Category Archives: Services

“Spend” Analysis helps the Service Chain too

It would appear that Business Intelligence, once restricted to leading edge spend analysis providers, is starting to permeate the services supply chain. As noted in a recent Industry Week article on “Creating Visibility Throughout the Service Chain”, customer dashboards, key performance indicators (KPIs), and customized reports have long been available to internal account teams but now, however, leading edge organizations are making these same tools and data available to their suppliers and customers through business portals with aggregated information from multiple enterprise and transactional data systems. This is because business intelligence in the service chain not only generates efficiency, but also creates opportunities for real customer loyalty and business growth.

As the article notes, a real analytics solution that provides a user with the ability to truly “slice and dice” data across multiple business hierarchies offers a number of benefits, which include:

  • the quick determination of how well the most strategic and / or largest revenue sites are being serviced
  • the mapping of actual service delivery performance to perceived customer satisfaction
  • the actual equipment utilization against contract terms
  • the proactive monitoring of equipment usage and synchronization of information with actual inventory
  • the ability to gather the data required to capture a true “operational index” or “readiness-to-serve indicator”

The last benefit is of particular importance. The success of the service chain relies on the ability of a service organization to quickly and efficiently serve their customer. If service is bad, the customer will go elsewhere. It’s that simple. And the only way to to gage the true “readiness-to-serve” of the organization is to get a multi-dimensional view of the data. This is because overall equipment utilization (OEE), MTBF, first-time fix rates, on-time delivery performance, service-event resolution times, call center performance, service supply-chain order-fill-rates, warranty compliance, and invoice accuracy, among other service metrics, all contribute to an organization’s “readiness-to-serve”. To extract and aggregate this data from a classic reporting tool would be a humongous project that required multiple rounds of data extraction and Excel manipulation. But in a true data analysis tool, you could slice, dice, aggregate, disaggregate, normalize, derive, re-derive, restructure, aggregate again and get the report you needed in ten minutes.

And this is something that can only be done by a real spend analysis solution, because “spend” analysis has to go beyond the spend, and be able to analyze all of the data related to the spend. Otherwise, you get an incomplete picture, and that can cause more harm than good.

Maximum Value From Your Consulting Advisors II

As I clearly pointed out in Consultants are Cheap, a good consultant can be the most cost effective business savior you’ll ever have the good fortune to hire. Especially when you consider that, unlike your top-performer who is forever consumed with the tactical day-to-day operations of the business, a good consultant can come in and spend all of his or her time applying his or her hard-earned market leading education and experience on the core strategic issues that, when effectively addressed, can take your operation to the next level.

However, as I pointed out in Maximum Value From Your Consultants, you’ll only get your money’s worth — and more — if you’re willing to:

  • Put your own ego in check.
    This will be hard for a few managers (who take after Dilbert’s Pointy-Haired Boss), especially those whose general reasoning abilities fall in the low percentiles (as per a recent psychology paper in the APA by David Dunning and Justin Kruger, summarized for the average Joe in this Salon article), but I know that the majority of you will understand me when I say that if you don’t do it, you’ll never truly hear what the consultant has to say.
  • Listen intently to what the consultant has to say, even if it’s not what you want to hear.
    You might think that you’re doing good in procurement and great in marketing, only to find out that you’re procurement is so-so at best and that your marketing truly sucks. It’s important to listen intently because the only way to improve is to fix your flaws, and that’s something you can’t do if you won’t admit you have a problem.
  • Be ready to take immediate action.
    There’s less than zero value in a report that sits on the shelf. How can there be less than zero? Simple, you paid for a report you failed to act on. That’s negative dollars on the balance sheet. The way you get value is to implement the recommendations that fix your problems and save you money (and / or increase your sales).

Then, you need to

  • Work with the consultant.
  • Get the consultant the data she needs promptly …
  • … and insure that the data is good.
  • Free the consultant to focus on the core issues, not just process or just technology.
  • Accept that sometimes new technology will be the answer (and sometimes it won’t).
  • Be prepared for scope creep or scope shift.
  • And to go back to school if need be.

