1. Procurement and Vendor Management Introduction

Procurement plays an important role within a NaaS operator organization since external spend (CapEx and OpEx) constitutes a major component of the cost basis for NaaS Operators. For this reason, strengthening procurement capabilities is necessary to support rapid and cost-effective network deployment. Procurement management ensures that the NaaS Operator effectively identifies, sources and manages vendors for the business to reach its strategic goals and objectives.

The Procurement and Vendor Management Module provides the NaaS Operator with background information and methodologies to support the procurement and purchasing activities to acquire products and services from selected vendors. Development and maintenance of relationships with on-boarded vendors is essential to maximize the value received from them. Vendor management process helps to achieve these goals by evaluating vendors capabilities, managing contracts, assessing risks and evaluating their performance.

1.1 Module Objectives

Procurement and Vendor Management module will support NaaS Operators to manage the procurement and vendors activity associated with the network deployment. The module has the following specific objectives:

1. Provide a general overview of the Procurement process to ensure sufficient information and guidelines for the NaaS Operator to manage the procurement of products and services.
2. Examination of the purchasing subprocess and provide NaaS operators with methodologies and tools to execute purchasing transactional activities.
3. Provide the NaaS Operator with a systematic approach for Vendor governance, including management of vendors contracts, invoices, performance and risks.
4. Enable NaaS Operators to evaluate the use of procurement management software platforms, to improve the performance and productivity of the procurement process.

1.2 Module Framework

NaaS Runbooks Framework shown in Figure 1 displays the PlayBook Modules and their relationship to the Procurement and Vendor management module.

Procurement and Vendor Management module is part of the Supply Chain Management area. The module interacts with other modules in the area, namely RFx Process module and Logistics & Warehousing module. Procurement process will make use of the RFx module when there is a need to request information, proposals or quotations from vendors. Relationship between procurement teams and logistics & warehousing teams is necessary when purchasing products that require to be maintained in NaaS Operators warehouses.

Figure 1. Supply Chain Management Framework

Figure 2 presents the Procurement and Vendor Management Module functional view where the main functional components are exhibited.

Figure 2. Procurement and Vendor Management Module Functional view

Sourcing is a strategic process that needs to be performed by the NaaS Operator to identify market vendors for the required product or service. The process includes selecting and negotiating with vendors, building relationships with them, and evaluating cost savings opportunities.

Purchasing is a sub-process of procurement that is more related to transactional activities such as requests for buying products and services, purchase orders, invoicing, shipping notifications, products or services reception and payment to vendors.

Vendor management includes all the activities required for vendor governance, including the management of contracts, invoices, performance, relationships and risks.

The rest of the module is structured as follows:

Section 2 is an introductory section to highlight the strategic relevance of procurement activities for the NaaS organization. Section 3 describes the Sourcing activities, which include vendor identification, vendor onboarding and contractual agreements, as well as spend analysis to identify cost-savings opportunities. Section 4 focuses on describing the purchase transactional activities, presenting the different types of purchasing forms. Section 5 describes the activities for Vendor management, focusing on the governance methods to manage contracts and invoices, measure risks as well as managing the performance of vendors delivering products or services to the NaaS Operator. Finally, Section 6 focuses on providing the NaaS Operator with a review of activities that can be automated by using Procurement Management Software.

2 Procurement in NaaS Operators

Supply Chain activities play a key role in NaaS Operators, where Capital (CapEx) and Operational (OpEx) expenditures represent a significant percentage of total revenues. CapEx and OpEx paid to external providers and vendors can comprise up to 40% of total revenues for telecommunication operators.

The three key infrastructure components that represent a financial challenge for the development of mobile networks in rural areas are the following (a more detailed view of capital and operational costs is available in section 2.1):

• Building cell sites, including base stations, towers and transportation of civil works materials and equipment.
• Backhaul links to connect radio sites with the core of the mobile network.
• Energy to power the site equipment.

In an economic environment where global mobile revenue remains stable (revenue will rise steadily at around 1% per year) and characterized by a much lower ARPU in rural settings than in urban environments, NaaS operators require a continuous search for opportunities to reduce costs. Technology innovations to improve the financials of the main cost components listed above are being considered for rural deployment, including simplified and lower cost cell towers, low cost base stations, unlicensed microwave, and the use of renewable energy (mainly solar power).

The activities of the NaaS Operators procurement teams are key to support the assessment and introduction of these technology innovations, reduce the Total Cost of Ownership (TCO) and achieve the NaaS Operators financial objectives.

The following sections provide the NaaS Operator with high-level insights for the CapEx and OpEx major contributor areas.

2.1 CapEx and OpEx breakdown

Periods with strong CapEx intensity for Telecom Operators, in general, are usually associated with new network deployments and with the introduction of new technologies in the network. CapEx breakdown and timing of new deployments can be very much dependent on the specific region and/or specific country.

Nowadays, CapEx efforts in developed countries are mostly focused on finalizing network deployments for FTTx (Fiber to the Node, Fiber to the Tower, etc.) and initializing 5G deployments. This situation is different in emerging markets and areas where there is still a significant percentage of unconnected population, where CapEx is mostly focused on the rollout of new mobile network infrastructure, upgrading networks to 4G technology and investing in backbone networks.

The graph in Figure 3 shows the CapEx breakdown for an initial mobile rollout investment. During this period, the major CapEx spending components are the Civil Engineering (16%), the site facilities (tower, shelter and power) and the RAN equipment (24% and 35% respectively).

Figure 3. CapEx breakdown (source: China Mobile)

For network OpEx, as shown in Figure 4, power, equipment maintenance as well as Site rental and backhaul capacity costs are the most significant items for Operational expenditures.

