Discuss, debate and exchange ideas on latest trends and opportunities in the Business Process Outsourcing (BPO) landscape. Deliberate on adding “business value” to clients, vendors, employees and various other stakeholders to enhance customer satisfaction and sustain long term partnerships.

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April 30, 2012

Convergence of Cloud, SaaS and BPO Services - the Future of Outsourcing

Cloud has caught the imagination of everyone i.e. companies (buy-side and sell-side), analyst, BPO vendors, IT vendors etc. and is seen as the next big thing.  Is it really a revolutionary business model or old wine in a new bottle?  I think it is high time we analyze and understand how the ecosystem will evolve to leverage the full potential of upcoming technologies to provide real value add to businesses.

Cloud Computing - Will it be pervasive?

While cloud is used generically to refer to public and private cloud, I think it is important to differentiate between public and private cloud. Private cloud - though it was not named as such - existed since the time of mainframes. In fact, if you remove the frills, the mainframe era was nothing but private cloud wherein all the enterprise data resided on the mainframe server and user had a dumb terminal to carry out the activities.

Public cloud is a new relatively new concept and so far has achieved very modest success. There are multiple concerns around public cloud based offerings but most important of them are the perceived threats of data security and loss of control which makes adoption of public cloud very limited among large enterprises. Large enterprises are talking about big plans for cloud but mostly focusing on private cloud. Only SMB segment is seriously trying to leverage the private cloud to reduce one-time cost and ongoing operating cost.

SaaS - Software as a Service   - Why large enterprises are still reluctant to leverage it?

SaaS has been around for some time and has also achieved success in some functional areas i.e. CRM etc. which were new and upcoming areas at the time the SaaS model was coming up. ERPs did not have good solution to manage these functions and companies wanted a solution to manage customers in a new way, which helped adoption of the SaaS model. However, even the SaaS model has been a great success only in the SMB segment, and large enterprises still rely on on-premise ERP to manage their businesses. A recent Forrester survey of 2,403 IT decision-makers showed that only 15% of organisations plan to implement ERP SaaS before 2013. Two-thirds (10%) of planned implementations will use ERP SaaS to complement existing ERP on-premise services.

If you look closer, SaaS is actually a standardized application on public cloud and offers all benefits of 'Cloud' and also provide standardized applications to help organizations in standardizing and harmonizing their processes. If 'cloud' has to achieve larger acceptability it has to understand the reasons behind large organizations not adopting SaaS in a meaningful way. It may be difficult for proponents of cloud to define what exactly SaaS did not offer that they would bring in which would drive their success.

Convergence of Cloud, SaaS and BPO Services:  - Future Model?

Business Process Outsourcing (BPO) services have matured and achieved significant scale from the time SaaS was initially launched and it is important to look at what configuration of technology and services will provide most benefit to clients and also address the concerns related to public cloud and the SaaS model.  Large enterprises have already outsourced their processes and have achieved the first wave of cost reduction in the form of labor arbitrage. Now they expect BPO companies to offer value beyond cost reduction and also become a partner in their journey i.e. outcome based pricing. It is difficult to achieve these in the current operating model where BPO more often than not does not manage end-to-end processes and can't drive outcome effectively. However, a combination of Cloud, SaaS, and BPO Services provide BPO companies opportunities to onboard end-to-end processes on Business Platforms and manage it completely to drive business outcome.

April 27, 2012

Uncommon and breakthrough purchasing savings levers - Series 3 (Lever - RM)

Objective of the series: Hi there. I plan to share some very interesting avenues through an exciting series of at least 5 blogposts (Depending upon the response, I can consider sharing more). In each of the posts, I will share a few highly impactful savings levers that generate very high level of annualized savings across many industry verticals. These levers are still not widely used just because they are hardly covered in the common Sourcing & Procurement literature or practices. Hope you will find them useful, apply them somewhere and come out with flying colors. Wish you good luck and enjoy the read.

