By Beth Ellyn Rosenthal, Editor
In today's economy, managers are continually looking for ways to further reduce costs and improve productivity. It's no wonder many companies are taking a renewed look at outsourcing expenditure such as professional services labor procurement.
The marketplace offers a range of solutions from stand alone tools to master vendor programs to complete process outsourcing.
Pete Quigney, VP of procurement at EDS, a Plano-Texas-based Information Technology services firm that provides BPO services to clients, shares his views on what to look for when outsourcing the labor procurement process.
1. Design the Overall Strategy
A thorough understanding of your company's labor usage and its relation to your core business will help you define your requirements when outsourcing the labor procurement process.
First, what are you calling labor? Is it defined the same way enterprise-wide? Common definitions and nomenclature, especially globally, must be the first order of business when deciding what to outsource. Using consistent terms in the marketplace enables managers to compare pricing and volume usage on skill sets. Connecting outsourced labor purchases with key corporate functions will give your company a more holistic view of these overlapping activities and becomes extremely valuable when evaluating global sourcing, which EDS calls "Best ShoreSM". Once that is established, you can make decisions to purchase labor, hire new employees, or train your current ones using common denominators.
2. Communicate the Opportunity, the Goal, and the Progress Internally
Active senior leadership support is critical to the success of any company-wide program, and this one is no different. Begin with a top-down approach and ignite senior leadership interest via opportunity statements and progress reports. Companies with established high tolerance for maverick buying will find compliance, hence success, particularly challenging; so establish the rules early and follow through. Make sure leadership at all levels "buys in" to the value proposition.
3. Align Purchasing Process with What's Being Bought
Process is another area worth scrutinizing. Since all labor is not alike, it makes sense that purchasing processes might be eased for higher volume, lower value purchases. Ensure your outsourcing program aligns processes with what's being bought so that hundreds of dollars in transaction activity aren't consumed to pay for a $50 invoice. Assign the appropriate amount of scrutiny for large commitments and contract liabilities and the most streamlined process for every purchase.
4. When Negotiating, Pick Your Priorities and Keep It Simple
Choosing outsourcing partners via RFP/RFQ (Request for Proposal/Request for Quote) continues to be widely practiced, but many companies lose sight of the fact that the sourcing/RFP process is just the beginning. After the contract is signed, the ease and accuracy of daily transactions really tell the story about the savings realized.
When negotiating with service providers, pick your priorities and keep it simple. Always keep in mind the volumes being processed. Don't negotiate for items that cannot be managed later by either party. Incentives for process improvements and innovation are welcome on both sides of the table. Make sure they are measurable and realistic.
5. Source Outside the Box
Some segments of outside labor, such as staff augmentation, offer companies considerable opportunities above and beyond the "just outsource it" mentality. For example, in areas where the contractor market is mobile, it is possible to obtain the same contractor through various suppliers. If your process enables you to keep a pulse on supplier bill rates and contractors' wage rates, it's easy to find the least-cost alternatives. Source outside the box - there's more than one way to find a contractor and more than one way to employ its services. Don't pay for services you don't use.
6. Buy Skill Sets in Measurable Units
The operations function of a well-managed outsourced program should closely link reality with strategy. The program should buy skill sets in measurable units where appropriate, so that rates can be compared accurately and volumes of purchase by skill set can be measured.
7. Tie Purchase Data to the Money Spent
You know who you buy from, but do you know what you are buying and why? Do you know how much of your spend can be fully leveraged and what can't, due to certain business circumstances? In the situations where you do not have a choice of suppliers, is the price being negotiated or just paid? Assumptions that you can leverage all expenditures are usually wrong once you scrutinize the data, so ensure your program captures this type of information. Tie this intelligence to your data at the moment you know it best; when you do the transaction.
8. Watch the Transactions
When the transactions on labor are accurately recorded, they can provide data to evaluate supplier service levels on position fills, quality and billing accuracy. Outsourcing programs should also include processes that perform periodic supplier audits and internal user compliance reviews.
9. Tools are Key for Governance
At today's business velocity, "internet speed" tools are a market differentiator. The tool for your managed labor program should "float" seamlessly between your company, your outsourcing provider, and suppliers so that all can access data and execute transactions. In addition to providing a "corporate memory and understanding" of transactions, the tool should objectively record data and feed analysis for future internal and supplier discussions.
10. Measure, Refine, Repeat
Continuous measurement and refinement delivers quality results that can be applied across your company. For example, accurate labor market data can help HR or compensation departments plan more competitive packages to attract quality employees; or, conversely, suport the argument that some functions are done more cost effectively by outside labor. Build measurement and feedback into your process.
Lessons from the Outsourcing Journal:
- Don't assume your labor expenditure is "not much." If you have a way to look at what is being purchased as opposed to what it's being called, you may well find that you're buying more labor than you think under the names consulting, maintenance/repair, temp staff, services and the like. Make sure everything gets included in the scope of the outsource agreement.
- Don't underestimate the amount of savings. Measure the savings from process streamlining, leveraging the expenditure and actually "minding the store." Sourcing the suppliers and reducing rates can get those up-front glamorous savings within reach. But process improvement, data integrity and user compliance will make it reality!
- Don't underestimate the value added. Savings from reduced expenditures go directly to the bottom line. Service level improvements from your service providers improve your business. Process improvements and red-tape reduction improve your speed to market and help employee morale.