Industry news

Many organisations see supplier relationship management (SRM) as a process focused on monitoring the performance of their suppliers, rather than as a collaborative, two-way, value-adding relationship, according to a study released today by State of Flux.

The global survey of 223 procurement, supply chain and supplier relationship management executives found that almost two-thirds (62 percent) admitted that they did not have an accepted definition of SRM in their companies. When asked about the topics most commonly discussed at review meetings with key suppliers, performance and service issues topped the list, followed by cost reduction opportunities. Business strategy and plans, new supplier products/services and value delivered came lower down the list, while customer performance – how easy the buying organisation was to deal with – came last.

“Many organisations have confused supplier performance management (SPM) with supplier relationship management (SRM),” said Alan Day, Managing Director of State of Flux. “SPM is about getting what you have been promised in a contract, whereas SRM is about collaboratively driving value as part of a two-way relationship.”

“Whilst good SPM yields both bottom-line savings and top-line competitive advantages that most organisations cannot afford to ignore, it is only one aspect of SRM. Engaging proactively with your most strategic suppliers to capture innovation, jointly develop new products and services, improve the efficiency of your operations and speed up your time to market requires a much broader and more relationship based approach.”

Nine out of 10 respondents to the survey said SRM would grow in importance, but a significant number of procurement functions were ill-equipped to manage it effectively. Half admitted they were unable to measure the benefits, despite an intuitive belief that value was created through closer relations. Fifty-seven per cent acknowledged that the time they spent on SRM was insufficient, 47 percent had not trained staff in relationship management skills, and 53 percent did not have designated teams or account managers in place to deal with key suppliers.

“In practice, supplier relationship management tends to be an add-on to the day job of buyers and category managers, rather than a core role. When you compare this with the highly trained, well informed and full-time key account managers on the sales side, there is a danger of a real imbalance in the relationship,” said Day.

This was compounded by the fact that almost half of respondents (47 percent) said they were managing more than 25 supplier relationships, while 8 percent were managing over 200. This meant they had little time to devote to developing relationships or looking for ways to deliver benefits above and beyond incremental cost savings. Only 11 percent believed that existing technology strongly supported SRM.

On a positive note, the survey found that 28 percent of those organisations that were able to measure the value of SRM said it amounted to more than 3 percent of the total annual spend with key suppliers. As well as joint cost savings, the main benefits were reduced supply risks, greater supply chain efficiency and improved quality.

Almost half (47 percent) of respondents also reported that their SRM programmes had sponsorship from C-level or other top executives, rather than senior or middle managers – a key ingredient in ensuring that such initiatives become part of the organisational culture and way of operating.

Some noted, both in their survey comments and in workshops held to discuss the findings, that CEOs, CFOs and other senior executives instinctively understood the value that could be derived from closer relationships with strategic suppliers and were giving it their personal attention. Such was their belief that formal SRM business cases were not always required.

“We found some impressive examples of successful supplier relationship management in action,” said Day. “The fact that more organisations are recognising the value that can be gained from SRM and embracing a different approach to working with key suppliers is encouraging. The challenge now is to turn these pockets of excellence into practices that are replicated more widely.”

London’s Natural History Museum lengthened its facilities management contract with EMCOR Group by a further three years. EMCOR Group has provided mechanical and electrical engineering services across all of the Museum’s sites since 2001.

Under the new agreement, EMCOR’s scope of work extends to include grounds maintenance, managing a helpdesk facility for hard and soft services, management of the cleaning contracts and the provision of a full Computer Aided Design service. The contract includes the main Waterhouse building in South Kensington, which is Grade I listed inside and out, as well as the new Darwin Centre, which opens to visitors in September. The Darwin Centre is the latest addition to the Museum’s portfolio and will provide storage facilities, art laboratories that will be used by leading scientists and public galleries and programmes for visitors.

Robert Lamb, Estates Manager at the Natural History Museum comments: “We were thoroughly impressed with EMCOR’s innovative proposals for the new contract and EMCOR’s approach to service delivery has resulted in a more efficient, cost effective and flexible package.”

According to a new IDC report, the current economic climate is driving companies that have not previously considered outsourcing to reconsider the benefits of offshoring. Driven by the need to reduce costs and optimise headcounts, IDC expects IT outsourcing to gain momentum in the Australian market.

The report titled, Australia Outsourcing Services Market Forecast and Analysis 2009-2013, reveals that the total outsourcing market stood at A$6.4Bn in 2008 and is predicted to grow at a 5 year compound annual growth rate (CAGR) of 4% over the forecast period 2009-2013.

IDC's report reveals that even organisations that have previously shied away from offshore outsourcing are actively evaluating this delivery model to reduce back office costs and gain access to skills while optimising their resources to adapt to the slowdown in the economy.

"The current economic situation is driving more organisations to think seriously about outsourcing as a way to keep costs down, in particular we expect to see a greater interest in managed services. In a time like this, to have differentiated outsourcing strategies and options that address the diverse needs of a cost conscious market, will benefit the market,' said Marina Beale, Senior Market Analyst, IT Services at IDC.

