An article in the Wallstreet Journal provides a wonderful example of how implemented best practices and process improvement programs like Six Sigma can go astray after experts move to other projects, Managers relax accountability and excitement fades. The cartoon depicted below by Leif Parsons, gives the perfect illustration of what happens in the progression of these engagements.
The article reveals how at one aerospace company this implementation was executed then returned to the old poor practices.
The first step, as with any improvement program like AA or Six Sigma, is admitting and identify that you have a problem.
In the Aerospace company example, the second step was to bring in help by utilizing an expert in Six Sigma that energized the staff and helped them to understand where they needed to improve. They provided accountability in assigning tasks to these improvements. Employees embraced the new processes and implemented them. At first it slowed productivity, but quickly, as they became more accustomed to the new methods, productivity returned to normal levels. Once the goals of a department were reached, they were communicated with the company as a whole. This empowered the employees and gave them ownership of the project and their achievements. They are also rewarded with other rewards such as, restaurant gift cards, bonuses and exposure through notices in corporate newsletters.
After goals of improvement had been reached in one department, the expert and Managers would move their attention to another project or department assuming the success would sustain itself without continued support. This is where accountability loosens and enthusiasm for the process starts to revert to old practices. You can see this progression in the cartoon.
If you are one of these companies struggling to understand why these programs aren’t continuing to demonstrate results, ask yourself a simple question….What accountability and continued support am I providing my teams so they don’t revert? Think outside the box. You don’t need an expert to solve this problem. You need an expert to identify and fix it originally. The same goes for eSourcing technology deployments. Vendors can diagnose the opportunity and implement the technology properly, but sustainability needs to constantly be addressed with either internal or external resources.
In my April post entitled “Take A Long Term View”, I described a client facing a sourcing dilemma. They were purchasing materials from a distributor who had installed “free” equipment in exchange for a commitment to buy the related supplies. They had previously solicited bids every two years and believed their “supplier partner” was competitive. They couldn’t imagine a way to save money given the high switching costs, so they were unwilling to diligently source this requirement.
This sole source situation raised a number of red flags so we continued our examination. We realized that prices for a third of the buy should track a feedstock index. Using this index, we demonstrated to the client that they had been paying a 10%-15% premium for these materials, versus what the index would have predicted, over the 2 year life of the contract! This finally convinced them to take action!
With the contract expiration and the holidays quickly approaching we needed to take quick but diligent action. We engaged the client by taking a tour of their facility. We interviewed them to fully understand their CTQs (Critical to Quality requirements). We requested detailed material specifications, as the existing specs were often the incumbent’s unusable short-hand descriptions.
Before reaching out to potential bidders, we obtained the client’s agreement on several important points:
They would move business if best value was available from a non-incumbent supplier,
They would consider alternatives to the “free” equipment and related supplies if the alternative was comparable and the switching costs were covered, and
They would allow a multi-source award if the savings warranted.
An important first step was a pre-bid meeting with the incumbent supplier and prior unsuccessful bidders. We felt it was critical to signal a change in the sourcing process. Prior bidders responded favorably to this. They acknowledged that the routine RFQs were not taken very seriously. They perceived the specs as biased and/or incomplete, and they knew the incumbent always won. Therefore, they had not bid aggressively in the past.
After the pre-bid meetings, we used a two step sourcing process. First we issued an electronic RFI using Iasta’s SmartSource solution. The purpose was to determine potential suppliers’ capabilities, to gather information on various alternatives, and to collect feasibility level pricing. We cast a wide net to over 20 potential suppliers, and through this process eliminated all but six. We then issued an electronic RFQ with final lots and detailed, accurate item descriptions. Responses allowed us to evaluate bidders against non-price criteria and to determine total best value.