Figure 4. OpEx breakdown (source: China Mobile)

It is important to highlight for NaaS Operators the extra cost of deploying networks in rural and remote locations when compared to network deployment in urban areas. According to data from GSM Association (GSMA), deployments in rural and in remote locations have an 18% and 35% cost premium respectively, compared to urban deployment (Figure 5) :

Figure 5. Cost of Mobile Sites per environment (urban, rural, remote) (source: GSM Association (GSMA))

Therefore, a successful approach to Procurement and Vendor management activities is vital for the NaaS Operator to ensure profitability. This will require the NaaS Operator to work on optimized procurement processes to ensure a competitive, sustainable, and diverse supply chain environment with proper diversification strategies. These processes need to consider proper analytics allowing to make smarter decisions about network deployment costs.

3 Sourcing

Sourcing for NaaS Operators needs to be considered as a strategic, continuous, and well-planned procedure that adds value to the organization and actively supports in achieving the business objectives. An active management of the procurement and sourcing processes requires teaming up with vendors and internal stakeholders, critically reviewing company spend and managing vendor risks.

Instead of a reactive approach, where procurement has traditionally been responding to requisitions and business needs as they arise, a more proactive management of the procurement activities includes creating a strategy to anticipate requirements and plan accordingly as those requirements come up. Main benefits of the strategic proactive sourcing approach include:

• Increased profit since the main objective of the sourcing team will be to gain savings on the whole supply chain activities.
• Managed supply risks, by assessing existing supplier risks (quality risk, availability risk, financial risk), and creating action plans to avoid or mitigate these risks.
• Analysis of each sourcing action to execute those which provide more value at the same cost, decrease operational expenditures or increase the speed of operations.

For all the benefits listed above, NaaS Operators sourcing teams need to consider the application of a strategic proactive sourcing approach to all the steps in the procurement cycle.

The steps in the Sourcing cycle are represented in the following figure and described in this section:

Figure 6. Sourcing process activities

3.1 Identification of products and services needs

The sourcing cycle starts with the NaaS Operator identifying a need for a product or service. Depending on the type of need, different departments in the NaaS Operator organization will be involved. It will be necessary to gather information from all the involved stakeholders and assess the business necessity and business case for the specific product or service.

3.2 Selection of Vendors

Within the procurement strategy, the NaaS Operator will consider the type of vendor that will be used to fulfill the delivery of the required product or service. This can include exploring both local vendors as well as larger international vendors. The objective is to select the vendors that can provide the most cost-effective and efficient service.

Once the type of vendor that is more suitable for the specific initiative has been decided, the sourcing team will initiate the tendering process. The tendering process will allow the NaaS Operator to obtain and evaluate proposals submitted from invited companies in response to the requirements provided by the NaaS Operator.

At this point, it will be necessary to create the relevant documentation that will be sent for tender. The documentation will include product or service requirements, terms and conditions, purchase volumes and service level agreements. This documentation will be used during the RFx Process as it allows vendors to quote accordingly to fulfill these requirements.

RFx processes will provide the NaaS Operator with the opportunity to gain relevant information from vendors, including size, financials and availability of qualified resources. Including a Request for Information (RFI) or a Vendor qualification process within the procurement procedure will help the NaaS Operator to determine whether a vendor meets the criteria to be included in the tender process.

After initial qualification has been performed, Request for Proposals (RFP) or Request for Quotation (RFQ) will be sent out to the preferred vendors. These tender processes will include details on the product or service required, product quantities and timelines.

After vendors have submitted their responses, the NaaS Operator will evaluate these responses to assess the vendors quality of products / service, fulfillment capabilities, timelines and financial details.

The tender evaluation and subsequent vendor selection will consider:

• Price comparison
• Fulfillment capabilities
• Quality of product / service
• Reference checking
• Credit and financial checks
• Vendor audit
• Product / service sample or trial
• Cost evaluation

Once vendors have been selected, the next step in the sourcing process consists of defining the type of commercial relationship or contract and the associated terms and conditions.

3.3 Negotiate contracts and terms

Different forms of procurement should be considered by the NaaS Operator, depending on the nature of the required products or services. Forms of procurement will include:

• One-time procurement.
  This type will be used for products or services which will be ordered just one-time or on an irregular basis.
• Long-term contracts with periodical issue of release order.
  In this form of engagement, products or services will be ordered regularly during a valid contract period. The NaaS Operator will negotiate longer-term pricing and conditions with the vendor and record them in the contract.
  Individual release orders will be submitted afterward, specifying the order quantity and the delivery date.
• Long-term scheduling agreements.
  If the product or service is ordered on a regular basis and is delivered according to a time schedule specified with the vendor in a project plan. The products or services to be delivered are specified in the scheduling agreement.
  Under this type of agreement, the NaaS Operator will create a delivery schedule plan with individual scheduled deliverables specifying exact quantities, delivery dates, and times extending over a certain period into the future.

Besides the form of agreement, the NaaS Operator will also consider different alternatives for the type of contracts to formalize such agreements. The following list is meant to provide guidelines to the NaaS Operator about the usual type of contracts:

• Fixed Price Contracts:

Fixed Price contracts will be used by the NaaS Operator when the scope is perfectly defined. In this case, both the NaaS Operator and the vendor understand how much time and resources are needed to complete the project.

Some variations exist for the Fixed Price Contracts:


• Firm Fixed Price contract (FFP).
  In this case, the NaaS Operator will pay the price specified in the contract, regardless of the cost incurred by the vendor.
• Fixed Price with Economic Price Adjustment contract (FP-EPA).
  In this case, the vendor is allowed to adjust the price of the contract based on economic factors outside the control of the NaaS Operator and the vendor.

  These factors will, of course, be predefined and agreed between both parties before the contract is signed. An example of this type of factor can be the currency or interest rate of the country.