RM - What is RM? I am sure this is an obvious first question in every reader's mind. RM's expanded form is RETURNS MANAGEMENT/REVERSE LOGISTICS. In other simple words, it is about goods and services that are not accepted by buyer post in-warding them into stores/acknowledging work done by services providers. The reasons for this could be multiple. For example, a material/service gets rejected by buyer and returned to supplier for replacement or repair or rework. As per contract, the product might be returned to supplier at the end of life or end of use. Such scenarios occur in each and every industry. Familiar & common commodities that are prone for returns are -- and I'm sure that every reader here would relate to these -- containers, pallets, packaging materials, used clothes, outdated spares, above shelf life items/equipment and vehicles etc. But is this area really uncommon and can it provide breakthrough purchasing savings? Let me investigate that for you. Keep in mind that we are discussing returns management in B2B context and not B2C.

Let's start with a couple of benchmarks and high points that I have collated for you. Sabri and Gupta report in their famous book Purchase Order Management that on an average, 20% of all goods procured are returned for any firm! Obviously in-warding and resending and re-inwarding cycles can have inventory levels inflate/deflate. This is ditto for the firm's profits and demand management sides. Imagine the complexity of a returns management procurement cycle if the suppliers to manage are also international (any one from Automotive firms reading this?)! IPQC reported in 2008 that associated costs of returns can run as much as 10-20% of operational costs of a supply function and that even 1% savings in that could be a huge $ benefit/profit - straight to the bottom line.

So what are the action items/solutions? First of all conduct a root cause analysis to determine the patterns and underlying causal factors due to which returns are created. Then, plan for corrective actions on all fronts - make the processes at supplier's end and the inbound packaging, transportation predictable to six sigma levels. At a category strategy and spend data management level, ensure that each commodity (material or service) in item or service master table is tagged as returnable or non-returnable. The process and technology with procurement should also have traceability and connectivity with AP systems to link PO and Invoice with return and its reason so that debit memo creation can be simultaneous. Items being returned for replacements should also be factored into the procurement and AP applications. Gupta and Sabri recommend that firms should automate processing of the returns upon receipt (including inspection and disposition), speed up the process to reduce risk of obsolescence, and track reverse logistics and net asset recovery to improve effectiveness. If services received are rejected or found to be deficient, the returns management becomes virtual process but should remain same for treatment like products/materials as explained just before. The reconciliation of service return/complaint can be accounted for as a simple apology or monetary compensation - as the contract specifies.

What can you do to have a robust returns management solution? Invite an expert firm to design BIC returns management process, integrated with procurement applications, ERPs and other applications. Choose the firm who can not only recommend (consult) but implement the proposed solution for you and demonstrate benefit. Include them also in returns management spend management plan of yours - for recoveries, repair or replacements!

Found this post useful and refreshing? Want me to write the rest of the 2 posts at least? Then send me your views on this one please. The series has gone well so far in response. Thank you all.

April 25, 2012

Aim, Hit, Goal!

If you ask anyone what the goal of strategic sourcing is, the answer that you would generally get is 'savings'. That might be one of the primary goals in the strategic sourcing kitty but is that the only one? Long gone are the days when the sourcing & procurement department was considered as just an order administration office. Now the sourcing team is proving its worth as a value adding component of the overall machinery of the firm and hence, has been rightly prefixed with the term 'strategic'.

A few of the goals that strategic sourcing should accomplish are supplier performance & relationship management, risk management, adopting new innovations & technology advancements, and supporting the cause of responsible & sustainable procurement (corporate purchasing responsibility).

So aim for the moon because even if you miss you might land up in the stars. But for aiming at the moon, one needs to get one's eyes off the ground. A sourcing department most of their time gets so involved in the daily operational nitty-gritties that focusing on strategic aspects appears to be a far-flung dream. Another factor is that it may just not have the skills, time, attention and intellectual wherewithal to become strategic. Outsourcing is one of the ways by which many organizations have ensured a transformational shift in in-house focus from transactional to strategic activities in the sourcing domain and often at much lower costs along with breakthrough benefits. Are you one among them? If not, do you have plans to aim and hit the goal post this way? Let's continue the conversation.