“Overall any cost cutting solution will be high on the agenda for most company CIOs. For example, virtualisation, Cloud computing/SaaS are examples of solutions that offer potential savings related to both capital expenditure as well as operational expenditure. Companies, large and small can potentially benefit from these technologies/delivery models, which would level out the competitive playing field,” Beale added.

Ford, the well known automobile manufacturer, has signed a multi-million pound, five year payroll and time and attendance service deal to Logica. This contract represents an expansion of an existing outsourcing agreement between the two companies.

Under the terms of the agreement, Logica will integrate and modernise Ford’s payroll and time and attendance systems and provide a bureau payroll service for its 13,000 employees across 10 UK locations. The change management project and outsourced service has been initiated to support Ford’s renewed focus on its core automotive business.

The payroll service will be implemented by Logica and delivered on the Oracle HCM platform, using Logica’s secure hosting environment RTIS (Real-Time Infrastructure Services). The implementation will be phased with the service scheduled to go live in 2010.

Commenting on the contract win, Patricia Taylor, Director, HR and Payroll BPO Services, Logica, said: “We are delighted to work with Ford; this significant deal reinforces our position as a leading HR and payroll outsourced services provider in the UK. We are certainly seeing a real demand for Oracle pay-as-you-go services. Ford is a substantial customer for Logica and this relationship reflects a true evolving service partnership that will enhance both organisations over the next 5 years.”

Syngenta, a leading Swiss-based producer of crop protection products and seeds, has signed a seven-year contract with. BT will provide a range of telecommunications and IT services aimed at enhancing Syngenta’s business operational efficiency and agility.

The contract builds on BT’s longstanding relationship with Syngenta and covers the refresh of its wide area network (WAN) while providing a managed local network and IP telephony infrastructure coupled with a global fixed and mobile voice service.

Syngenta hopes to realise efficiency gains from this agreement, improvements in service quality and a more flexible basis on which to support global expansion. The company has more than 24,000 employees and operates in over 90 countries around the world.

Nick Barron, head of IS services, Syngenta said: “We have enjoyed a strong partnership with BT over the last eight years and this new contract is the next step in our relationship. The new contract will deliver a flexible, converged infrastructure, within an innovative commercial and services framework that will enable Syngenta to better deliver its business objectives.”

Derbyshire County Council has selected Capgemini UK plc as its transformation partner in a plan that will replace existing IT with new technology beginning next April. Under the £5.6 million contract, Capgemini will replace the Council’s existing IT systems, which are based on older-generation mainframe technology, with the latest SAP enterprise-wide systems designed for local authorities.

The new systems, which will be used by some 8,000 Council employees, are expected to transform the flow of information within and between Council departments, support improved budget and revenue control, enable more informed decision-making, identify procurement savings, and cut time spent by Council staff in processing and accessing data.

David Hickman, Transformation Director at Derbyshire County Council, said: “We are committed to continuous improvement in the way we work, in the services we provide and in making the best use of taxpayers’ money, and the record shows that we have delivered on those commitments year after year. We plan to do even better in the near future and our new IT platform will be key to achieving that aim.”

The majority of the new IT systems, including financials, procurement, HR, payroll and business intelligence, are scheduled to go live in April 2010, with the 25-strong project team of Capgemini IT and business consultants being based at the Council’s headquarters in Matlock until then.

IBM is making up to US$3 billion available to finance IT initiatives in key economic stimulus projects in Europe and Asia-Pacific. The money will be made available through IBM Global Financing, IBM’s lending and leasing business segment. This follows the availability of up to US$2 billion announced by IBM on April 30 to help jump start US economic stimulus programs.

Specifically, the organisation will make available up to US$2 billion in financing in Europe and up to approximately US$1 billion in the Asia-Pacific region

The financing will help organisations move ahead with IT projects in 2009, while awaiting government funding, to build the technological and environmental infrastructure of the 21st century.

John Callies, General Manager of IBM Global Financing, commented, “While the various stimulus packages in different countries were designed to keep their own economies on track, it is as joined economies that we can rise from this global downturn together. In this context, IBM Global Financing is extending its stimulus financing program to countries in Europe and Asia-Pacific to help global recovery.”

AMP Limited, a leading Australian wealth management company, has extended its contract for a further six years with CSC. It extends the two companies’ original engagement, which started in 1993, making it one of the longest running strategic information technology (IT) outsourcing relationships in Australia.

Under the new agreement, CSC will continue to provide AMP with fully outsourced managed infrastructure services for mainframe, midrange, network, desktop and service desk, as well as information and system security.

“CSC and AMP have worked successfully together over the past 16 years, delivering programs that strengthen AMP’s operating platform and improve business efficiencies,” said Lee Barnett, AMP chief information officer. “Extending this contract enables CSC to provide AMP with services that further leverage operational efficiencies year on year.”