  This type of contract is typically used for fixed price contracts that span through multiple years.

• Fixed Price Incentive Fee contract (FPIF).
  In this case, the NaaS Operator and the vendor will agree on performance incentives during negotiations, and if the vendor is able to meet the required performance objectives, they will be paid a bonus. On the other side, the FPIF can also include a negative incentive if the vendor is unable to meet the performance standards. In an FPIF contract, the final price is calculated after all the work has been completed.
• Cost reimbursable contracts
  In cost reimbursable contracts, the NaaS Operator will reimburse the vendor for all eligible costs plus a fee, which represents the vendors profits. Cost reimbursable contracts are used when the scope is not fully defined at the start of the project. If there is an unanticipated cost overrun, the NaaS Operator is responsible for covering that cost. The risks in cost reimbursable contracts are on the buyer side.

  Some variations include the following:

  • Cost plus fixed fee contract (CPFF): It is the most straightforward. The NaaS Operator will reimburse the vendor for all allowable costs plus a predetermined fee, which represents the vendors profits.
  • Cost plus award fee contract (CPAF): In this case, the NaaS Operator reimburses the vendor for all allowable costs and additional award based on a set of subjective factors.
  • Cost plus incentive fee contract (CPIF): In CPIF, the NaaS Operator will reimburse the vendor for all allowable costs plus an incentive fee determined based on some predefined performance criteria (usually cost-related).
• Time and Material Contracts (T&M)
  In a T&M contract, the unit cost of labor or material is fixed, but the number of units is flexible. For example, the contract will set a consultants rate to be $100/hour, but the number of hours the consultant works on the project may vary.
  A T&M contract is a hybrid between a fixed price contract and a cost reimbursable contract. This type of contract is used when the scope is not precisely defined, and there is a high probability of changes to the scope.
  In a T&M contract, the NaaS Operator and the vendor share the risk of the contract. The NaaS operator knows the predetermined rates of the resources, and the vendor can claim extra units delivered if the scope increases.

3.4 Spend Analysis and Identification of Cost Reduction opportunities

Sourcing team responsibilities also include the strategic analysis of the NaaS Operators external spend, the management of purchase costs, the definition of controls around spending and the implementation of mechanisms to track compliance with these controls. One of the top priorities of the NaaS Operator procurement team and CFO will consist in reducing costs.

To identify cost reduction opportunities, the first step consists of implementing the procedures to execute Spend analysis. By means of the Spend analysis process, spend data from all purchasing sources and systems is collected, cleansed, categorized and afterwards analyzed for the purpose of understanding spending trends and identifying saving opportunities.

Spend information is useful for NaaS Operator sourcing departments as well as for management and budget owners.

Main benefits of Spend Analysis include:

• Spend Visibility
  The analysis will need to be granular enough to achieve the objective of making informed decisions. The goal is to understand how much and where the NaaS Operator is spending the capital.
• Identification of Savings Opportunities
  Spend Analysis will facilitate identifying opportunities for savings/cost reduction. Spend Data is necessary for sourcing teams to better understand the spend at a detailed level and then propose savings opportunities. Savings opportunities can be possible in different categories such as Vendor consolidation, standardizing contracts across locations, payment terms review, etc.

  Saving opportunities will need to be prioritized by an evaluation of the estimated savings assigned to each opportunity and the effort required to execute the opportunity. Assessing the savings potential can be performed by the NaaS Operators internal industry experience, by accessing available industry benchmarks or by engaging with industry experts. Required effort will depend on the complexity of the sourcing events that are required (quick quotations versus long RFP processes).
  Once the potential of the opportunities has been assessed, it will be possible to prioritize them and start negotiations with new vendors or renegotiate existing contracts with current vendors.

• Spend Forecasting
  Being able to forecast spend is a major benefit of spend analysis activity. Different groups in the NaaS organization can use the spend data to forecast future spending. Finance and Planning can use spend data to analyze recurring vendor spend as well as to forecast expenditure budgets in next years for long-term contracts. Sourcing teams can work with NaaS Operator departments to forecast upcoming spend for their main vendors.

  Spend analysis requires accessing all systems inside the NaaS Operators organization where the source spend data resides. This may include multiple accounting and ERP (Enterprise Resource Planning) systems. As it will be reviewed in section 6, a powerful purchasing software will allow not only the automation of the purchasing process, but also to facilitate cost control and granular visibility into the spend.

For Spend data analysis, there are Business Intelligence and reporting tools that allow to load the data and identify trends based on the specific objectives of the analysis.

4 Purchasing

Purchasing is a sub-process of procurement that is related to the transactional phase of the procurement process activities. These transactional activities between the NaaS Operator and the vendors are necessary to procure the products and services itemized in the contracts with the vendors.

The activities in the purchasing process include:

• Reception of Purchase Requests
• Raise Purchase Orders
• Receive Products and Services.
• Invoice verification

Figure 7. Purchase activities

As described in the following sections, it is critical that throughout the process the NaaS Operator applies a 2-way or 3-way matching of Purchase Orders with the vendor invoices. This means that the quantity billed must be less than or equal to the quantity ordered (1^st way); the invoice price must be less than or equal to the purchase order price (2^nd way); and the quantity billed must be less than or equal to the quantity received (3^rd way). Performing this verification is important to reduce errors and keep both the NaaS Operator and vendor accountable.

4.1 Purchase Requests

Purchasing process starts with a purchase requisition or purchase request form (PRF). PRF is a document that is created by the person/department requesting the products or services and is usually submitted to the department that controls finances.

A purchase requisition is the formal request for permission to purchase the product or services that the internal NaaS department requires. Obtaining the approval is the first step of the process and will allow later efficient audits of the purchasing activities.

