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CPO Insider: Procurement Outsourcing (Episode 4) – The RFP

In many ways, our upcoming event, CPO Rising 2016: The Agility Agenda, epitomizes the research and work we have done for years, working with, advising, and surveying thousands of Chief Procurement Officers (“CPOs”) with the aim of producing the type of insight that helps procurement teams improve their operations and results. As a prelude to our event, we’d like to share our new CPO Insider series to highlight the type of “insider access” that summit attendees will gain.

In this edition of the CPO Insider series: I interview a large US-based manufacturer’s CPO about his experience with a company-wide outsourcing initiative and how he and his procurement leadership team and the entire organization approached outsourcing.

In Episode 1 of this “CPO Insider,” we learned how the company arrived at the decision to outsource some of its procurement and accounts payable operations and the initial steps in the overall process.

In Episode 2 of this “CPO Insider,” we learned how the initial outsourcing business case was developed, and how this CPO and his team took greater ownership of the outsourcing process.

In Episode 3 of this “CPO Insider,” we learned how the CPO and his team (reluctantly) took ownership of the outsourcing process, and proposed a counterproposal to the original procurement BPO business plan.

CPO Serial: Episode 4 - The RFP

Andrew Bartolini: So, when in the process do you begin researching the procurement outsourcing market? When did you launch the RFP?

CPO: We began investigating providers early on in the process. We put out a very large RFP and had already had teams in to pitch by the time our counterproposal was accepted. So at this point, we had down selected and had nearly finalized the decision.

AB: So, basically when they came back with the initial recommendations, you said, “Alright, this is happening. We can negotiate to what degree this is happening, but we need to launch an RFP so that we have qualified people in here so whatever we ultimately decide we’re going to do quickly.”

CPO: Yes.

AB: So how did this RFP map to the larger corporate outsourcing initiative? Was this an RFP for your part of the project only, for the entire piece of work, or something else?

CPO: Our original intent was to launch a comprehensive corporate-wide outsourcing RFP – something for the entire book of business. We wanted to find a provider that could do it all. One of the reasons we wanted to lead the outsourcing project with procurement was to also run the RFP.

AB: That makes sense, I have been recommending for a few years now that procurement take ownership of the “outsourcing” category. There is no reason why procurement shouldn’t centralize the management of these initiatives and centralize expertise. Anyway, talk about the RFP process – for example, I would assume that there are only a few companies that are large and qualified enough to really provide complete BPO services across the full scope of this project. What did you find?

CPO: We had about 10 companies that responded to our RFP. Twelve were requested and shortlisted; 10 responded. I think nine or so came to pitch, there are many who think they are capable, even if they are not.  We had a mixture of Tier 1 and Tier 2 BPOs. They had to show that they were going to be able to do it and be able to do it tomorrow.

AB: So nine RFP responses back; who’s driving the process, who is making the decisions? Was it the executive team?

CPO: Actually, no. We put together a cross-functional team to assess the capabilities, cultural fit, and skill sets of each bidder, encompassing not just procurement and accounts payable but other business processes too.

AB: What were the top considerations? You mentioned capabilities and then cultural fit, what else?

CPO: Well, the geography – where their geographic centers were located. Most of these companies are located in and operating from India, but we were interested in their geographical footprint. We were outsourcing operational procurement and P2P but we also wanted support on another front, and this was an important element in the business case. We wanted support on category management to enable us to deliver greater savings beyond the expected savings from outsourcing transaction support. We shortlisted four companies – two of which offered both sides of the equation under one company and two who ended up partnering with other companies via partnerships.

AB: And just to repeat, from the nine RFPs sent out for the entire book of business: there are now four providers that you’re talking to – all of whom were included in the initial RFP which included a scope far beyond procurement/AP.

CPO: Yes.

AB: And now, they’re also being evaluated for their ability to support outsourcing of HR, and F&A, and whatever else is on the list. With four finalists, two were full-service shops that could do it all, and two were specialists that planned to use a partner.

CPO: Yes.

AB: When you’re selecting the provider for procurement, are you positioning the procurement outsourcing as a “phase 1″ or as a “pilot?” BY that I mean, after that group had proven itself to procurement, did they expect that you would then open up the door to the entire corporate project solely to them or had you decided that your company may use more than one provider and take a more fragmented approach?

CPO: Probably when the time came, we would revisit it, frankly speaking. Of course, like all companies, we wanted to get the most bang for our buck. So give us the total landscape and get them interested and see how the first one went. We absolutely had in mind a long-term partnership, and we still do, with one program to be hopefully followed by others.

Twelve in the RFP; 10 responses; four finalists. Which one did they select and using what criteria? In Part Five of CPO Insider, we’ll discuss the key differences between these service providers, how the company ultimately awarded the outsourcing contract, and a surprising development that caught this CPO and his team off guard. Read that, and then register for CPO Rising 2016: The Agility Agenda” to learn from your procurement peers about how to push your department to the next level of performance.

 

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