To transform your IT supply chain, jettison long-standing assumptions


By Frank Hayes

With somewhere between 48 percent and 62 percent of total IT expenses flowing from companies to outside IT vendors, the technology supply chain determines much of an IT department's economics.

But many of the assumptions built into current contracts may be a problem in the long term, writes Howard Rubin, founder of the advisory firm Rubin Worldwide. "The very nature of many past contracts, with long terms and termination penalties, renders them an impediment for companies that need to transform their technology economies," Rubin writes.

He recommends that CIOs begin by creating a "deal portfolio" that lays out all commitments, termination penalties and assumptions about volume (such as the number of user seats for software licenses) for at least 80 percent of contract commitments.

Then organizations need to identify where the constraints of existing deals run counter to current IT trends. To avoid the same problems in the future, CIOs should look for new models for managing vendors, such as category management, in which categories such as contract labor, storage, processing and end-user devices are managed as supply chains.

One possibility is to adapt a supply-chain approach used by Wal-Mart and other retailers, using "category captains"--favored vendors who are "expected to have the closest and most regular contact with the retailer as well as investing time, effort, and often funds in the strategic development of the category within the retailer," Rubin writes.

For IT, that might mean getting software vendors to compete to become "captains," who would establish standard contract terms for all a company's software vendors.

For more:
- see Howard Rubin's post at Wall Street & Technology

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