Interestingly, the incumbent “partner” dropped their pricing by almost 20%! We had a 20% savings “in the bag” with no change. We seriously considered an alternative to the “free” equipment which offered a huge additional savings. However, upon investigation we determined the solution was not really comparable and we also had concerns about the service level of this bidder. After abandoning this alternative, we were still able to award over half the business to a non-incumbent supplier who could use the equipment that was already in place. (It turned out that the equipment was owned by the manufacturer, not the distributor!)
At the end of the day, this sourcing initiative delivered a 24% savings with future price movement for many items tied to an index. We included contract language that gives our client the ability to easily monitor suppliers’ performance. Contracts also provide for quarterly reviews including discussions about potential non-price cost savings. The new agreements clearly define the Scope of Services, and determine how cost increases for both indexed and non-indexed products are justified and approved. Additionally, the award entails minimal disruption since the existing equipment will be utilized. Of paramount importance, this award signals to all involved that the client will move business when warranted. We anticipate competitive proposals when these new contracts expire.
The lessons: In the absence of competition, our supplier “partners” become complacent and margins creep upwards. A perfunctory RFQ will likely not deliver best value. Our client did not have the staffing to conduct this rigorous sourcing project. By engaging consultants on a gain-share basis, our client was able to achieve a significant savings with no up-front cost or risk and a minimum of employee time.
Telecom is normally one of the largest spend categories that is over looked within large multi-national corporations. Most CIO’s don’t have the knowledge or background to understand the spend they have in Telecom. This lack of understanding leads to very ineffective Telecom sourcing projects.
According to research conducted by Forester Consulting, “80% of all telecoms sourcing projects are not as efficient as they should be, and large organizations globally are feeling the effect to the tune of £12bn annually.”
This is a large amount of savings missed because of poor visibility and understanding when running these projects. This is a complex category in which IASTA has had enormous success in continually producing savings. We have continually been able to provide at least an 8% savings to clients in this one category alone. This small percentage in savings equates to a large dollar savings when looking at the total spend in Telecom.
As the article goes on to state, “this issue is one of getting in the right people who understand the technology and the objectives of a telecoms sourcing strategy.”
Take a close look at your internal knowledge base of Telecom and see if this is an area that is not producing optimal results when it should.
While ITIL, the most widely accepted collection of best practices for IT Service Management (ITSM), has taken an important first step in evolving its guidance on outsourcing within the context of ITSM in its 2007 Version 3 release, it may have fallen short on providing the breadth of advice required in today’s market. Of particular note is the introduction of a few integral sourcing-related frameworks, including Service Provider Types in the Service Strategy core book and Service Delivery Strategies in the Service Design core book. Service Design has also consecrated a separate process to Supplier Management aimed at addressing service provider selection and relationship management activities.
While these additions can be seen as improvements over ITIL V2, the overall approach to engaging with suppliers in ITIL V3 could be construed as overly procurement-focused and lacking in sufficient guidance on the level of integration and governance required across the service delivery value network and service life cycle. Also unclear is the extent of the inter-mediation required of the client- retained IT organization to effectively integrate outsourced IT services and translate them into value for its business customer.
To help navigate the new sourcing related ITIL V3 guidance and bridge your ITSM and outsourcing strategies, consider these 5 tips:
1. Ensure service management integration is appropriately resourced in the client-retained IT organization. While Supplier Management can serve as the point of contact for relationships with external service providers, these resources typically do not have the skills or capabilities to integrate service management processes across organizations in an outsourced model. When service management remains a client-retained function, we recommend giving ITIL service managers the responsibility to integrate outsourced IT services to ensure effective end-to-end service delivery, separating this from the Supplier Management responsibilities in the organization.
2. Take a pragmatic approach to integrating ITSM processes and tools. When entering into outsourcing agreements, be sure to define the integration points, handshakes and required inputs and outputs across all ITIL processes and functions — particularly Service Desk, Incident Management, Problem Management and Change Management — between organizations in the service delivery model. Bear in mind that external service providers will have their own processes and tools, which will need to align with those of the client-retained IT organization. Do not over-engineer this integration but do consider moving to the service provider’s methodologies if they are more sophisticated. Note that this exercise becomes increasingly complex the more service providers in the service delivery model (see tip number one). At a minimum, make sure all parties are clear on who is ‘leading’ and who is ‘following’ and make sure these roles are documented in the various outsourcing agreements.