April 19, 2012

Uncommon and breakthrough purchasing savings levers - Series 2 (Lever - DA)

Objective of the series: Hi there. I plan to share some very interesting avenues through an exciting series of at least 5 blogposts (Depending upon the response, I can consider sharing more). In each of the posts, I will share a few highly impactful savings levers that generate very high level of annualized savings across many industry verticals. These levers are still not widely used just because they are hardly covered in the common Sourcing & Procurement literature or practices. Hope you will find them useful, apply them somewhere and come out with flying colors. Wish you good luck and enjoy the read.


DA - What is DA? I am sure this is an obvious first question in every reader's mind. DA stands for DUTCH AUCTIONS, and here I am talking about the electronic Dutch Auctions used in B2B/business to business purchasing transactions. Let's understand both -- the electronic as well as the manual Dutch Auctions. Dutch Auction as a business process dates back to the 19th century, and was established in Holland where tulips were sold in the flower market. There is a lot of internet material available on this. It was a manual system where the sellers used to put up a flower lot size for sale announcing a price at any point in time. If some supplier used to accept that price, the lot used to get sold to him and no other supplier's price (even if lower) was entertained after that. This auction method was made available in electronic form for usage in B2B sourcing by procurement application majors like Ariba/Freemarkets during the late 90's. For example, Ariba Sourcing Pro offers this auction format along with various electronic auction formats.

However, this auction feature continues to be sub-optimally utilized by sourcing professionals  even while it offers certain additional savings levers for buyers for those commodities, where it is the toughest to get sourcing savings. The reason for sub-optimal usage of this auction format is primarily that sourcing managers themselves need to know fully about choosing the right auction format (e.g. classic reverse auction or reverse auction with lead bid disclosure or reverse auction which is rank based only or Dutch Auction). That is quite a science and art in itself. However, through this post, I want to highlight how to choose Dutch Auctions and how it provides breakthrough savings levers (the second portion of the theme).

At times a buyer is faced with obtaining savings when the number of approved suppliers with whom to conduct an auction or negotiate prices are very few.  At other times, the price differential between suppliers who submitted quotes is very high with no visibility on cost break-down (mostly due to the nature of commodity). In these cases a reverse auction format does not work and Dutch auction is the suggested way out. A few years ago, I helped an automotive client in getting additional savings for a turnkey project (materials plus design plus installation services for setting up a warehouse). Only two suppliers were approved and qualified and their prices varied greatly with no break up and also both the prices were far higher than the budgeted price. Both were not willing to provide the break up too (suppliers for many niche commodities knowing very well that there are only very few other suppliers in the market and that the buyer has limited say, exploit this situation well). So we set up something called a floor price (~30% lower than budget and 60% lower than lowest RFQ round quote). A price called as ceiling price was also decided which was the maximum price we were willing to pay. The entire project was offered through Ariba Sourcing Pro as one lot for sale. The Dutch Auction started (after suppliers were trained) from floor price set and the price used to increase by 5% after every 5 minutes. At the third increase, one of the supplier (being under pressure that other supplier might accept the price offered before they did), accepted the price offered. Obviously, huge savings were obtained. Unlike reverse auctions where suppliers quote the prices and lowers them, in Dutch Auctions, buyer offers suppliers prices options and any supplier who accepts any price point, wins the deal.

This format can also be applied very well to sell a share of business equivalent lot quantities (e.g. 60% of annual volumes) for direct materials (e.g. automotive components and raw materials). So DA is a very effective auction format for all spend categories - Indirect, Direct, Capital, MRO etc. though there do exist some challenges which should be kept in mind while planning, so that auction results are favorable. Take an experts' help if in doubt.

Found this post useful and want me to write the rest of the 3 posts? Then send me your comments please. The first post in the series got some great comments. Thank you all.

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