BP has reduced the number of IT suppliers it works with
from40 to fivein a bid to lower costs and simplify its
supplier relationship management.
It expects to make savings of around $500m over five years
through the supplier consolidation, which will see Accenture, IBM,
Wipro, TCS and Infosys take over application development and
maintenance, service desk and SAP across the BP group.
Frank Ridder, research director at Gartner, says that many
companies are now changing their supplier relationship strategy to
consolidate suppliers in a bid to reduce costs. "Multi-sourcing is
about finding the best strategic fit. Consolidating suppliers
reduces the expense of procurement and vendor management."
BP will use Accenture to manage and develop its SAP system, IBM
will support its service desk, while the Indian providers will
support and develop applications for business units in the BP oil
and gas supply chain.
"A company like BP is too big to allow it to consolidate
everything. Instead it has used a mix of traditional outsourcers
and services from Indian outsourcers, separating the contracts by
business unit." Ridder says this makes sense for BP, because each
business unit is very distinct, so the structure of the company
makes it simpler to split the work.
Companies are using strategic multi-sourcing through supplier
consolidation to cut costs, but making a success of strategic
multi-sourcing agreements is notoriously difficult, Ridding warns.
In fact, many businesses fail to succeed with contracts involving
multiple suppliers. A recent Gartner benchmark study found that 55%
of global organisations manage their sourcing activities tactically
and at an operational level, failing to add a strategic management
layer and invest enough in developing critical multi-sourcing
competencies.
Lee Ayling, managing director of Equaterra, says multi-sourcing
contracts make sense in terms of risk, control and internal
management overhead. It also maintains competition. However, BP may
struggle to complete its supplier consolidation strategy. "I doubt
that they will remove all the other suppliers as numerous issues
will be identified in transition by the strategic suppliers, and BP
may find that this erodes benefits," he says
BP is not the only company taking this route.
Last April Shell signed three IT outsourcing deals with EDS,
AT&T and T-Systems. In this contract EDS is effectively a prime
contractor, providing end-user computing services and integrate
Shell's infrastructure services AT&T provides network and
telecommunications and T-Systems supports datacentre computing
including hosting, storage and most of Shell's SAP services.
However, Shell retains overall control of the other suppliers and
its IT strategy.
Businesses like BP and Shell are attempting to cut out costs
from their companies by simplifying supplier relationships.
Strategic partnerships with a few key suppliers is clearly better
than managing several, but to succeed in strategic multi-sourcing,
governance becomes critical.