ITIL Supplier Management | ITIL Foundation | ITSM

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In this tutorial, we are going to discuss the ITIL Supplier Management Process (Formerly known as ITIL Contract Management).
In this chapter, you will learn about What is Supplier Contract & Outsourcing? The types of Supplier Contracts defined in ITIL V3? and the Definition, Objective, Activities, Roles, and Sub-Process of Supplier Management - ITIL V3 Process.

Along with that, you would also get to know the term Supplier and Contract Management Information System (ITIL SCMIS) - Formerly known as ITIL SCMDB.

What is ITIL Supplier Management Process?  


Supplier Management is one of the well-defined main processes under Service Design process group of the ITIL best practice framework.

As officially defined, The ITIL Supplier Management process is all about managing suppliers and the services they supply, to provide seamless quality of IT Services in an economical manner.

ITIL Supplier Management Scope: 


The ultimate goal of Supplier Management (Formerly known as ITIL Contract Management) is to obtain the value for money from suppliers and contracts.

As described in ITIL V3, the scope of Supplier Management should include management of all suppliers and should ensure that all supplier contracts fulfill the business needs, SLA, and SLR requirements.

ITIL Supplier Management Process works closely with Service Level Management and Availability Management to ensure that the suppliers are delivering the required level of service to meet the service level and quality targets.

This process also coordinates with Knowledge Management and Financial Management to get help in selecting suppliers based on previous knowledge and at a competitive price point.

It also works jointly with Service Review process to assess the performance of suppliers and take the decision on continuation or termination of supplier contracts.

ITIL Supplier Management Objective: 


The primary objective of ITIL Supplier Management Process is to ensure that all contracts with suppliers support the needs of the business.

This ITIL Process is also responsible to ensure that supplier fulfills their contractual commitments of supporting the business requirements of the IT Service Consumers.

ITIL V3 Supplier Management Activities: 


As described by ITIL V3, here's a list of major activities that are performed under the Supplier Management Process:

  • Implement and enforce the supplier policy.
  • Management of SCMIS Suppliers.
  • Management of sub-contracted suppliers.
  • Contracts categorization, selection, and risk assessment.
  • Maintain a supplier policy and a supporting Supplier and Contract Management Information System (SCMIS).
  • Maintenance of standard contracts, terms and conditions.
  • Development, negotiation, and agreement of contracts with suppliers and manage them through their lifecycle.
  • Contract review, renewal, and termination.
  • Management of suppliers and Supplier performance.
  • Managing the relationship with suppliers.
  • Management of contractual dispute resolution.
  • Agreement and implementation of service and supplier improvement plans.

Refer to the below diagram for a conceptual view of these above activities:

ITIL Supplier Management Activities and Goals

What is a Contract?


In Supplier Management - ITIL V3, we often encounter the term “Contract”.

In short, a Contract is a Documented & Legal Binding Agreement between a Service Provider (or Service Supplier) and the consumer of service (mainly customer) to provide or receive some services respectively.

In case of supplier contract, It generally specifies all necessary information such as nature of service, SLA targets, Cost of Service etc. The official term of such delegation of service to a third party provider is called “Out-Sourcing”.

ITIL Contract Management and Types of Supplier Contracts: 


As described in ITIL, Contract Management is one of the integral parts of Supplier Management.

Various types of supplier-contract or outsourcing types are defined under the Contract Management section of ITIL Supplier Management Process, those are as follows:

Co-sourcing:

  • An informal combination of outsourcing, using several outsourcing organizations working together to co-source key elements within the lifecycle.

Partnership or multi-sourcing:

  • A formal arrangement between two or more organizations to work jointly to design, develop, transition, maintain, operate, and support IT services.
  • This is generally formed as strategic partnerships between multiple organizations to leverage market opportunities.

Business Process Outsourcing:

  • Formal arrangements, where an organization delegates the management of one or more of its business process or function to the external organizations.

Knowledge Process Outsourcing:

  • This is a new enhancement of Business Process Outsourcing, where external organizations provide business expertise which requires advanced analytical and specialized domain skills.

Application Service Provision:

  • Where external organizations provide shared computer-based services to customer organizations over a network.
  • Outsourcing & sharing reduces the complexities and costs of such shared software respectively, thus allowing organizations to avail the service at lower cost.

Underpinning Contract:

  • It is an agreement or contract between a Service Provider and a Third Party Provider for receiving some specialized services.
  • The third party provides support to core services, which enables the service provider to deliver a service to a customer.
  • An Underpinning Contract must be aligned with the customer-facing Service Level Agreements.
  • For Example, A Service Provider may make an agreement to a third party supplier for servicing computer hardware in time of critical hardware failure.

