Value-as-a-Service: The Importance of Strategic Supplier Management

Service management professionals face a major challenge: managing high demand for value creation while more and more strategic parts of service delivery are being outsourced. Strategic supplier management plays an important role in mastering the challenges ahead.

We are in an all-as-service era. The shift from product to service delivery occurred in the B2C world, but quickly spread to the B2B world. Take, for example, the services offered by Spotify or Apple Music instead of consumers buying products like CDs, or the example that we can purchase WiFi coverage instead of routers.

As customers, most of us don't want to think about what it takes to get something done. We just want it to be done. Let me give you a general illustration. When flying an airplane, you never have to think about procuring the airplane, getting the fuel it needs, hiring a pilot, renting land, clearing land, and adding food and drink to the airplane. Instead, you simply buy a ticket from the airline of your choice and get on board at the agreed time to take you to your planned destination.

In addition, our perception of value is also changing - again a clear result of what is happening in the B2C world. Companies like Amazon are really changing our basic expectations about value. In service management, customers no longer want to be put on a pedestal. Instead, they want a service delivery that enables them to do what they are good at or what is assigned to them. In order to really excite customers, we need more than SLAs and robust service catalogs, but we really need to deliver “value as a service”.

The shift from product to service delivery also brought about a shift in outsourcing. When the move to the cloud began, the non-critical areas initially moved, but now we are seeing more and more strategic areas of our IT organizations that are being outsourced. So the things that we outsource are changing a lot. These changes affect the breadth of the organization, including infrastructure, software, and even human resources.

In order to offer your customers added value, strategic supplier management is crucial, as suppliers are a very important part of the service chain. Here are some guidelines:

Define and structure
Not all of your suppliers need strategic supplier management. It is therefore important to define and structure them. I like to use the Kraljic purchasing portfolio management model for this, as shown here:

"Non-critical" elements are usually stationary. "Lever" items are more expensive with many vendors such as hardware; Bottleneck items can be relatively expensive and only have a few suppliers, such as B. Mail delivery; “Strategic” items like software have few suppliers and are quite expensive - things that are supplied by suppliers that you probably won't easily change.

With this model you can decide how much time and energy to invest in the suppliers. It is pretty obvious that no one is going to invest a lot of time in suppliers like Staples and Office Depot for non-critical products. They're too cheap and of little value to your business. Investing a lot of time in leverage or bottleneck suppliers is too costly or does not offer enough benefits.

On the other hand, it makes sense for strategic item suppliers to invest more time as they are the critical parts of your value chain, especially since you are likely to be outsourcing more and more strategic items. These are the suppliers that you want to focus on in your strategic supplier management.

Select and build strategic supplier relationships
When choosing strategic partners, you need to focus on more than just price, product and service. Since you want to develop a relationship with them, this partner should fit your organization, have common interests and, more importantly, offer great value.

There are three main factors to consider when building this strategic relationship: agreements, motivation, and freedom. We have meaningful partnerships where these three come together. When building a partnership, it's not just about focusing on penal clauses and contracts, but also about mutual motivation. From my experience on both sides of the contract negotiation table, I've learned that watertight agreements and penal clauses don't always work best.

They can actually turn against you. The requirement for a fixed price agreement usually means that the supplier also includes very detailed and specific clauses about what is and what is not included. You do not get any uncertainties regarding the service level, but also no flexibility. This robs both parties of their freedom and motivation is lost.

A good strategic partnership will make aligning your internal SLAs with your OLAs much smoother as your supplier will feel more like an extension of your team than an external party.

In a time when everything is just a service, the focus on value has never been so great. Delivering value as a service requires a well-connected chain in which all the links are equally important. Many of these parts of the chain are geared towards customer experience and internal organization: corporate culture, mission, strategy, leadership, and innovation, to name a few. In particular, because we are outsourcing more strategic elements, supplier relationships are also an important element of the chain, and we don't always recognize this enough.

Since a chain is only as strong as its weakest link, it is important to assign our focus and our efforts on the side of the chain in which the supplier relationships are in the foreground in order to achieve a high value as a service.