One of the leading customer satisfaction survey in the managed services sector, the Black Book 2009 State of the Outsourcing Industry report released today, reveals six significant paradigm shifts impacting global suppliers and buyers for the latter half of this year and into 2010.

The key findings are:

• Indian outsourcers have regained strong buyer confidence by demonstrating tangible transparency, accountability and ethical management practices to eighty-one percent of US companies buying services offshore;

• Technology budgets will be fully restored or expanded over next twelve months, corroborated by sixty-eight percent of outsourcing buyers;

• Buyers predict fastest spending growth in progressive outsourcing organisations that consistently demonstrated client empathy through the downturn. As the economy improves, sixty percent of clients anticipate shifting from less agile outsourcers that were unmovable through recession-related renegotiation issues;

• BPO projects that deliver speedy return-on-investments are highest in demand. 180-day ROI's, typical in Procurement Outsourcing, Accounts Receivable, Accounting and Financial transaction processing, will be creating the greatest growth in new contracting through 2010;

• Cloud Computing & Software-as-a-Service explodes IT outsourcing growth guidance. Remote Infrastructure Management and bundled applications development/maintenance initiatives which have been on hold by ninety-one percent of CIOs will receive the most immediate funding; and

• The multi-shore trend expands as more outsourcers diversify in lower cost locations. Although clients have yet to score any Chinese outsourcing firms in the highest Black Book ranks of overperformers, China's Neusoft, entered the 2009 group. Two South American providers, CPM Braxis and Neoris, maintained top survey rankings, and one Russia-based firm, EPAM, was highly nominated.

"Outsourcing's cost argument still outweighs political issues in this survival economy," said Scott Wilson, author of "The Black Book of Outsourcing", and principal of Brown-Wilson Group, a Datamonitor company. "Despite the pending policy changes in U.S. corporate tax code, high US and UK unemployment rates, and the recent offshore scandal at Satyam, the core drivers of outsourcing have remained intact," added Wilson commenting this year's results.

The annual "State of Outsourcing Industry Report" contains Black Book's Top 50 "Best Managed" Global Outsourcing Vendors, the unbiased, client experience rankings from 24,000 validated survey participants. The poll marks its seventh consecutive year of collecting data on the industry.

2009's Top Fifty Best Managed Outsourcers in rank order are: HCL, Oracle, Xerox, Infosys, Accenture, IBM Global, Ciber, Capgemini, Genpact, Hewlett Packard EDS, CSC, Cognizant , Intelligroup, IGATE, Patni, Perot Systems, Spherion, TechTeam, Acxiom, NIIT Technologies, Wipro, CPM Braxis, ACS, Sitel, CH2M Hill, Tata Consultancy Services, Syntel , Steria, Mastek, Clutch Group, Unisys, WNS, XChanging, Integreon, Pangea3, Neusoft, Innodata Isogen, EPAM, The Smart Cube, BNY Mellon, Teleperformance, Hewitt, Consero, Broadridge, NorthgateArinso, Neoris, Microland, Logica, Vengroff, Williams & Associates, and XEN Global.

The "State of the Outsourcing Industry Report", ongoing research and top domain results are available year-round at http://TheBlackBookOfOutsourcing.com.

Last week, I was mulling over the question of where in the world the next big outsourcing hotspot might be. This week, I think I've got some answers - but only insofar as knowing which locations might look a tad dodgy from the prospective customer's point of view.

The insight comes from the 2009 Black Book of Outsourcing, produced by the Brown-Wilson Group (recently acquired by market research company Datamonitor). It helpfully lists the top 25 riskiest locations for outsourcing in the world, based on factors such as terrorism, crime rates and political tensions.

Of these, the top 10 are as follows:

1. Bogota, Colombia


2. Bangkok, Thailand

3. Johannesburg, South Africa

4. Kuala Lumpur, Malaysia

5. Kingston, Jamaica

6. Delhi/Noida/Gurgaon (NCR), India

7. Manila, Philippines

8. Rio do Janeiro, Brazil

9. Mumbai, India

10. Jerusalem, Israel

"The realities of an unsafe world have fully overrun into outsourcing decisions," say Black Book of Outsourcing co-authors Doug Brown and Scott Wilson. "Less inclusive offshore location rankings, based on cheaper but skilled labor pools and tax incentives, are not sufficient to make a qualified destination decision. Not only has the number of known offshore sites have grown significantly over the years, but the severity and complexity of their vulnerabilities has skyrocketed." Organisations that don't take these vulnerabilities into account, they add, open themselves to the possibility that "terrorist attacks, typhoons, crime and corruption" will disrupt vital corporate operations.

Conversely, the top ten safest locations for outsourcing, according to Brown and Wilson, are:

1. Singapore

2. Dublin, Ireland

3. Santiago, Chile

4. Krakow/Warsaw, Poland

5. Toronto/Montreal, Canada

6. Prague/Brno, Czech Rep.

7. Budapest, Hungary

8. Monterrey, Mexico

9. Beijing, China

10. Cairo, Egypt