Ken Piddington, CIO of Global Partners LP, an $8 billion energy company in the Northeast, recently implemented an innovative vendor partnership program that he hopes will improve the product and services the company gets from suppliers while helping those suppliers more efficiently serve the company and benefit from the relationship. He recently outlined the plan with Network World Editor in Chief John Dix.
What spurred the need to create your Strategic Partner Program?
When I took over as CIO and reviewed the budget, I saw about 30% of it was dedicated to hardware and software and consultants and maintenance agreements, all that sort of stuff, a large chunk of money that I needed to get a better handle on. But I also saw that the only relationship we had with vendors was when they were trying to sell me something or when there was a problem. I thought, there's got to be a better way.
We also had to improve service levels. Global has a lot of vendors that have been with us for many, many years. But we're a different company today than we were three years ago, five years ago, 10 years ago, and we had many contracts that didn't fit our current business. So we needed to increase service levels, lower costs and get these guys to be more innovative and help Global find better solutions.
So, I put the plan together, went to Gartner and read through all their research on vendor management, had a couple analysts calls, went to the CIO Executive Council and asked for some peer reviews, and basically got validation behind what I was doing.
Did you get some good feedback?
The best thing that came out of Gartner was a model for assessing vendors, and we tweaked it to fit our needs. And the CIO Executive Council gave me two CIOs that had similar initiatives. A gentlemen from Family Dollar Store was the best. He has been doing something similar for three years and he gave me the pros and cons, the problems he has had and how he has corrected those and where he has seen progress.
I also told a couple of our vendors I was toying with the idea, ones I already had pretty good relationships with, and they were very excited about it.
Excited about being better managed?
That's the amazing piece about how this has worked out. It ends up being a win-win for both sides.
Were they a little nervous up front?
Oh, absolutely. Some are still nervous.
So you devised the plan and got buyoff internally?
It was a part of my overall IT strategy I presented to the CFO and CEO: These are the things you asked me to attack, this is our road map for attacking those and this is one component of it.
Lay out the plan for us.
One thing we did up front is categorize our vendors based on how they play, because what we do with an Oracle, for example, versus what we do with a little guy who provides us laptops is very different. I need them to both fit into the program, but they each fit in differently. So we came up with a matrix with five categories across the top and all the vendors listed down the side.
The Strategic Level 1 category is for vendors that are critical to our day-to-day operations. Without them, we would have serious business impact. Our fuel terminals, for example, are our life blood, and the vendors that support the automation systems at those terminals are strategic. A Verizon in many worlds might be a commodity, but we have gotten heavily involved with them in support of these terminals, so we categorized them there. And Oracle Financials is another Strategic 1.
The Strategic Level 2 category is for companies we do a lot of business with, that are important to our day-to-day, but if they went away tomorrow we would still be in business, we'd just have a few more manual processes to deal with.
The Emerging category is for vendors that are starting to do some new cool stuff with us and, as our business is changing, they have the potential to emerge into strategic partners.
Legacy is much as it sounds. These are the guys that have been around for a long time. A lot of our mainframe pieces fit into that bucket.
And then we have Tactical, which is where a majority of the vendors sit. These are providers of commodity products or services I can get from multiple suppliers. It's about the relationship, the quality of service, and the price you are going to get.
I also wanted a dedicated account manager for each vendor, a single point of contact, even for vendors that have multiple product lines. It will be this account manager's responsibility to bring in the right people at the right time so we would stop getting bombarded from six different people all trying to sell us a different slice of their pie. CA and Oracle are perfect examples of that. We now have them working under a single point of contact. The cold calls haven't stopped, but they have been reduced dramatically.
Another part of the plan was annual vendor performance reviews. We lay out the criteria about how we will measure each of our vendors up front and that is used to review their performance. That shows us, hey, these guys are doing a really good job for us, maybe we need to do more business with them, or, hey, they're not doing so hot, it's time to move on. We didn't really have anything to measure and gauge them before.
Everything in the plan is intended to provide value to Global, but I knew that if we didn't provide value to our vendors they weren't going to participate in a meaningful way. So there are benefits for them built in.
One is the Quarterly Global Insight meeting, which is designed to give vendors more visibility into what Global has going on. We change our priorities constantly as the markets shift and we go through acquisitions. That's just the way it is. Sometimes a deal comes up and everything else drops. We've had problems with vendors in the past where we have been working on a project and have had to put the brakes on and they didn't know why and wondered, was it me? So essentially these Insight meetings are like a quarterly earnings call where we talk about what's going on, talk about projects and give people a bit more visibility into us. The first one of these is going to happen this quarter.
I presume you do these after your real earnings call?
Yes, so we don't have to worry about any of that, and it's very focused on IT projects. Only vendors in the Strategic 1 and 2 categories are invited to be on the call live. It is recorded and then everyone else gets the recording.
Another benefit for our suppliers is the Vendor Showcase, which is an opportunity for a vendor to come in to meet with the right audience, at the right time of year based on our funding process, to demonstrate what they have. They might be showing off some features and functions of products we already own, or things that we don't have that they think might be of value to us, and they'll get an audience that is appropriate.
For example, if a company is trying to demonstrate some marketing software, while just having me might be OK, it isn't going to provide the greatest value to them. So I'll bring in the marketers, and we will do it at the right time of the year. I hate to have you coming in in June when we go through all our budgeting and funding in the fourth quarter. So, we are scheduling from August to October because we really do all our project planning and all the funding approval in that October, November, December timeframe.