And then, finally, you have to select the right consulting advisor for you. Start by reviewing the Advisory Checklist, because a good consultant has:

  • a depth of experience
    in the most critical areas that need to be addressed
  • a breadth of experience
    that helps him or her understand how the issues being addressed involve and impact your operation as a whole
  • true independence where YOUR outcome is concerned
    as the consultant must be free to select the right solution for you, not a solution from a solution vendor that his or her firm has a stake in
  • a deep focus on IP, Research, and Success
    as a good consultant tries to constantly stay ahead of the market in his or her primary areas of expertise
  • a strong firm behind him or her that practices internal knowledge management
    which allows their consultants to leverage their collective experience, best practices, and lessons learned from every engagement for every client

And finally, in addition to a deep down desire to generate value for each dollar they charge, a great consultant (from the consultant corral) will:

FOLLOW HER OWN ADVICE
And so will the firm that stands behind her!

That’s probably the single most important thing to remember when trying to select the consultant that’s right for you. I probably should have pointed this out before, but I thought it was obvious, and, more importantly, we’ve only just begun the consultant craze which happens every time markets start tanking and companies hemorrhaging cash go looking for consultants in a panic (when they should have been engaging those consultants all along to avoid hemorrhaging cash in the first place). In consultant crazes, good consulting firms tend to rack up big successes one after the other in a short time frame. And sometimes, these successes go to their heads, and they start thinking they can expand beyond the niches they carved out for themselves. Sometimes they have the knowledge and skills they need to expand in-house, sometimes they don’t. In the latter case, a good firm will not expand their menu of services until they get new partners on board and plugged into their methodology, even if a customer asks. So how do you know if a consultant follows her own advice? Ask her what she can’t do. A good consultant knows her limits, will tell you her limits, and, most importantly, when you encounter a problem outside the original project scope that she is unable to bring you a first class solution to, she’ll tell you, and, if her firm can’t help you (because it’s a sales operations problem and you hired them for procurement process and technology, for example), she’ll work with you to find the right consultant who can.

Furthermore, good service providers, no matter how good they are at project management, will not rush to bring software development in house — because this will substantially increase their cost of operations, and thus of service delivery, if they do not have the time, resources, and funding to devote to a full-fledged product development operation (and most [niche] consulting firms don’t). Good service providers partner with rapid-development SaaS providers when their clients need specialized solutions. They offer to manage the work for you, not do it themselves.

Baseline’s Seven Sins of Offshore Outsourcing

Having posted on the Seven Deadly Sales Suppressors, the Seven Deadly Supply Chain Sins, and the Seven Deadly Supply Chain Wastes, it should be obvious that I’d pick up on Baseline’s 7 Sins of Offshore Outsourcing.

When outsourcing, organizations that focus on short-term cost reductions often rush through projects without adequate planning, due diligence or consideration of the long-term implications of the inevitable changes in business requirements or offshore market conditions. This not only causes them to overlook most of their savings opportunities, but often leads to project failure. However, an organization that knows what to look out for can avoid the mistakes that others have made in the past, mistakes that can be understood in the context of the seven deadly sins: pride, sloth, avarice, lust/extravagance, envy, gluttony and anger.