ITIL Supplier Management Sub-Process: 


As per ITIL v3, Supplier Management has six sub-processes operating under it.

The objective and brief descriptions about those sub-processes are given below, followed by a diagram illustrating the ITIL Supplier Management Process Flow:

1) Providing the Supplier Management Framework:

Defines the guidelines and standards for procurement of services and products. This also includes the terms of the Supplier Strategy and the preparation of standard Terms and Conditions.

2) Assessment or Evaluation of new Suppliers and Contracts:

Responsible for evaluating prospective suppliers in accordance with the Supplier Strategy, and also to select the most suitable supplier.

3) Establishing new Suppliers and Contracts:

This process is used to negotiate and sign a binding agreement or contract with the suppliers. This process is typically used for significant investments, either in externally provided services or in technology.

4) Processing of Standard Orders:

Responsible for processing pre-defined orders and/or items for commodity products and services within the boundaries of existing contract frameworks.

5) Supplier and Contract Review:

Responsible for verifying if the contractually agreed performance is actually being delivered by suppliers, and to define improvement measures if required.

6) Contract Renewal or Termination:

It is used to carry out the regular assessment of existing contracts to check if they are still relevant with current requirements. And also to do the renewals or termination of contracts based on the assessment results.

Important Terminologies & Definitions: 


Below lists describes the important terminologies & terms used in ITIL Supplier Management process:

Supplier and Contract Management Information System (SCMIS):

  • Formerly referred to as Supplier and Contract Management Database (SCMDB).
  • The Supplier and Contract Management Information System (SCMIS) is a database or structured document used to manage suppliers and contracts throughout their lifecycle.
  • Supplier and Contract Management Information System (SCMIS) contains key attributes of all supplier contracts and acts as an input to Service Knowledge Management System.

Supplier Service Improvement Plans (SSIP):

  • Used to record all improvement plans & actions agreed between suppliers and service providers.

Supplier Survey Reports:

  • Summary of feedback gathered from all individuals that deal directly with suppliers.
  • These feedbacks are reviewed to ensure that suppliers are maintaining reliable service quality.

Supplier & Contract Performance Reports:

  • This report is used as an input for the Supplier & Contract review meetings to manage the quality of the service provided by suppliers and partners.

Purchase Order:

  • An order for purchasing items (services or components) from a supplier.
  • In case of purchase of services it also describes the Underpinning Contract mentioning the service level targets.

Purchase Request:

  • A request to purchase a service or a product from an external supplier, issued from other ITSM processes.
  • Generally, Financial Management team would also be involved in the processing of a Purchase Request to validate the approved budget for the purchase.

Standard Terms and Conditions:

  • A set of terms and conditions which are usually attached to contracts and orders when purchasing services or products.

Supplier and Contract Review Meeting Minutes:

  • It is a document which records the identified supplier weaknesses, problems, improvement suggestions, and as well as achieved versus agreed supplier performance.

Supplier Evaluation:

  • The resulting document from the Supplier Evaluation sub-process, describing in detail the criteria used for evaluating and selecting a suitable supplier.

Supplier Service Level Report: 

  • This documents the achievements of service level targets of an external supplier.
  • It is used to compare the agreed and actually achieved service levels.

Supplier Strategy: 

  • It is the documented guidelines for the procurement of services and goods from external suppliers.
  • It typically includes supplier selection criteria and a list of preferred suppliers.

ITIL Supplier Management Roles and Responsibilities: 


Supplier Manager:

  • This role is the Process Owner for ITIL Supplier Management Process.
  • The Supplier Manager role is responsible for ensuring that value for money is obtained from all suppliers.
  • Supplier Manager also makes sure that contracts with suppliers fulfill the business needs, and that all suppliers are meeting their contractual commitments.

We hope that you have enjoyed the above article describing ITIL Supplier Management, ITIL Contract Management, and Supplier and Contract Management Information System (ITIL SCMIS). Be with us to explore free training on Leading Technologies and Certifications.

Leave us some comments if you have any question or you need any further clarification on the above topics, we would be happy to help you.

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I'm passionate about Information Technology & spreading my knowledge makes me happy. I Have MBA(IS), ITIL, PRINCE2, CCNA, CCNP, MCSA, MS Hyper-V Certifications, and Trained in PMP, CCIE. And also have 10+ Yrs of Work Experience.
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