These meetings should be great because you need to be educated so you can come up with better solutions going forward.
And a final benefit to vendors that participate with us in this program are annual vendor awards. We have four: Awards for teamwork and collaboration, innovation, customer service, and then one of those three is also named vendor of the year. For the vendor of the year, we committed to issuing a press release and posting photos on the Web site and everything along those lines.
The first will be announced next year?
Yes, in March, 2012.
Is it purely a subjective thing or are there any objective measures?
The performance piece is based on the criteria spelled out in the annual performance reviews. We have very clear categories in the model, so they'll get a score. And the scorecard will show how you scored in each category and the average of everybody else so you can see how you are doing.
I understand you kicked all of this off at a big gala event for your suppliers.
Right. We hosted a big dinner, The Summit meeting, in March. I had to bring all them together and convince them. We had 62 distinct vendors represented by one or more people, and 25 people from different business lines within Global, so all in all 125 people.
I needed Global to communicate a single message so I handed out a cheat sheet to everyone from our traders to our marketers, head of risk, HR, even our CEO. I also had prep meetings with our group before and said this is the message that I am going to be giving.
Were all the vendors current suppliers?
There were six or seven that we've had relationships with in some way, shape or form that we felt had a decent product or service and/or we wanted to invite them just to help keep our current vendors on their toes. SAP is a perfect example. We are an Oracle Financials shop, but SAP came to the dinner in full force. I wanted the vendors to know they aren't the only game in town. Just because you have been here for a long time doesn't mean someone else couldn't take your place.
We strategically sat competitors together, so AT&T and Verizon were at the same table, Oracle and SAP were at the same table. But every table had at least one representative from Global, ideally someone interested in their products. Oracle and SAP, for example, were sitting with our controller and our head of accounting.
So we got everybody there and I kicked it off by explaining why they were there. I said it is all about communication, about building a relationship. That is why we called it the Strategic Partner Program, not the Vendor Management Program. It is about partnership. So we laid out how Global hoped to build better relationships, improve service levels, improve cost management and improve collaboration and communication.
And I laid out the incentives for them: A reference client, greater insight to Global for future sales, our yearly vendor awards, the vendor showcase, better relationships and a true partner, focus group participation, and improved collaboration and communication.
I said I no longer wanted event driven relationships. I want it to be better planned out, not just you selling me and not just me calling you because of a problem.
Then our CEO got up and presented an overview of where we have been the last five years, how we've grown, what his vision is and where we are heading. And we had Peter High from Metis Strategy, author of World Class IT, talk about one of his principles, Principle 5: Develop a collaborative relationship with external partners. And that was very well received, so I thought the night went really well.
Did you have Q&A that night?
We had a brief Q&A period. Obviously with so many people you weren't going to be able to get into every detail. So we had a little Q&A, but I had blocked off the next two days for follow up meetings. I ended up doing 24 meetings with vendors that wanted to come in and ask questions. And we went over that in great detail so they understood the new way of doing business with Global and how this was going to work.
Anyone reject it right out of the gate?
No one rejected it. Everybody has been participatory, some more so than others. The really big vendors were not as participatory as some of the mid-level companies, but it's varied. I'd have to say 95% of them think this is a great opportunity. They've really engaged. One or two have not been as enthusiastic as I would like.
Any immediate wins?
The greatest thing was the immediate resolution of some little issues. These were things that never got resolved because you hadn't found an opportunity to sit down with the vendor, to chat with the right people in the room. Suddenly about a dozen, nagging little things were turned around within a week. For example, we had just gone live with a new piece of the gas station business and we had a challenge with accessing data through a portal. So we were sitting there talking over a beer with the supplier's chief technology officer and I explained the problem, and he whipped out his laptop, sent off a couple e-mails, we had another beer and he got back an e-mail that said it would be all set by Monday and it was.
Any other immediate benefits?
We have gotten better prices with less negotiation right off the bat. And we've been hitting our service-level agreements more often than we had been. I think we are getting more innovative solutions, better ideas coming to the table related to what we need. Our vendors are more engaged in trying to help to find the right solution for Global as opposed to just trying to sell us a product or service.
I had a vendor who was implementing a very specific billing system for us. We have a few nuances that are different from some of their normal implementations and they didn't quite hit everything quite right. It was shortly after this had all kicked off and I said we needed to fix it. And without me even having to go down the road I expected to, they came back with a solution that reduced our cost to finish it and a plan. I don't think they would have done that had we not been engaged with them in a different way. So I am seeing the value coming out and I think next year will be even better.
You had the dinner in March, so where in the rollout process do you stand now?
In May we had the vendor review meetings where we laid out the detailed ground work for them, letting them know what category they fit into, their performance measurement plan, their current state. We talked about current projects and activities, innovation and opportunities. Then we started off with contract and service level agreement reviews.
Any potential downsides to this plan you can see? It looks like there will be a lot of paperwork?
The downside is the effort. This has been perhaps a slightly bigger undertaking than I had originally envisioned. So it has been a lot on my plate. I established a vendor management office of two people that is doing all the detailed work and I am the face of it. The program can't be successful unless we deliver on everything we committed to. So the challenge is in making sure we do everything we said we were going to do. So far, so good.
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