3. Implement a business-focused Service Catalog. Define your Service Catalog first in terms of the services delivered to the business customer (Business Service Catalog) and then work backwards to define the contributing IT component-based view (Technical Service Catalog). This will help ensure that the right resources and capabilities to deliver to the business service requirements are identified and will clarify the optimal sourcing mix for the service. Do not use the external service provider’s Technical Service Catalog as your Business Service Catalog.
4. Negotiate a Service Level Agreement with end-to-end service levels. Do not begin service level discussions with suppliers without having first implemented a formal Service Level Agreement (SLA) with your business customer. Formalize end-to-end service levels in a business-focused SLA and define the IT component service level targets in Underpinning Contracts with external service providers and Operating Level Agreements with internal service providers. Always ensure that the combination of these targets will meet the service levels agreed to in the SLA. Lastly, remember that an Underpinning Contract is never a surrogate for an SLA with your business customer.
5. Look beyond ITIL for IT governance. Against the backdrop of corporate malfeasance and recent legislation aimed at preventing it, corporate governance — of which IT governance is a subset — has taken on a renewed focus in business. While ITIL V3 does broach the subject of IT governance, particularly in IT Service Continuity Management and Information Security Management, Supplier Management provides only limited guidance on IT governance related to sourcing. For this, a number of other frameworks can be consulted. Of particular note is COBIT (Control Objectives for Information Technology), which is prescriptive on what to monitor and control and serves as a compliment to ITIL, which advises on how to implement monitoring and control as process activities.
I recently read an interesting article at the Institute for Supply Management about the Sourcing Transformation of United Airlines. As we all know this is an industry that to this day, stays alive on thin margins. In that capacity, it is crucial that they have strong supply chain management and procurement practices. Grace Puma, who took charge of United’s sourcing transformation, gives a detailed look at how she was able to get her team, the company, and her suppliers to buy into her new strategy.
She was able to lay the foundation for success with strong team buy in from her department and suppliers by creating strong lines of communication and development.
“The cornerstone of this process was that it was very collaborative in nature, so throughout our discussions and the process no one felt that anyone else had a greater role, and that was a big change for United,” says Kate Gebo, vice president of corporate real estate. “We explained that by working together, we’re providing a value-added service for bringing new suppliers in, introducing new analytics and looking at things from a total cost of ownership perspective. It’s been an evolving process, but today it’s simply the way we do business.”
The other interesting component of this article was United’s level of transparency and development with their suppliers. She created collaborative supplier workshops and ongoing supplier summits to strengthen communication, educate suppliers, and educate themselves on their supplier’s price components. Puma summarizes her rationale for this level of communication and development perfectly.
“Our approach to sourcing is really around supplier development, helping them to understand that our success is their success, and that they have an active accountability to ensure that our customers have a good experience on board our planes.”
I thought this was an interesting look at how the Airline industry continues to survive. It’s because of people like Ms. Puma, who can transform an out dated process and turn it into a mutually beneficial relationship between company and suppliers.
Numerous larger organizations, such as international or holding companies with disparate global operations, often have difficulty getting an organizational Spend Analysis project launched, primarily due to the independent operations within each company in the portfolio. A typical, comprehensive Spend Analysis project would address all Spend. This is typically all AP, PO, P-Card, and Expense data across all sites and systems. These companies would argue that opportunities to better leverage spend do exist, but the challenge of coordinating efforts across disparate operating units has historically slowed adoption within these firms. For these types of situations, a phased approach to Spend Analysis is a solid deployment method that enables the company to start identifying and executing on savings opportunities while gradually incorporating other business units. Outlined below are the most common examples:
Alternative Approach 1 – Accounts Payable Focus: Extracting data out of the Accounts Payable systems is generally a straight-forward process. While A/P alone does not provide the same level of insight as does the Purchase Order/Expenses/P-Card data, it often reveals many savings opportunities that can be addressed immediately. This approach can be further simplified by applying a reverse Pareto principle – only extracting the top 80% of the A/P spends. As sourcing opportunities are identified at this high level, they can then be further broken down during the sourcing initiative and additional data collected as appropriate.