In the case of tender processes conducted throughout an RFx (RFP/RFQ) process, the need for the products and/or services will be supported by a business case and the approval process will require an in-depth review involving multi-department management or even C-level management.

Purchase requests will usually include the following information: identification of the requesting department, quantity and description of products or services requested, the identification of the vendor, the price and the corresponding delivery times for the products and/or services.

For this objective, the NaaS Operator can adapt and use the provided Purchase Request Form Template provided with this documentation.

4.2 Purchase Orders

Once the NaaS procurement or purchasing group gets the approval for the purchase requisition, it will create and issue a Purchase Order to the vendor. Purchase Orders generally include the name of the NaaS Operator (i.e. company purchasing the products or services), the description and quantity of the requested products and/or services, price, payment information and terms, invoice address and a Purchase Order number.

The Purchase Orders are also an important document for the vendors, which will use them for invoicing purposes. Once the delivery of the requested products and/or services is completed, the vendor will send an invoice associated to the PO to be paid by the purchaser.

There are many possible ways to handle the creation and monitoring of purchase requisitions and purchase orders. As it will be discussed in more detail in section 6 (Procurement Management Software), the most efficient way can consist of specific procurement software that is integrated with other financial systems. Using procurement management software platforms instead of Excel templates and email communication to create, share, and track purchasing documents can generate important reduction in costs and allow a much tightercontrol over NaaS Operator spend.

Purchase requests and purchase orders are the main documents that facilitate the management of costs and inventory. These documents support the NaaS organization to clarify important transactional details, stay protected against financial audits, and protect both purchasers and vendors.

To this extent, the NaaS Operator can consider the adaptation and utilization of the provided Purchase Order Template provided with this document.

4.3 Receive Products / Services

Quality inspection is important to assure the quality of received products and services. Quality inspection will consist of checking, measuring, or testing of one or more product or service characteristics to confirm compliance to requirements.

For material products included in the transaction with the Vendor, it is recommended that received products are inspected for completeness and integrity, to allow the NaaS Operator to detect any deficiencies or differences with the requested products indicated in the Purchase Order.

Quality inspection also applies in the case of received services and therefore highlights the importance of a clear definition of the deliverables expected as a result of the execution of the services. Thus, acceptance protocols and tests need to be established during the selection of vendors and negotiation to have a common framework and understanding of the expected results.

In many occasions, the NaaS Operator will have a relation with the Vendor that has been achieved after a tender process using a RFx procedure. In these cases, the contract that is signed with the vendor is managed by the NaaS Operators procurement, financial and legal staff (contract management). Review, Approval, and Payment all rely on complete, accurate, and on-time fulfillment of the contract. Once the contract terms are confirmed, including acceptance of deliverables, payment to the vendor will be made.

4.4 Invoice Verification

The Invoice Verification activity completes the transactional procurement process and includes checking the accuracy of received invoices with respect to the price stipulated in the Purchase Order.

There are different types of Invoice Verification:

• Invoices based on Purchase Orders: With purchase-order-based Invoice Verification, all of the items of a purchase order can be settled together, regardless of whether or not an item has been received in several partial deliveries. All the deliveries are totaled and posted as one item.
• Invoices based on Goods Receipt: With goods receipt-based Invoice Verification, each individual goods receipt is invoiced separately.
• Invoices without an order reference: Most purchasing automation solutions will allow the verification of an invoice when there is no reference to a PO, by posting the transaction directly to a Material Account, a General Ledger (G/L) Account, or an Asset Account.

As described in this document, purchasing transactional activities will usually be performed through a Procurement management software system, which will allow for an increase in productivity. Nevertheless, based on the cost of this software and the amount of transactions per period that the NaaS Operator needs to perform, they may decide not to use the software. To address this case, a Purchase Request Form Template and a Purchase Order Template are provided as part of this module to be adapted and used by the NaaS Operator.

5 Vendor Management

NaaS operators engage with external vendors for the provision of products and services to improve and maximize business performance. Vendors form an indispensable and critical part of the NaaS Operator business, and therefore, managing them properly is of crucial importance for the organization.

Vendor Management refers to all the business processes and activities that deal with the entire lifecycle of a vendor for the NaaS operator organization. The most important Vendor Management disciplines are depicted in Figure 8 and described in this section:

Figure 8. Vendor Management main disciplines

5.1 Contract Management

The success of the NaaS Operator business is founded on fulfilling the value of the commitments that are captured in the contacts with the vendors. For this reason, it is important to dimension the resources and efforts for a proper contract management.

As highlighted in Figure 9 and described in this section, a contract typically passes through several stages during its lifetime: from initiation and negotiation to execution and start-up, through the operational period, and then to renewal or close-out.

Figure 9. Contract lifecycle stages

The following are lists of key activities that are the responsibility of the NaaS Operator procurement team during the different contract stages:

5.1.1 Initiation

• Prepare procurement specifications based on the identified need and develop the sourcing strategy.
• Conduct RFx processes.
• Identify shortlisted vendors, advise them of any final bid concerns and request best and final offers (BAFO).
• Evaluate / Negotiate BAFOs.

5.1.2 Negotiation

• Review vendors concerns with the provided contract and prepare responses for their consideration.
• Initial text can also be provided by the vendor. In this case, the NaaS Operator will work on identifying issues and specify alternative text for those contract issues.
• Prepare negotiation strategy including optimum, acceptable, fall-back and walk-away positions.
• Conduct face-to-face negotiations with the vendor and obtain internal approval for proposed concessions.
• Check that the final contract is consistent with the agreed BAFO and meets all manageability requirements. Prepare a summary of each side’s rights and obligations and obtain the vendor’s sign-off on the summary.
• Formally notify of award contract to selected vendor and notify resolution to other shortlisted vendors.

