Reference no: EM132948995

Business Case: Cisco IT Improves Strategic Vendor Management

With more than 35,000 employees and hundreds of locations, each Cisco office has many complex requirements. Although Cisco uses its own products whenever possible, it still has an annual spend of $500 million for IT products and services from other companies.

The Problem

Working with local suppliers, Cisco encountered a number of issues. It was difficult to get formal contracts, support wasn't always there when needed, and there were often disagreements over prices and warranties. Their somewhat haphazard way of soliciting bids resulted in little or no emphasis on aligning with corporate strategy. Cisco needed to unify its vendor management process to gain greater control and reduce costs.

The Solution

Cisco created the Cisco Vendor Management Organization (VMO)-a new global IT group within Cisco-to manage strategic vendors to supply hardware infrastructure, software, storage, telecom services, and outsourced services. The VMO was also tasked with providing expertise in process and business development, asset management, and vendor engagement in keeping with Cisco's corporate strategy.

The Outcome

With standard contracts in place worldwide, Cisco could now manage existing contracts and negotiate new ones more easily. Thanks to the efforts of the VMO, Cisco saved $33 million through the first three quarters after its inception and $64 million over the life of the contracts put in place during that time! Cisco has also reduced its number of vendors and has consolidated contracts with a small number of strategic vendors to give them more business and reduce Cisco's paperwork. Cisco also works with its strategic vendors to help them develop skills and relationships to increase their value and position in the market, and Cisco is receiving the same type of support from its strategic vendors. By centralizing its outsourcing contracts, Cisco saves $11 million per quarter.

Lesson Learned

When it comes to vendors, less is more: working with a few number of strategic vendors that help a company fulfill its business strategy. This, in turn, creates a tighter connection between the business and IT and results in closer alignment between the two strategies, saving time and money.

Questions

1. What mistakes did AstraZeneca make?

2. What mistakes did IBM make?

3. Why are outsourcing contracts for 5 or more years?

4. Why do you think two major corporations could make such mistakes?

5. Do you think the initial SLA was doomed to fail? Explain your answer.

6. What provisions in the new SLAs protect AstraZeneca and the vendors?

7. Why would parties prefer to use an arbitrator instead of filing a lawsuit in court?