Alternative Approach 2 – Geography/Operating Unit Focus: Some organizations decide to focus on an area they can control, such as a particular geography or business unit, and collect more detailed data for that area. In this manner there are fewer people involved and they can get very detailed visibility into data and sourcing opportunities for the area in scope. The data can then be extrapolated to the entire company as targeted sourcing efforts are conducted.
Alternative Approach 3 – Category Focus: Some organizations identify a top 10 list of Spend categories that they know can produce cost savings, and then collect as much data as they can from those sites having a good amount of these Spend categories. (Areas such as Ocean Freight, Print, Office Supplies, Telecom, Temp Labor, etc.) The data is then quickly extracted from the overall data set and analyzed for the specific perceived opportunities. Only the Spend for those initiatives is focused in the data classification process.
Alternative Approach 4 – A Combination of the Above: Invariably, a Spend Analysis project comes down to people and executive sponsorship. It has been proven over and over again that savings exist well beyond the cost of any Spend Analysis project (10X to 50X ROI). But typically it is hard to get sponsorship organization wide, as this usually requires the involvement of the CFO and even the CEO. The CPO, or Director of Strategic Sourcing, has a span of control (and budget) that they can use to get some form of Spend Analysis project started. As even small Spend Analysis projects can produce large savings, getting something started and generating a quick ROI can be leveraged to look further and deeper across the organization. Those initial savings can be invested forward to get more approval to conduct more projects with larger scope. We find this is very common to exercise the largest span of control a person may have who believes in the value of Spend Analysis done right, and they go after the corresponding savings that can be achieved.
There are a number of commonly accepted models for the adoption of emerging technologies and the most effective manner for the organization to consider, test and deploy them. Generally there is a “trigger event” followed by building expectations, then disappointment and eventually a period of more pragmatic expectations and realizable productivity. Here are the Top 5 considerations for how the technology adoption cycle may impact your sourcing strategy:
1. Rationalize technology adoption with your service provider integration strategy. More enterprises these days are employing smaller, more segmented sourcing transactions (along “tower,” region or business units), and hence managing three, four or more outsourcing relationships versus one large one. While there are clear advantages to such a strategy, there are also inherent governance challenges. Make sure you consider expectations for your sourcing partner(s) for their role in adopting and deploying new technologies and have contractual mechanisms in place to enforce these expectations.
2. Leverage SOA investments to rapidly integrate new services. Although service-oriented architecture (SOA) is one example of technologies featured in most views of emerging technologies, it is well along the “slope of enlightenment” and is already embedded inside many organizations. For those with a reasonably developed SOA strategy in place, you would do well to consider how to leverage this architecture to more quickly plug in selected technologies and how to deploy them in the form of services for a quick return. This is, after all, one of the reasons for embarking on the SOA journey.
3. Take a long-term view toward innovation. Clients frequently have inflated expectations of provider-driven innovation as they enter a new sourcing relationship. After all, “they do this all the time, so they should be the experts.” As a practical matter, innovation is difficult, and service providers may be much more consumed with driving down delivery costs than identifying opportunities for real innovation. Look at your governance mechanisms and how you will manage expectations for your sourcing partners to identify, test and introduce new technologies into your organization. Be realistic, and don’t give away the “family jewels” as far as business-driven opportunities for innovation. Consider an “innovation steering committee” comprised of a cross-section of business/user representatives that emphasizes “influential and visionary” contributors as much or more than seniority.