5.1.3 Execution

• Update the business case document with any changes resulting from contract negotiations.
• Document any outstanding matters, changes to standard contract and lessons learned from initiation to execution phases.
• Decide people to sign the contract in both parties, depending on the value of the contract.
• Prepare, send and sign contract documents physically or electronically.

5.1.4 Start-up

• Document the key features of the contract.
• Promote awareness and facilitate understanding of the contract with key stakeholders.
• Obtain commitment to the roles and responsibilities involved in ongoing management of the contract.
• Prepare a contract risk register identifying moderate to highly probable risks and mitigation strategies.
• Prepare a specification stating how and when to check compliance with each contractual obligation.

5.1.5 Operation

Unlike the other stages in a contract’s lifecycle, the Operation stage lasts for most of the contract term and potentially involves a greater number of activities, grouped in the following areas:

• Control Contract Changes
• Discuss with the requester the reasons for a change, its timing and likely consequences.
• Prepare a contract change request and submit to appropriate internal and external approvers.
• Update all applicable contract documents and the contract change register on change approval.
• Ensure that the agreed change is correctly implemented in practice where applicable.
• Track Obligations Compliance
• Ensuring contract obligations and commitments are met.
• Track these obligations in a formal way to make sure they are recorded and allocated correctly. This will also cover deadlines and, therefore, whether obligations are being met on time or are overdue.
• Track who specifically is responsible for ensuring the obligations are met.
• Check Vendor Performance
• Regular monitoring of vendor performance is recommended to ensure that what has been agreed gets delivered.
• More detailed review of the Vendors Performance Management tasks can be obtained in section 5.2.
• Perform Periodic Reviews
• For any long-term contract, it is worth periodically checking for any circumstantial changes that could affect the contracts ability to deliver the expected benefits.
• These changes may require updates to the contract, or to the expectations, processes or behavior of the vendor or the NaaS operator.
  Some key areas for the reviews include the following:
• Review User Satisfaction with Vendor
  • Any areas of dissatisfaction, and the consequent opportunities for improvement, are typically discovered by a survey of some key direct and indirect users of the vendor products or services.
  • The survey should be conducted as often as necessary to ensure that low satisfaction is detected and effectively addressed before irreparable relationship or business damage is caused.

• Review Contract Relevance
• Business needs identified in contract initiation can change over time due to different factors such as the state of the market, the size of the business and others.
• As a result, changes to the contract and its associated documentation and management processes may be necessary to establish relevance for current conditions.
• A review should be conducted either on a regular basis as specified in the contract management plan or when indicated by monitoring systems.
• Review Regulatory Environment Changes
• At any time, changes to a countrys regulatory environment may affect the NaaS Operator operations.
• Such changes may need to be reflected in contractual terms for certain products or services within prescribed time frames.
• In exceptional cases, either the NaaS Operator or the vendor may decide that it makes better business sense to terminate an affected contract than try to achieve compliance with the new regulatory environment.
• Review Contract Benefits realization and Value for Money
  Common reasons for a contract not delivering the benefits expected include:
• Unrealistic expectations / targets.
• Changes to business needs and / or the business / regulatory environments.
• Unsatisfactory relationship with the vendor: underperformance, unresolved issues or disputes.
• Ineffective / non-existent contract governance or contract management practices.
• Lower usage of vendors services than planned or paid for.
• Review continuous improvement and innovation
• A contract with a multi-year term should ideally bind the vendor to undertake continuous improvement/innovation measures for the benefit for both the NaaS Operator and the vendor as well.
• No business or service offering should remain fixed over a long period, particularly with the current technological change pace.
• Actions should include the identification of new ideas for improvements or innovation with stakeholders, users and vendors.
• Review Vendor Benchmark
• The review should check if vendor pricing is market-competitive, aligned with evolving market conditions and if its customer-facing business processes are consistent across the market.
• If the vendor offering is not competitive, the NaaS Operator will begin discussions with them for remedial action or explore other options in the market.
• If an existing vendor is providing an excellent service at a competitive price, it will give the NaaS Operator the confidence to renew or extend the existing contract.
• Address Issues
• There are many potential causes of misunderstanding between the NaaS Operator and vendors over the course of a contract, particularly if it is a long-term one.
• High-level activities for addressing these issues include:
• Log the details of each potential or actual issue as soon as it is recognized.
• Formulate and agree on a resolution approach and any costs required.
• Agree on any required remediation plan with the vendor and implement it by using a contract change request.
• Escalate any issues taking longer than expected to resolve or where reported resolution fails.
• Review the issues log and resolution progress regularly and highlight any trends for attention.
• Resolve Disputes
• A dispute is a significant difference of opinion or position between the buyer and the vendor and presents greater potential risk than a simple issue.
  High-level activities involved in resolving disputes include:
• Obtain a clear understanding of the nature of the dispute, its causes, and possible consequences.
• Attempt to resolve the dispute informally by negotiation before any escalation.
• Activate any agreed dispute resolution process if negotiations fail to resolve the dispute and agree on an approach for implementing the outcome of the dispute resolution process.
• Update contract documents as necessary by using a change request and record the dispute resolution outcomes in the disputes register.

5.1.6 Renewal

Contract renewals are a massive opportunity to improve the terms of a contract and gain better value from vendor relationships.

It is important to record when renewal dates are and set reminders to properly get prepared.

Alternatively, contracts may be set to auto-renew or auto-cancel, leaving the NaaS Operator with potentially an unwanted cost or an unexpected gap in the vendors list.

Contracts will be considered for renewal if:

• There is an on-going requirement for the products or services.
• The performance of the vendor is evaluated as satisfactory.
• There have not been relevant difficulties in achieving high levels of compliance with all obligations in the contract.

