Many organisations have introduced Strategic Sourcing techniques to reduce their costs. Normally this is based on a methodology where the ‘A Team’, comprising top procurement, technical and other skills, completes a cost-management project and then hands these new arrangements over to other staff to continue to manage on a day-to-day basis. After the initial successes management has begun to ask how sustainable these initiatives are, particularly as costs seem to move inexorably upwards.

Alan Low of Purchasing Index‘s view is that “One of the key differentiators in ensuring continued cost management and service performance is the implementation of a thorough and relevant Service Level Agreement (SLA). ”
Most contracts between organizations and suppliers cover the bare bones of the services to be performed and are not adaptable to meet the organization’s changing requirements.”

“SLAs should be ‘living’ documents, subject to regular review and amendment and dealing not only with the key performance measures of the service provider but also the performance of the organization’s staff to ensure that the service is bought and used as cost-effectively as possible.” “As such the SLA complements the contract and is the basis for providing ongoing KPIs for both parties. It also should be a much more effective means of disciplining (and rewarding) the service provider for under (or over) performance,” he says.

“This is particularly vital as service performance normally falls within the remit of line management or users as well as procurement and all of these people have to be involved in the creation and continued amendments of the SLA detail.”

What would a SLA contain? Here are some suggestions:
• Meeting schedules between service provider and organization’s management and staff, covering reporting requirements, agendas, etc.
• A clear and unequivocal definition of the details of the required service (who does what, when)
• For customer and service provider who are the principle contact staff and their respective responsibilities
• What is expected from the service provider in terms of suggestions and recommendations for service enhancement, cost containment, etc.
• A graduated system for regulating and disciplining non-performance, ultimately leading to the mechanism for dismissal

The author Alan Low can be contacted on 084-890-0005 or alan@pricetrak.co.za.