4. Don’t forget “end of life” strategies. Nearly as important as your adoption strategy of emerging technologies is having a clear strategy on retiring “end of life” technologies. For example, cathode ray tube (CRT) monitors are expected to reach end of life within a year or two. Such an installed base may represent a significant investment in physical retirement and disposal of the asset (especially considering today’s “green” movement) as well as replacement cost. Make sure you have practical alternatives baked into your sourcing strategy for end of life strategies. Schedule timely reviews with suppliers of technology assets and build deployment and retirement plans into your agreements.
5. Consider the impact of “transformational” technologies on your sourcing relationships. Emerging technologies may be viewed as “transformational” or “modestly impactful.” “Transformation” itself could arguably be considered a form of “hype,” but in the best of sourcing relationships it can have a real and measurable impact on resource consumption and spending (e.g., server consolidation). Be sure your sourcing relationships have appropriate safeguards built in to protect against punitive revenue commitments.
The devastating events in Haiti last week have organizations around the world scrambling to help. Standing behind many of those organizations is a unique supply chain software and services organization, Aidmatrix. A non-profit that supports non-profits and relief agencies with the technology and supply chain services needed to get the right aid to where it’s in the most demand.
Aidmatrix is currently working overtime to support the relief efforts in Haiti. AMR Research recently spoke with former Wisconsin Governor Scott McCallum, who is now the company’s CEO and president, about the organization and its work. We offer this case study of Aidmatrix’s work with a call for help. If you’d like to give to the relief efforts in Haiti, Aidmatrix has set up a donation site where organizations are listing specifically what they need (http://www.aidmatrix.org/haiti.htm). You can help fill those needs, whether it’s through cash or if your company has the needed supplies
Trying times like these demonstrate why AMR Research is glad we’re in a position to showcase and share the supply chain best practices that get help where it’s needed.
Have you ever considered taking the air or reconfiguring your current packaging?
Many companies do not take the time to analyze their current packaging of finished product once the product has been prepared for the end-user.
Many times I have walked through distribution warehouse centers and simply picked up a master carton of blister carded product and gave it a real good shake it’s amazing how much wasted space is in that carton.
Think about it, air probably makes up 10 to 15% of the carton contents along with the blister carded product and serves absolutely no purpose other than taking up excess space.
Multiply that carton by how many other cartons are stored on that skid with the 10 to 15% of excess air contained in the package and overall you may have 75% product 25% air stacked in a single bin location.
Excess air in packaging results in higher warehouse storage costs, increased classification of product for carrier tender equals higher transportation costs, plus out of spec carton configurations results in higher component costs.
In the grocery industry many consumers will start seeing new package configurations for many of their favorite cereals and snacks, manufacturers of these products are developing ways of reducing size and packaging costs by reconfiguring packaging and ensuring product integrity.
It is important for manufacturing to periodically review and evaluate current packaging of their product, in order to determine if costs and distribution in transportation are being maximized and are not storing excess air in the packaging.
The economic situation in 2009 has changed the game for banks of all sizes. Going into 2010 they are all looking for new business strategies to rebound. Across the board, banks will be restructuring in 2010, but what types of strategies will they look to employ and will they turn their eyes to “the cloud”?
Onshore operations have always provided the lowest margin of risk – but at a higher cost than offshore operations. Off-shoring, now a generally accepted approach to multi-process IT and BPO services for top-tier banks, will draw in more mid-tier, regional banks interested in taking advantage of the managed services that are now widely available.
The anticipated service provider consolidation in the next year will also allow single large providers to become a tempting comprehensive solution for financial institutions. The need to minimize costs and reduce risk may lead the banking world in two distinct directions: a flight toward larger, more established providers or toward niche players to distribute risk.
And, of course, we can’t ignore the enormous “cloud” in the room. As more and more services and products are made available online, financial services firms will experiment with the level of security, service management and contract challenges they present. It’s possible that this could be the year of true paradigm change meaning broad acceptance of cloud based services – which could significantly disrupt established service delivery models.