  • Pride
    Many organizations succumb to the sin of false pride and plunge headlong into an offshoring initiative without performing due diligence. They assume that they (already) have the internal capabilities necessary to plan and manage an offshore operation, when this is often not the case. They also seriously underestimate the management resources required to successfully set-up and run such an operation.
  • Sloth/Laziness
    You can’t just move an inefficient operation offshore and hope that lower salaries will result in cost savings. “Lift and Shift” doesn’t work, and, when the process is inefficient it will, in fact, often increase the personnel resources required to do the job, wiping out the cost savings the organization expected to achieve.
  • Avarice/Greed
    Many organizations will not be concerned enough about the ultimate fate of the business, or, even worse, possess disdain towards the offshore operation. This makes it difficult for the offshore operation to retain knowledgeable and productive staff, leading to quality problems and cost overruns as greater numbers of inexperienced resources need to be thrown at the problem.
  • Lust/Extravagence
    The desire to solve a problem by taking on more, cheaper personnel is extravagant and wasteful and has serious implications for service quality. It’s important to remember that many offshore operations have lower productivity and excessively high turnover, reducing cost savings. Don’t give in to the impulse to compensate for low productivity with more bodies: It’s a false economy. Before you offshore the process, make sure it is efficient. If necessary, re-engineer and improve the process first. Furthermore, even after your processes are off-shored, it’s important to continuously apply performance improvement initiatives.
  • Envy
    Don’t assume that offshoring automatically comes with big savings and be envious of your peers who are already doing it. Most of the claims you’ll find by the promotors of the strategy don’t take into account the lower productivity that comes with offshore personnel, higher communication costs with an offshore team, and the additional overhead required to govern an offshore process. Actual savings are often only half of what is claimed.
  • Gluttony
    Don’t offshore as much as possible as quickly as possible, like a glutton, with the ill-formed belief that this will maximize savings. Don’t overlook the average organization’s capacity to digest change, and even smaller capacity to digest offshore change — because organizations that offshore too much too quick often spend the majority of their time firefighting. The key to success is selective offshore outsourcing, following a careful analysis of what processes are the most likely to lead to savings if outsourced.
  • Anger/Wrath
    Don’t blame the outsourcer when the savings don’t materialize, especially if you committed one or more of the sins above. Blame-wise, at least half will always rest with you, and if you committed multiple sins, all the blame rests with you.

A Sourcing Advisory Checklist

Sometimes a sourcing advisory firm can save you untold millions, and sometimes, as in the recent cock-up exposed by Jason Busch over on Spend Matters, the engagement will lead to a total disaster. So how do you make sure you’re the superstar who brokered the agreement that saved your firms millions of dollars and not the fall-guy who takes the blame for a multi-million dollar cock-up? You manage the process from end-to-end, and you start by making sure you have the right firm as an advisory partner. What should you look for when searching for the partner who will help you succeed when others have failed? Although the specifics will depend upon your needs and the sourcing projects in hand, the following checklist, first put forth by Phillip Fersht, blogmaster of Horses for Sources, in this Global Services article is a great start!

  • Internal Knowledge Management
    The firm should be taking advantage of the latest technology to share their intellectual property internally in a manner that will allow any of their employees to take advantage of the knowledge available to benefit their customer. You should be getting more than just the experience of the reps on your account — you should be getting the experience of the entire firm.
  • Depth of Experience
    Harvard MBAs look good on paper, but you want a significant amount of deep operational work conducted at real customers in industry, not theoretical research projects conducted in the safe confines of the ivory tower. In addition, make sure at least one of the reps on your project has deep experience in the categories you will be sourcing.
  • Mix of Experience
    A breadth of experience is important, especially when market conditions change and new sourcing strategies need to be derived. In addition, make sure the firm has employees who have crossed the breadth of operational roles, including sales and customer service.
  • Ability to ‘Advise’
    The ability to ‘consult’ is good, but you need specific advice that is going to allow you to succeed beyond what you could do in-house or with the lowest-bid consulting firm.
  • True Independence Where YOUR Outcome is Concerned
    They must be focused on YOUR best interests, and not theirs’. Make sure their interests don’t lie in relationships that force them to use, or compensate them to use, particular tools, processes, or staffing agencies. Just because something works for the majority of their current clients, it does not mean it will work for you. It might, and if it does, that’s great, but if it doesn’t, they should have the freedom to put together the best solution for YOU.
  • A deep focus on IP, Benchmarking, and Research
    No one knows everything … and, more importantly, if they don’t benchmark, they won’t know how good they should be able to do.
  • Operational Business Focus and Advisory Experience Beyond Simple Negotiation
    The best advisor can offer services that guide you through the sourcing lifecycle and beyond. In addition, sometimes just having an independent party available can help you build consensus and support in complex and sensitive situations.
  • A Sensible, Proven, and Flexible Methodology
    If their method of negotiation methodology selection starts with “eenie, meeniee, minie, moe … “, simply put, you’ve chosen the wrong advisor.
  • Respected in the Market
    You want an advisor that oursourcers and suppliers respect … because if they don’t bid, you don’t save.
  • Multiple Customer References You Can Talk Too Directly
    The ultimate proof of their capability will be in their success with their other clients.

