On 13th Feb 2018, SirionLabs conducted an exclusive webinar in association with IACCM and BP. The webinar titled “How BP is Leveraging Technology to Energize Supplier Relationship Management” featured Jason Donner, Head of IT Infrastructure Sourcing at BP, Sally Hughes, CEO, IACCM and Ajay Agrawal, Founder and CEO, SirionLabs. This blog is a quick summary of the webinar. You can watch the full webinar recording and download the slides here.
The webinar covered the following areas:
- Insights from IACCM on the evolution of relationship management as a key construct within the larger framework of commercial contract management
- Limitations of the traditional, subjective approach to evaluating and monitoring relationships
- The inside view of BP’s data-driven supplier relationship management, and
- How BP is driving improved results through its technology-driven relationship management strategy
Evolution of relationship management
Sally opened the discussion with a recap of how developments in the early 90s such as the emergence of a networked world and the advent of ERP created global markets, drove standardization of processes and streamlined communications and data flows. What followed was a rapid break-up of the integrated enterprise creating opportunities for new kind of enterprise relationships by outsourcing specific functions to improve efficiency and reduce cost.
The end of the traditional business relationships, while on one hand, led to cost reductions, on the other, they raised the complexities of managing such contracts. Enterprises found that they lacked the systems needed to manage the governance and performance of such engagements. This causes loss of value in such engagements which, as IACCM research has shown, can be on average 9.2% of annual revenue!
IACCM noted how the recent emergence of new, intelligent systems designed to manage the complexity of today’s buyer-supplier relationships is streamlining supply ecosystems and driving the shift of focus from Enterprise Resource Planning to what IACCM calls Relationship Resource Planning.
The inside view of BP’s data-driven supplier relationship management
While explaining the complexities of BP’s IT sourcing landscape, Jason identified the following three critical elements for effective management of strategic services suppliers:
- Inter and intra-company collaboration is critical
- Value retention and efficiencies are difficult to realize without technology
- Advanced analytics is key to success
These are complex contracts with thousands of pages of business terms, service levels and obligations. Without the use of technology, there is over-reliance on key individuals (service delivery managers, contract managers or procurement managers) to keep the supplier accountable to deliver the original intent of the contract. The manual approach is able to cover only 10-15% of the service levels in these contracts, and the customer usually relies on the supplier’s processes to cover the remaining service levels. Any disputes related to the performance of the supplier become difficult to address objectively as there is limited data available and it is distributed across several systems.
This results in value leakages due to:
- Failure to deliver the SOW
- Missed service levels
- Inability to validate invoices
Those engagements where relationship management is not strong due to the absence of a single source of truth, the extent of this value leakage is usually higher. In order to get the desired results from your strategic suppliers, Jason pointed out, a holistic management of contract, performance, financial and relationship management is needed with relationship management being the glue that holds everything together.
BP’s approach to relationship management
In order to overcome the challenges outlined above, BP has built its relationship management strategy around the following pillars:
- Not all suppliers are equal
- Establishing a single source of truth is critical for driving transparency, trust and alignment
- A data-driven measurement and evaluation approach strengthens relationships
BP uses a scientific supplier segmentation process to group suppliers into strategic, managed, performance and transactional categories based on a combination of factors including the criticality, level of spend, risk, perceived value, etc. This lays the foundation for a tiered relationship management strategy (as shown below) where the depth of relationship management varies for each supplier category.
Technology plays a critical role in making this nuanced relationship management strategy possible. BP leverages Sirion’s contract management platform to enable a single source of truth for both sides in its IT supplier engagements. By making the performance, pricing and compliance data from contracts centrally available to various teams on both sides (as per the agreed authorization and access rules), and then overlaying this with the actual performance and invoicing data, Sirion creates a holistic and subjective view of how well the relationship is meeting its intended objectives. Further, it provides an efficient way to manage the various relationship management elements such as governance meetings, issues, action items and disputes.
Through this approach, BP is able to view the relationship management data alongside data from other disciplines, viz. contract, performance and financial management (see screenshot below).
Benefits of this approach for BP
This technology-driven relationship management approach enables the following for BP:
- An objective assessment of the relationship health
- Fact-based dialogues in governance meetings
- Clear documented actions, issues and decisions
- Monitoring to ensure timely resolution of actions and issues (aging, cycle time, and process-step lead times)
- Linking issues and action items to contract clauses which facilitate improved contracting
- Comparison of relationships with suppliers across regions/services based on actions/issues
Jason shared several examples of how BP has been able to drive down cost in their IT services engagements through this approach. As a result, BP has seen an impressive 190% return on its investment in Sirion. The number of suppliers under active governance has increased 7X for BP due to the increased efficiencies introduced by Sirion through automation and advanced analytics.
How Sirion makes this possible
Towards the end of the webinar, Ajay provided a quick overview of how Sirion makes the traditional, manual relationship management process more efficient through the use of automation and analytics. Specifically, Sirion makes it possible to evaluate the effectiveness of ongoing governance forums, ensure timely follow-up, escalation, and tracking to the closure of governance-related issues and action items, track in real-time the key metrics for governance health and collect and analyze feedback between the supplier and client organizations.
The screenshots below demonstrate how Sirion tracks the usually subjective relationship management elements in an objective, data-driven manner (tracking status and participation in meetings, meeting minutes, tracking actions and issues coming out of these meetings, etc.).
Now, let’s take a quick glance at the Q&A.
Q 1. What were the key messages for stakeholders within BP and the supplier organizations to drive adoption of this new relationship management approach?
Jason: We took the following approach:
- Within BP – The governance process especially for validating the performance and invoices was resource-intensive. So, the business case revolved around automating these tasks to make the governance process more lean and agile and expanding the capabilities of the team by re-deploying some of the resources to other areas of governance.
- For Suppliers – The key message was around expediting the payment process by simplifying the process of reviewing and approving supplier invoices. Also, BP focused on reducing the suppliers’ effort in putting together the data for the performance reports that they needed to submit to BP regularly.
Q 2: What would be your advice for organizations that are currently operating in the traditional mode of relationship management and are looking to move to a data-driven approach?
Sally: Before you decide to jump into this world of data-driven relationship management, here are the three things that need to be looked at. The first step is to look at the internal processes. The second step is to assess and segment the kind of relationships your organization is going to implement with each one of your suppliers. The third step is to ensure stakeholder engagement before the technology is implemented.
Ajay: It is important to understand what you can expect from this approach. The traditional mode of relationship monitoring is subjective – anecdotal and based on opinions. The data-driven approach does not replace opinions. What it does is to help contrast opinions against concrete data from the engagement. This allows for better decision making and allows everyone to take an honest look at the situation.
Q 3: How does BP measure the return on investment from its data-driven relationship management program?
Jason: This is measured in multiple ways. We obviously measure the reduction in cost, value leakage and effort. Outside of these, there are softer benefits. Knowing more about what the supplier is required to deliver ensures improved operational integrity. e.g. We see less critical issues as we have better maintenance records, better line of sight to end of service life, etc. Issues and actions are completed on time which reduces disputes and hence the resources that we need to manage relationships. This helps us to cover more number of supplier relationships. All of these combined deliver a strong return on our investment in this direction.