5.1.7 Close-out

When a decision has been made to not renew a contract approaching its expiration date or to actively terminate a contract for any cause, a range of activities is required to properly plan and ensure a smooth transition-out from the contract.

It is possible that a contract will simply be replaced by another similar one with the same vendor.

• Issue a termination notice before the specified termination date.
• Finalize any walkout planning, with the involvement of any replacement vendor as needed.
• Take care of any confidential information, any assets or intellectual property rights and any loaned items as required.
• Prepare and sign-off any contract finalization paperwork and finalize any payments to be made to or by the vendor.
• Update the lessons learned and register for the benefit of all future contracts.

This module includes a Contract Management Template that will allow the NaaS Operator to inventory the contracts with vendors and manage contract activities, including contract changes, log disputes, issues, events, and lessons learned.

5.2 Performance Management

Monitoring the Vendor performance over time against contract requirements becomes an essential activity. Reviews should be performed according to the vendor’s type of service and the impact of the service if the KPI’s or SLA’s are not met (quarterly, semi-annually, or annually depending on the vendor’s services and their risk level).

It is necessary to monitor and measure vendor performance against the parameters agreed in the contract and the supporting service level descriptions. Monitoring the vendor performance is a key aspect of Vendor Management that cannot be under-estimated.

The activities included in Vendor Performance Management include:

• Review vendors recent operational performance against any agreed service levels.
• Obtain key stakeholder input on the quality of the recent relationship with the vendor.
• Derive an overall view of vendor performance from all the information collected.
• Determine how vendors latest performance check compares to earlier assessments.
• Discuss the causes of any current underperformance and undesirable trends over time with the vendor.
• Advise the contract owner of contractual rights regarding significant vendor underperformance.
• Issue any required notice to the vendor in response to a poor performance assessment.
• Agree on any required remediation plan with the vendor and implement the plan under change control.
• Update the contract documents as necessary to minimize the recurrence of such underperformance.

Monitoring Vendor Performance can effectively be done by using Key Performance Indicators (KPIs). Quality KPIs should have the following characteristics:

• Be discrete.
• Be easy to understand.
• Be measurable.
• Provide sufficient data to facilitate analysis of the current situation.

Different types of KPIs are used for post-contract vendor performance monitoring:

• Objective or Factual KPIs
• Can usually be obtained from users and systems within the organization.
• Examples: Lead-time from order, Mean Time Between Failure, Pricing compliance, On-time delivery performance against agreed delivery lead times.
• Subjective or Experience KPIs:
• Measure the experiences of the NaaS Operator while dealing with the vendor.
• Although they can capture subjective data, they must also be as objective as possible.
• Examples: Customer Service response time, accessibility and responsiveness of account management.

The NaaS Operator can adapt and use the provided Vendor Performance Evaluation Template to measure and evaluate the Performance of his Vendors.

The template is structured in the following main areas:

• Basic KPIs:
• On-Time Delivery (OTD): Rate of finished product and deliveries received in time.
• First Pass Yield or Quality (FPY): FPY is calculated by dividing the number of accepted deliverables by the number of total received deliveries.
• Cost. Cost KPI is composed of the following sub-KPIs:

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• Competitiveness of price to other suppliers
• Level of customer resources and involvement used to support the supplier
• Cost of unplanned trips for customer resources
• Supplier Creativity – Supplier consistently initiates projects to reduce Total Cost of Ownership (TCO)
• Responsiveness. Responsiveness KPI is composed of the following sub-KPIs:
• Responsiveness of Design/technical resources
• Local Business Manager/Delivery Manager facilitates closure of issues, follow-up of action plans, monthly reviews
• Account Manager responsiveness to provide SOW, follow-up on financial aspects, answer requests /PO related questions, ownership of plan
• Assurance of Supply. Assurance of Supply KPI is composed of the following sub-KPIs:
• On time delivery/execution for project milestones (order fulfillment rate)
• Ramp Staffing to meet requirement for new and/or existing projects
• Quality. Quality KPI is composed of the following sub-KPIs:
• Quality of the work/deliverables
• Supplier’s internal quality processes and relevant Certifications
• Scorecards (based in the previous KPIs):
• OTD (On-Time Delivery), FPY (First Pass Yield) & SER (Supplier Evaluation Risk)
• Risk Scorecard
• Service Compliance
• Ethics and Principle Compliance
• Innovation and Cost Reduction
• Vendor Assessment Scorecard

5.3 Invoice Management

This section focuses specifically on the management of Vendor invoices and other payment requests.

To manage Vendor Invoices, the NaaS Operator needs to develop a company Document Policy establishing the mechanisms to manage, store and retain all the documentation associated with the Accounts Payable Management. This policy or methodology will allow the NaaS Operator to be more efficient in managing the amount of time related to the tasks of approving and processing vendor invoices, addressing exceptions, or storing, retaining and retrieving documents for research, audit or litigation.

Adhering to this policy will help reduce risks of late financial reporting and payment, and of not being able to find documents that may need to be pulled for research, audit or litigation purposes.

