Vestas Meets SirionLabs: A Contract Management Case Study

wind power

What happens when a 120-year-old Danish wind energy company entrusts its contracts to a then three-year-old American solution provider?

The companies in question are Vestas, which traces its lineage back to 1898, and SirionLabs, a contract management provider that goes all the way back to 2012. Last year, Jason Busch analyzed SirionLabs’ solution for Spend Matters PRO, and he concluded that the vendor would be a good fit for companies with “multi-year strategic supplier relationships encompassing complex services and solutions,” for whom “insufficient supplier governance is leading to lost savings and value creation opportunities.”

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This certainly sounds like Vestas’ situation before 2015, when the company implemented Sirion. When we came across a press release last month announcing that Vestas, having achieved in 2015 cost savings that were 300% return on investment, is doubling the number of strategic services contracts that it manages with the vendor, we were intrigued to learn more. I spoke with Henrik Stefansen, Vestas’ senior director of global IT sourcing, to find out how Vestas initially decided on Sirion and the successes and challenges that the implementation brought.

A Brief History

The only global energy company devoted to wind energy, Vestas has an interesting backstory. It started out as a blacksmith workshop in Lem, Denmark, owned by a 22-year-old named Hand Smith Hansen. Over the next few decades, the Hansen family expanded into making steel window frames, which came to a halt when World War II broke out and metal supplies were strictly rationed. After the war’s end, VEstjysk STaalteknik A/S, soon renamed Vestas, was established, and the Hansen family found a new market: household appliances.

Ever adaptive, Vestas developed milk coolers, then intercoolers, then hydraulic cranes for light trucks, before beginning its experiments with wind turbines in the late 1970s. The company survived a near bankruptcy in 1986 to post an operating profit of €668 million in 2008. Today, there are more than 58,000 Vestas turbines in 75 countries.

Choosing a Contract Management Vendor

Prior to implementing Sirion, Vestas managed its contracts manually. “We ran everything ourselves,” Stefansen said. “We had, I think, 800 or 900 people working in IT, running all of this internally. Then [after] the financial crisis, and what that did to the company in general, we revised that consulting strategy and started an outsourcing journey.” Eventually, manually managing the volume of contracts became unfeasible, and errors inevitably occurred.

“Doing all of that manually line by line is a huge job,” Stefansen explained. “What is stated in the contract? What did we agree on? Did we remember to get the right discount on this specific line at this specific point in time and all of that stuff? We were simply not able to do that manually. In my experience there are elements that you would simply overlook when you do it manually.”

The solution, as Stefansen saw it, was either to hire more people or automate parts of the process. “That's really where I started looking into the market for these kinds of tools,” he said. “We overlooked invoicing errors. Also we didn't really manage to keep our contracts current at all times because all of the changes that were done. We didn't really have a strong process of getting all of that aligned and reflected. Those were two main elements in my decision to go for some sort of automation.”

The process for selecting a vendor was relatively straightforward. “I think probably off the top of my head we looked at four or five,” Stefansen said. “What I wanted to achieve was an end-to-end solution. Most of the others that I looked at had very solid solutions for some of the areas. Some were very good at the contracting phase and getting to that stage. Some were very good at invoice reconciliation.

“There was really a lack of solutions that were connected end to end and that had [a] holistic view. Sirion seemed to have that end-to-end perspective, that sort of connectedness through the entire process. That was a major factor in why I ended up going with Sirion. The fact that they were relatively newly started was of course a risk. But I also saw it as an opportunity to be able to better influence how the project was developed [and] how the product and the solution were developed over time.”

A Healthy Return on Investment

As it turns out, catching those aforementioned overlooked invoicing errors saved Vestas a fair amount of money. While Stefansen could not reveal exact dollar amounts, the cost savings during the first year of implementation was threefold what Vestas had paid to manage its contracts on Sirion. Vestas was also able to avoid bringing an additional four to five employees onboard to manage contracts manually and thus increasing salary costs.

“Of course the coming year, or the years after that, we didn't see the same level of cost savings because we optimized the process along the way as well, and we made sure that we didn't see the same errors again and again,” Stefansen said. “Still, on a monthly basis now, we do see a few percent of the invoicing being wrong. We're catching those now. There is an ongoing benefit in terms of cost savings. One thing that at least I see as a huge benefit is a service [that Sirion] calls core data maintenance. In essence, they make sure that the tool is updated on our behalf.”

Vestas started out with managing one [€40-50 million] contract on Sirion, gradually adding additional contracts. “It's been sort of varied and evolving process of getting the first one in and getting that to work and then adding the next one,” Stefansen said. Currently, Vestas manages four contracts worth €150 million ($163.1 million) on Sirion.

Unexpected Challenges

The implementation hasn’t been without its difficulties. “This of course makes all of it sound very, very glamorous and [that] everything is good and fine,” Stefansen said. “Of course there are also challenges in doing stuff like this. What I found [to be] more of a challenge than I originally thought is the change management organizationally that has to happen within my own area. Working with something like this in a more automated way also means that we needed to adjust our processes in the way we work, not only in my area, but also in the rest of the IT organization.”

For companies looking to use such a tool, Stefansen warned that the necessary adjustment on behalf of the IT organization can take “quite a lot of effort.” In Vestas’ case, “it’s taken more time than I ever thought it would,” Stefansen said. “I'm not saying that it's something that should keep people away from doing something like this. I absolutely believe it was the right decision. I think automation and getting into a more streamlined process [are] absolutely key.”

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