’ll need at every stage of the relationship. For example, if you choose a supplier because they have specific knowledge and experience in the recruitment or legal profession, decide in advance when that specialist input will be most valuable to you. Similarly, you may have specific objectives relating to security, data and application management and compliance. Set these out clearly with your provider so they can make the right people available to you when you need them. Next, agree who on both sides will be the day-to-day points of contact and who in your organisation will be responsible for evaluating the relationship in wider strategic context. Beware of suppliers who provide multiple points of contact. In most cases, it’s legitimate but some businesses may use it to overstate what they do, and overcharge accordingly.
- Your operational needs - Think ahead and plan how the relationship will work operationally. Will the provider need to place people in your premises? Have you got the space and resources to accommodate them? Do you need to purchase any new hardware, software or licences that are not budgeted for? Will the partnership involve you and/or your colleagues in expensive and time-consuming travel or add extra management oversight duties to an already full job description? On the upside, does the partnership provide growth or career opportunities to colleagues in your department?
- Intellectual property - Where any new products, software or ideas are developed in a partnership, the issue of intellectual property (IP) will surely arise. Make sure you and your partner understand and agree on the rights to IP by considering what it’s worth and how you and the provider could profit from it in the future.
- How you’ll be charged - Working through the issues above will put you and your provider in a good position to decide what the best fee charging model will be for both parties. Typically, your options will include:
- Time and materials - Based on the provider’s hourly or daily charge-out rates, this will only serve your best interests when projects are small and highly defined or where you require cover for a set amount of time. As the client, you’ll be exposed to open ended costs in the event of project overruns or unforeseen setbacks – which will be significant if complex projects run over an extended period.
- Fixed price - This gives you a firm figure to work with as the supplier bears the risk for any fluctuations in the cost of the service provision. Of course, the supplier will inevitably factor this risk into their quote, so the flip side is that you may pay more for what you actually receive. For this reason, it’ll work best for you on complex assignments with tight deadlines and built-in uncertainties as the potential extra cost will probably outweigh the risk associated with the time and materials model. A word of warning, however: if a fixed price quote appears too good to be true, it probably is. Look deeper into the quote to see if it omits vital work that the supplier will charge extra for.
- Shared risk and reward - If you and your supplier are having difficulty agreeing who should shoulder the balance of financial risk in your relationship, consider ways to share it. This recent trend in supplier / client fee models sees the supplier charge a reduced fee to cover its costs and make a small margin, but earn the real profit in bonuses when it hits agreed targets. Think creatively here. You could, for example incentivise your supplier with a share of the savings it helps you make, a share of the profits in a new venture or a fixed bonus for completing a specific set of tasks by an agreed date. It’s not unheard of for suppliers working with startups to get paid in shares as a form of payment.
- Knowledge transfer - People move on, change jobs and retire. In the course of a long-term working relationship with a provider, it’s inevitable that you’ll lose some of the key people you work with – and with them, their skills and experience. Seek assurances from your provider that it has a knowledge transfer system in place to minimise disruption to your work when this happens.
Never stop evaluating
One of the keys to maintaining a high-performing business relationship is to keep it under constant evaluation. Good internal communication is key here, especially if the day-to-day contact and the person with management oversight for the relationship are different people. Devise a formal but simple system that requires everyone involved to provide feedback about the provider and record your evaluations on a regular basis, say monthly or quarterly. Then, when it’s you who moves on, your successor can pick up where you leave off.