2010 will truly be a year of balancing onshore and offshore services with Captives and third-party solutions while dipping a toe into the world of cloud based services. The potential opportunities available by the cloud and consolidation of service providers could set banks up for a delivery model hybrid not yet experienced in financial services.
Employee benefit plans are a critical component of a company’s ability to attract and hold talent. This sacred task often puts price negotiation with service providers in the hands of outside HR consultants and internal Human Resource specialists. While these people have good intentions, they are often ill equipped to work the cost AND service angle. All Drug plan administrators have plans to help companies control drug USAGE but they rarely address the sourced COSTS of the medications, outside of generic substitution efforts.
Paladin Associates found ourselves working with a client where this paradigm was in full effect. Paladin has access to a buying group for Rx Drug Benefit Programs that could take our clients 2000+ insured lives and add them to the consortium’s 400,000+ insured lives thereby reducing costs significantly for our client. A combination of lower sourced price and larger share of manufacturers’ rebates comprised this savings opportunity.
Armed with hard dollar savings projections based on actual medication usage by the client’s employees, we approached the client’s incumbent benefit service provider. Sensing their competitive disadvantage, the incumbent supplier agreed to an immediate 9.5% reduction for the remaining year of a three year contract, and similar savings for a new contract going forward. This translates to a savings of about $225,000 per year!
This proves that even in those semi-sacred service bastions that are not traditional categories for Sourcing activities, a different process and the right sourcing approach will produce cost reduction benefits for your company!
More companies are looking at centralized distribution and servicing their customer base in a timely manner in order to control costs, control inventory overhead and to improve overall customer service.
Centralized distribution sometimes has its own challenges and issues based on schedules, inventory and transportation network.
Other factors that should be considered is the size of the of the distribution center, the layout of the facility and capabilities of handling many more multiple shipments on a daily basis can result in many more LTL carriers.
Zone distribution to major market zones can eliminate much of the congestion and the handling of freight multiple times elevating issues with shortages, damages, and non-timely deliveries.
It is important to identify major market demographics pertaining to customer base, product distribution, field sales force and capabilities of end users and master distributors.
A major candle manufacturer based in the United States was faced with major issues such as damages, lost shipments, inventory shortages and untimely deliveries.
By developing major market zones utilizing 80/20, the manufacturer was able to overcome many of the above challenges and issues by driving carrier tender to specified market zones based on schedules ultimately utilizing local end-user delivery suppliers.
Many of our customers ask us to handle their Supplier data enrichment data. This is a natural fit to add and integrate this informative data to all the supplier and Spend data that is collected. Supplier enrichment data packets build additional analytical and Spend management capabilities into the overall Spend Intelligence warehouse. However, many organizations do not add this important information such as DUNS/SIC/NAICS/Parent Child, Diversity, and Risk related Supplier information, as it can get quite expensive in a hurry, if the overall process is not managed and optimized to the company’s overall needs.
Adding this data into your Spend Intelligence warehouse should simply be another source file. We have relationships with all the major companies that provide Supplier Enrichment data, and having done this many times, we have optimized the overall process and related expense to get this information integrated with your Supplier and Spend information.
Optimizing the Supplier Enrichment process is as follows:
Create a Clean Vendor Master – through the Spend data collection process, suppliers are collected from all sites, cleansed, grouped, classified, and rationalized to a consolidated vendor master. Now the company can break down their suppliers relative to Spend and priorities as to which ones should potentially be enriched.
Mix and Match Supplier Enrichment Data Packets – enrichment data for SIC/NAICS or Parent Child relationships are usually in different data packets than data packets for diversity and risk. Each data packet has different costs, with risk usually being most expensive. You can analyze your supplier base to determine which suppliers should get what level of data packet, such as only preferred suppliers, or suppliers with large Spend dollars, have risk-related enrichment.