Want to Save? Get a Handle on Services Spending!

Earlier this year, Industry Week, in their article about how “Services Supply Chain Management [is] an Untapped Opportunity”, picked up on a recent study by CAPS that found that purchased services averaged 39% of total purchasing spending. That’s a significant number – especially when it’s getting harder and harder to save on goods when energy and raw material costs are still spiking across the board. And its a worrying one when you consider that not only do the majority of companies not have a good technology-based solution to help them make the right decision, but they often don’t even know how much they’re spending on services, if they’re being billed consistently – and in line with the local market, or even being billed according to the contracted rates!

In one of my recent posts, I noted how Iasta used their optimization-enabled e-Sourcing solution to save roughly 20M on two different projects, including a 20M savings on a services spend of roughly 80M. They didn’t do this because optimization is a magic technology that always saves you wads of money (it’s not, and what it does is find the lowest cost solution that is feasible within your constraints), they did this because the organization was simply signing national contracts with large multi-purpose consulting shops at what it thought were good rates, instead of signing regional contracts with regional providers who performed the required services at local rates and who could offer discounts for local volume-based awards. They built a sophisticated RFX bid model that allowed providers to bid by resource type by location, and to offer discounts based on total dollar award across resource types and / or regions, and then fed all of the data they collected into an optimization model that had the computational strength to identify that, lo-and-behold, breaking the contract up among multiple regional providers who could give the best price in the region could save you a significant wad of cash.

In another of my recent posts, I noted how expert spend analysis consultancies like Opera Solutions (now ElectrifAI) and Lexington Analytics can often walk into a client and get them a rebate cheque on overpayments, that are common in office supplies, electronics, and there should be no surprises here, services categories. They do this not because they are experts in guilt transference or debt-collection, but because they know how to normalize and structure your data in a way that allows them to compare it against contracted rates, find overpayments, and, also, find duplicate payments that your vendor forgot to tell you about. They then prepare a report that makes it abundantly obvious that your vendor was ripping you off (whether they meant to or not), which essentially forces your vendor to either refund you or give you a credit against future services (as you have everything you need to take legal action, which is something you’d both rather avoid).

These days, services at an average mid-size company could represent a multi-million savings opportunity and savings at a large company could represent a savings opportunity worth tens of millions of dollars. Although these numbers weren’t significant in the early days of e-Sourcing when supply outstripped demand in many categories, raw material costs were low, and e-Auctions were leveling the playing field, now that you’re lucky to contain cost increases on your purchased goods to inflation, these numbers are very important. Therefore, it’s important that you get a good handle on your services spending and exploit it for the savings opportunity that it is.

So how do you do that?

  1. Do a services spend analysis
    The first thing you need to do is get a handle on how much you are spending on each services category, and how many providers you’re using in each category per region, and, more importantly, roughly how much you’re overpaying and whether there are opportunities for refunds, rebates, or credits.
  2. Identify, and order, your biggest savings opportunities.
    Stop when you get to 10 or when you’ve covered 80% of your spend. You’ll attack these first.
  3. Break your savings opportunities into two groups: those you have the expertise to do in house and those that should be done with the assistance of an expert consultant
    The ones that can be done in house will be tasked to senior category experts in your sourcing group and the rest will be tasked to your CPO to find the right external expert to help your organization.
  4. Identify the right, niche, technology solutions to assist you.
    You get good results when you use good tools. For professional services, consider using a provider like Provade with a solution that specializes in work-force sourcing. For printing, consider a provider like Noosh that specializes in print services.
  5. Implement a good end-to-end e-Procurement solution with m-way matching that integrates purchase order creation, electronic invoice management, payables management, and contract management.
    This will insure that

    • when a purchase order is cut, it is cut with the contract rate included,
    • only invoices that bill against purchase orders at the approved contract rate, and for a number of hours/days within approved limits, are accepted,
    • the payment is for the amount, and only the amount, on the approved invoice, and that
    • your negotiated savings are realized!