A Vendor Invoice and Payment Request Document Management Policy will cover the following categories:

• Statement of Purpose of the document policy:
• Reduce the occurrences and risks associated with delivering documents to the wrong destination person or groups.
• Reduction of lost or misplaced documents, facilitating a prompt and accurate posting of invoices, timely financial reporting and payments to vendors.
• Minimize frustration when looking for records for research, audit or litigation requests.
• Include the owners of the Policy: any employees of the NaaS Operator whose responsibilities include processing, coding, reviewing, approving or accessing to any vendor invoices or other payment request documents once delivered to the company.
• NaaS Operator Expectations and Policy Compliance:
• Expectations of the NaaS Operator for managing the receipt and storage of all Accounts Payable related documents: vendor invoices, other payment requests and related notes and backup.
• Duties of each employee responsible for being related to vendor invoices for any reason.
• Document the actions taken if a person does not comply with the policy.
• Handle Ambiguity Areas, including:
• Who has the Delegation of Authority? (Job title)
• Clear declaration of responsibilities for invoices approval
• What are the rules for Purchase Price variances?
• Determine who has the authority to approve an exception in case the policy is being challenged.
• The following are other subject areas that the NaaS Operator may consider to be addressed by the Payment Management Policy:
• Include the correct bill-to mailing address and/or email addresses in the policy.
• Recording Receipt of Invoices by Accounts Payable.
• Sending Invoices from Accounts Payable to Appropriate Party for Action (account coding, approval or exception handling).
• Returning Invoices to Accounts Payable once action has been taken.
• Coding of Invoices.
• Approving an Invoice: details if Invoicing Approval procedure.
• Consider situations including: Invoice needs to be approved by a 3^rd person, invoice approval by email.
• Recording results of Invoice Exception Handling:
• Exceptions can include: the vendor is not set up in the ERP, the referenced Purchase Order number is invalid, the bill amount does not match the Purchase Order, etc.
• The policy will provide instructions on how to proceed if these exceptions occur.
• Filing of Documents: proper guidelines for file documentation facilitating a quick retrieval.
• Invoice Retention Period and Policy: In general, most businesses retain Accounts Payable related documents for up to 7 years.
• Storage of Documents: Typically, documents for the current fiscal year plus the previous 2 years should be held on site. Prior years records can be sent to an offsite storage facility with proper security and damage prevention measures.
• Access to Filed Documents: List employees or teams that need access to the records besides Accounts Payable team (consider a document request process to obtain access).
• Document procedures for destruction of documents at End of Retention Period.

Besides a Document Policy to manage all Accounts Payable documentation, the NaaS Operator requires a system to track all the purchasing documents. If the number of Purchase Orders is large, a software or database solution should be considered (please refer to section 6 for further details).

If the number of Purchase Orders to manage is low or moderate, the NaaS Operator may handle it with a Purchase Order Tracking Template as the one provided with this module.

The provided template will allow listing all the purchase orders that the NaaS Operator may create, track their progress (draft, paid, complete, etc.), and create simple summary reports of payment status of individual vendors.

5.4 Risk Management

The NaaS Operator needs to identify all vendor-related risks at every step of the vendor management process, assess its impact based on their tolerance to risk and plan mitigation measures.

The following areas need to be considered by the NaaS Operator when assessing the risks associated with a vendor engagement:

• ack of alternative vendors.
• Inability to influence vendors.
• Financial instability of a vendor.
• Ineffective management on the vendor side.
• Incorrectly interpretation of requirements by the vendor.
• Inability of vendors to meet increases in required volumes.
• Unproven technology for products or services being used by the vendor.
• Transportation issues with supply channels generating variability in transportation times.
• Currency rate fluctuations.
• Material price fluctuations.

It is necessary for the NaaS Operator to have a detailed approach to evaluate risks and also maintain risk registers identifying baseline risks and their corresponding impact.

Some Risk Minimization Strategies to be considered by the NaaS Operator include the following:

• Risk Assessment, including a detailed approach to evaluate the maximum number of risks that can potentially occur over a period.
  The risk register should be comprehensive enough to capture potential threats that may affect the NaaS organization. For all identified risks, it will be convenient to create worst-case scenarios and a business-impact analysis. Risk probability scores and risk impact scores will help raise the red-flags followed by corrective and timely executive actions.
• Risk Transfer: This option can become key in those cases where a vendor failure can lead to significant business impact. Risk transfer involves the use of insurance that partially transfers the responsibility of the risk back to the vendor. Transferring risk increases pressure on the vendor to maintain the quality of products and services delivered.
• Use of Automated solutions for assessing and mitigating risks. These automated solutions facilitate the identification of partners, processes, and practices that are risky and help ensure that the Naas Operator is as immune as possible to any unwanted vendor-related issues.
  Automation can help identify the most vulnerable vendors through ongoing reviews, audits, and performance analysis. As described in section 6, one of the main use cases of Procurement Management Software is to perform Vendor Management. These solutions contain functionalities to record financial health status for each vendor.
• Vendor Performance Management
  The NaaS Operator should conduct regular quality checks and continuously monitor and manage vendor associated risks.
  This can be achieved by means of a vendor selection process that includes a strict selection criterion and considers backup vendors. Maintaining an extensive database of vendors, regularly updated and qualified, including a comprehensive detailed analysis of active vendors can help to identify vendors prone to higher risk and classify them based on the extent of the threat they represent.

NaaS Operators can adapt and use the provided Vendor Risk Register Evaluation Template to Identify and rank every potential risk for their Vendors, as well as to register the associated mitigation strategies.

6 Procurement Management Software

Procurement Management softwarewill allow the NaaS Operator to manage their procurement and vendor management activities. This type of software will facilitate the NaaS Operator to automate functions including the generation and execution of purchase orders (POs), match invoices to products or services received, and make payments to vendors. It allows the connection and the management of all the interactions between the stakeholders involved in the purchasing process including buyers, vendors, approvers, and receivers.

6.1 Benefits of Procurement Software

Procurement software allows improving the productivity of the supply chain operations. Main benefits include the following:

• Reduced business cycle and cost:Automation and digitalization of purchasing documentation management reduces the overall procurement time and speeds up the supply chain process. Electronic transactions also reduce the cost associated with paper-based workflows. Digital copies of POs are more secure than physical papers that can be easily forged, stolen, or lost, leading to a dispute between supply chain partners.
• Transparent Spending: Procurement software keeps detailed records of every spend made by the NaaS Operator, bringing transparency for accounting and supporting businesses. Having detailed records of purchases made in the previous cycle enables the NaaS Operator to analyze and identify their critical needs and procurement targets for the next cycle.
• Inventory control: Procurement software allows to monitor the in-house stock level of all items and can even set threshold limits to automate the reordering of items. This always ensures sufficient stock quantity, leading to an uninterrupted supply chain process.