Process and Integrate Suppliers to/from the Provider – the handshake of providing the actual supplier file to the supplier enrichment provider, getting it back, and integrating it into your Spend warehouse, should be handled easily by your Spend Analysis provider.
Create More Advanced Analytics, Reporting, and Spend Management programs – once the data is received back from the supplier enrichment provider, it must be integrated with all the related Spend data for that supplier. In addition, the new data can now be added to the overall analytical capability the organization needs to track diversity, compliance, conduct deeper analysis, and better manage overall sourcing programs.
All the above should be done easily (and at low cost) by your Spend Analysis provider, thereby creating significant value to handle this important and more advanced management capability for your organization.
Order to Cash (OTC) outsourcing has typically been on CFOs’ lists of “potential outsourcing opportunities,” but it has not risen to the top of the list until recently. TPI is seeing more interest and activity in OTC outsourcing this year in spite of – and possibly because of – the depressed economy.
Several emerging trends in OTC are catching CFOs’ attention and changing their priorities on that list of outsourcing opportunities. These are the Top 5 reasons why OTC is growing in popularity:
The shift from function-based to process-based (“end-to-end”) outsourcing. In the past, OTC outsourcing solutions have focused on just two or three functions within the OTC process (e.g., credit, collections or cash applications). But in the past few years, sourcing service providers have invested in developing “end-to-end” OTC capabilities that offer integrated solutions (tools and processes) across order management, credit management, invoicing, cash application, dispute resolution and reconciliation and analysis. These end-to- end capabilities drive higher efficiency in transaction processing as well as resolution of order entry mistakes, pricing disputes, billing errors and credit or collection issues. The benefits of transparency and accountability that come with service provider investments in end-to-end capabilities are paying off with increased buyer interest and confidence.
Shifting buyer interest from offshoring to transformation. The “lift and shift” model has been the backbone of most OTC solutions and has driven cost savings for most companies. Most service providers have established networks of offshore centers with the technology and telecommunications infrastructures that are necessary to support customer requirements. Separate from and beyond offshore capabilities, though, some service providers have made investments to quickly broaden their offerings by making strategic acquisitions of niche companies with deep OTC capabilities. These providers have combined the proprietary tools and methodologies from those acquisitions with their other service delivery resources and capabilities to provide robust OTC transformation capabilities to their customers. The providers are offering much more than just “labor arbitrage” and are differentiating themselves from their competitors in the early stages of customers’ RFI/RFP processes.
Increased focus on customer service requirements. Buyer concerns with service provider offshore capabilities in customer service and support are not uncommon, given the language barriers and timing in getting issues resolved. This sensitivity is particularly high for companies that require higher levels of customer communication and contact. Given these sensitivities, TPI is seeing situations where customers are choosing onshore and nearshore solutions to gain better support and higher customer satisfaction (internal and external customers) by foregoing higher-level cost savings from offshore options.
Shift from customized to standardized OTC solutions. As part of the drive to “end-to-end” OTC outsourcing solutions, service providers are leveraging their investments in technology by pushing to their customer bases standardized tools and methodologies that require lower costs to implement and maintain. This trend will likely take hold in the more transaction-based areas of invoicing and cash applications, while demand for more complex and customer-facing activities (such as order management) will still require higher solution customization.
Focus on cash flow. Companies are evaluating OTC outsourcing opportunities with several goals in mind, including obtaining cost savings while balancing customer support and satisfaction requirements. A benefit that has always been part of the discussion is cash flow. Service provider capabilities to reduce days sales outstanding, to improve receivable agings or to reduce receivable write-offs have typically been a part of the “benefits” discussion. But with demonstrated end-to-end capabilities by service providers, the cash flow benefits are even better, more visible and more attributable to the changes and improvements brought by service providers’ OTC solutions.
The net effect of these five trends is that OTC is not just one of the topics on CFOs’ lists of outsourcing opportunities . . . it is quickly becoming the area of focus.
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