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How Vestas is Driving Winds of Change in IT Supplier Management
On August 23rd 2017, SirionLabs conducted a webinar in association with IACCM and Vestas (the global leader in wind energy and a SirionLabs client). The webinar titled “How Vestas is Driving Winds of Change in IT Supplier Management” featured Henrik Stefansen, Sr. Director, Global IT Sourcing at Vestas and Tim Cummins, President and CEO at IACCM as guest speakers alongside SirionLabs’ founder and CEO, Ajay Agrawal. 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:
- IACCM insights on effective management of outsourcing contracts
- An overview of Vestas’ IT outsourcing journey
- Why integrated supplier management is important for success in IT outsourcing
- How Vestas leverages Sirion’s contract management software to drive higher value in its IT outsourcing program
It’s Time to Re-think the Contracting Process
In the opening section, Tim explained that in today’s challenging market conditions, businesses need to respond to the winds of change with speed, flexibility, and a sharp focus on the outcomes. As organizations are increasingly moving towards outsourced and supplier based eco-systems, their supplier organizations are undergoing a similar transition. Hence, contract management is about the co-ordination of these complex integrated organizational networks with contracts acting as the glue between these various organizations in the network. In the absence of the right technology, this glue comes unstuck and the network fails.
Enterprises are moving away from buying goods/commodities and expect suppliers to take responsibility for the outcomes. It is important to streamline contract management to cut the cost of production and improve the quality of performance. This can only be achieved with the support of the right contract management software.
Vestas’ IT Outsourcing Journey and the Associated Challenges
Henrik started his section by providing a quick overview of Vestas. As the global wind energy leader, Vestas has an installed base of 60,000 turbines or 83 GW in 75 countries, 22,000+ employees and annual revenues of € 10.2B.
IT is integral to Vestas’ business and customer offerings. e.g. Vestas’ high performance, data-heavy computing capabilities drive cutting edge analytics for determining the optimal turbine placement, analysis of weather data and turbine performance monitoring. Accordingly, Vestas’ IT strategy is aimed at being a trusted partner for the business to deliver cost efficient IT, enable business goals, and create customer value.
A 100% in-house function until 2011, Vestas started its IT outsourcing journey in 2011 driven by the global financial crisis. Today, a large part of Vestas’ IT is outsourced including application development, infrastructure services, ERP, and end-user computing to a mix of providers including HCL, Wipro, NNIT, and Microsoft. With its strong in-house IT history, Vestas’ IT sourcing and management capabilities were wired accordingly. As Vestas entered the new outsourced environment that involved buying outcomes rather than equipment, it ran into the complexities of tracking obligations, service levels, actions and issues, managing invoices, etc. They had data coming out of multiple systems and were trying to put it together manually. Henrik realized that this approach was either going to slow them down or expose them to a huge amount of mistakes and risk. Henrik summarized the increasing chaos in their environment with the below slide.
Key challenges included:
- managing ongoing contract changes and contract versions,
- getting a clear view of upcoming obligations,
- tracking supplier performance against contractual obligations and service levels,
- validating accuracy of performance data and invoices submitted by the supplier,
- managing relationships objectively, and
- ensuring effective and timely reporting.
Enabling a ‘Single-Version-of-the-Truth’ through Integrated Supplier Management
As managing the increased complexity of IT contracts became unfeasible using its internal, manual capabilities, Vestas decided to implement a third-party technology for integrated management of its IT outsourcing suppliers. Sirion’s contract management software proved to be the right fit for Vestas’ requirements. Sirion enabled Vestas to manage its IT supplier contracts in a cost-effective and flexible manner while providing a ‘single-version-of-the-truth’ view for Vestas and its suppliers across contract, delivery, SLA, invoices and relationship. This shared understanding has minimized the discussions and friction around data accuracy improving the health of the buyer-supplier relationship. The below slide perfectly depicts the true alignment that Sirion has made possible between Vestas and its IT suppliers.
The Benefits: 300% ROI, Improved Business Outcomes, Stronger Relationships
Today, Vestas manages IT contract spend worth € 170M on Sirion which represents almost 70-80% of its total IT outsourcing spend. Henrik shared that Vestas generated a 300% ROI on their Sirion investment within the first year by identifying and correcting invoicing discrepancies which earlier resulted in overpayments to suppliers. (Also Read: The Vestas-Sirion Case Study by Spend Matters)
Key benefits realized by Vestas:
- Clear visibility and understanding of contractual obligations and service levels
- Automated monitoring and validation of obligations, service levels and invoices
- Integrated view of supplier engagements across enterprise functions
- Improved collaboration with suppliers through better management of issues and action items
Why Sirion Stands-out as a Contract Management Software for Services
Towards the end of the webinar, Ajay provided a quick overview of SirionLabs. An important insight shared by Ajay was the global dominance of services in today’s enterprise sourcing spend (as per Forrester research, services account for 58% of the total sourcing spend across industries).
Managing this critical procurement category proves to be a challenge for enterprises. The traditional supplier governance approach is not effective for services due to the siloed management across enterprise departments connected by manual processes and disjointed systems. This results in significant value leakage of up to 15-20% of annual contract value, especially for complex services such as IT, BPO, logistics, and facilities management. Traditional procurement technologies such as P2P systems are not deep enough to address this problem as these systems were designed to manage goods/commodities procurement where managing the contract and reconciling the performance and invoices is relatively simpler.
Ajay concluded by explaining how Sirion leverages artificial intelligence and natural language processing to create an actionable contract management framework by extracting the contract data such as obligations, service levels, pricing, SL credits, etc. This data is put through Sirion’s workflows and algorithms to enable complete visibility and control for the client over the business and financial outcomes of the contract. Through this approach, Sirion has saved over $172M for its clients which represents ~10% of the total invoice value validated through Sirion. Additionally, Sirion has reduced the manual effort in supplier governance for its clients by 44%.
Alright. Now it’s time for a quick glance at the Q&A.
Q. Do you see these challenges across industries, or is it specific to companies from Energy sector? Is the concept of integrated supplier management only relevant for IT services?
Henrik explained that the complexity of outsourcing contracts and the challenges of managing multiple vendors are similar across industries and services. Ajay and Tim agreed with Henrik and pointed to the rising complexity as companies increasingly move towards goods-as-a-service model and transition away from the older fixed-fee, time and material billing arrangements to a modern usage, consumption and outcome based billing. This has made active contract and supplier management critical for a broad range of services besides IT including managing train operations, management of oil rigs, facilities management and construction services.
Q. ROI from contract management software is generally difficult to prove. Is Sirion any different?
Ajay explained that classical CLM systems have been technology islands disconnected from the technology backbone of the enterprise including the ERP. The more these contract management systems connect with the core commercial systems and processes (i.e. invoicing, performance management, claims and disputes, payments, issues and actions, etc.), the more they will be able to demonstrate tangible value. Tim added that improved contract management is the next secret sauce of business and revenue improvement.
Based on the evidence seen from Sirion’s customers, it is one of the few contract management software solutions that can consistently demonstrate tangible ROI. – Tim Cummins
That’s it for now. If you would like to get a first-hand view of Sirion’s unique approach to services contract management, feel free to sign-up for a demo here or download the Sirion product overview document here.