6.2 Common Use Cases for Procurement tools

Different Use Cases for Procurement Software include the following:

• Spend Analysis
  Spend analysis is the process of gathering data from multiple spend systems (for example, multiple ERP systems), categorizing it into a common classification schema and identifying spend patterns.
  The end-users are usually the sourcing teams who use this data to identify saving opportunities, but this granular visibility also helps executive management to get a granular view into the spend.
• Purchase Order management
  Manage the entire PO lifecycle, from creating and issuing the POs to procuring products/services and making payments. These tools allow for the following tasks:
• The ability for end-users to generate purchase requests to order products or services through a self-service model.
• Pre-authorization of spend by sending orders for approval based on a pre-defined approval hierarchy.
• Overall order management and transmission to vendors.
• Reporting of spend through the purchasing system.
• Invoice Management
  Manage vendor invoices, match invoices with the products/services received, and make payments accordingly.
• Reconciling the invoices with purchase orders and receipts.
• Reduce manual intervention required to reconcile the invoices.
• Contract Management
• Contract repository: Functionality to store all your contracts in digital format in one single place.
  Tools like Dropbox allow to store the contracts at a single place, but the added benefit is that it allows users to store metadata about the contracts, making the contracts easy to find.
• Contract customization: this functionality allows you to author new contracts which include managing contract templates, approvals for different changes to contract template, side by side review of changes, e-signatures etc.
• Vendor Management
• Vendor onboarding: this use case is focused on onboarding new vendors and getting the required approvals before the vendor can be created in the system.
• Vendor document management: Having a centralized repository for all vendor documents. Some examples include diversity certificates, insurance certificates, quality documentation like ISO certificates.
• Vendor Performance Management: Use case focused on tracking vendor performance over a period of time.
• Vendor Risk Management: Track vendor risk like financial risk, reputation risk, etc.
• E-sourcing
  E-sourcing technology is normally used for automating the RFx process, which includes RFIs, RFPs and auctions.
  The benefits of these toolsets are that they help you automate the whole RFx process and gather responses from different vendors.
  Different e-sourcing tools will have different levels of sophistication, but generally, they have the following capabilities:
• Side by side comparison of vendor responses.
• The ability for stakeholders to review and rate different vendor responses.
• Automatically create different awarding scenarios.

6.3 Considerations when selecting procurement software

The following guidelines need to be considering by the NaaS Operator in the process of selecting a procurement software platform for the organization:

• Integration with existing systems: NaaS Operator will check the compatibility of the selected software platform with the existing IT infrastructure and will analyze requirements of any additional installations or upgrades for the new software to be operational. The selected software will be easy to integrate with existing applications, such as enterprise resource planning (ERP) or supply chain management (SCM) software. Smooth integration with these existing systems will allow the incorporation of business structures and data already in place, such as workflows, vendor details and catalog information.
• Mobile capabilities: Solutions that offer mobile accessibility, either via native mobile apps or through a mobile web browser.
• Cloud-based: benefits associated with cloud-based architecture, including scalability, reduced IT maintenance costs and security.
• Analytics capabilities: Built-in analytics features can help the Nass Operator to pull and analyze past procurement data including procured items, volumes, spend, vendor performance, etc. This will help businesses to obtain meaningful insights from current procurement data and make fact-based procurement decisions.
• Support: complete clarity on the level of support offered within the software platform, as well as costs for any additional ad hoc support. Important also to check if the vendor provides any training manuals or instruction videos to train the NaaS Operator on usage of the software.
• Cost: Most products in the market are priced on a per user, per month basis.

6.4 Procurement Management Software Examples

This section introduces two examples of open source procurement software platforms which can be used by the NaaS Operator for reference purposes. Other options are available in the market with possible differences in the development of features for the Common Use Cases described in section 6.2 (i.e Spend Analysis, Purchase Order Management, Invoice Management, Contract Management, Vendor Management, e-sourcing). The NaaS operator may evaluate other options depending on the requirements for specific use cases.

• Procuman (http://procuman.com/) Open source procurement software with a fully-customizable interface.
  Main Features:
• Vendors can submit Product Catalogs, Prequalification, and Questionnaires
• List all open e-tenders and allows online quote submissions
• Vendor and Contract Management
• Email requests to selected vendors
• Comparison and analysis of bids to select the winner
• Purchase Requisitions
• Purchase Orders
• Automatically create purchase orders from Purchase Requisitions
• Email orders to the vendors directly
• Record Vendor invoices in Received Invoices-module invoices
• Spend management with cost center budgeting
• Ready set of reports with reports module
• Manage inventory in different warehouses and locations.
• Enterprise-class Document Management
• Define access rights for user groups and roles
• Bupros (http://www.bupros.com/)
  Main Features:
• Vendors can submit Product Catalogs, Prequalification, and Questionnaires etc.
• List all open e-tenders and allows online quote submissions
• Purchase requisitions for stocks
• Goods receipt confirmations
• Invoice Control
• Vendor management
• Spend Analysis
• Order with limits and budget authorizations
• Contract management
• Automatic sending of Purchase orders when stocks reach Reorder Levels
• Automatic cost charging to cost centers based on stock issuing
• Powerful catalog search capability
• Multi-Vendor orders based on one requisition
• Interface with existing ERP system
• Online vendor catalogs available