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CPO Insider: Procurement Outsourcing (Episode 6) – The Rubber Hits the Road

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.

In Episode 4 of this “CPO Insider,” we followed the team’s development and launch of an RFP to outsource procurement, accounts payable, and many other corporate functions.

In Episode 5 of this “CPO Insider,” we learned how this CPO and his team evaluated a decidedly poor vendor response, including vendor strengths, weaknesses, and missteps.

CPO Insider: Episode 6 – The Rubber Hits the Road

Andrew Bartolini: Showtime! From 10 bids, you and your team selected a provider, albeit one with a partner. At that time, how were you thinking about getting started? Were you looking to pilot some part of your operation or did you have a plan that says, by month X these processes will be fully outsourced? Also, how and who developed the plan?

CPO: Andrew, I have to tell you that in retrospect, we did something that you’d say was just incredibly stupid.

AB: Tell me

CPO: We started on a major outsourcing activity without having anyone in the company who actually understood outsourcing. I just need to call a spade a spade. We had a guy in shared services who had never done any outsourcing activity and really didn’t know anything about it, but wanted his organization to get some attention and figured he could tell us about outsourcing. If you don’t know what to do in your job, it’s reasonable to rely on a person who does, or at least says he does. And since this person was the head of our shared services group, it was reasonable to assume that he had some expertise and insight. We got pretty far down the road before his lack of expertise became fully apparent. And once that was clear, he disappeared leaving my team to its own devices. We made some calls to a few other companies that had outsourced procurement but we were late in the game. As a result we needed the two final bidders to give us some type of outline of how they would manage the transition. When we made the final decision,  we basically asked them how this transition should occur and asked them to design it completely. They gave us a full schedule and what they thought would be needed to do a knowledge transfer, how they would support a country-by-country implementation, and so on and so forth. They assigned a single project manager to build out the entire plan.

AB: So you made the selection and you did it somewhat blind from a standpoint of not having any real internal expertise with outsourcing and a consultant who could not support you in the process due to a conflict of interest. Now you are negotiating the SLAs [service-level agreements], while giving almost complete control to the provider to develop a transition plan. But there is no doubt that this is happening.

CPO: There is no doubt. The rubber is hitting the road. The original timeline to finish all of these activities was now, about 18 months into the process. But by that time we hadn’t even finalized and executed the contract. We had fallen behind but felt that we needed to stick to the original timeline of transferring the existing outsourced AP activity from the current provider to the new provider month 24. Of course, by this time, everyone in the entire department knew what was happening – everyone in the entire company was now well aware of the outsourcing initiative. Our people knew because I felt as those we had to advise my organization that this was happening. Now, they don’t know who, what, where…they know the why, and they don’t know the names. My leadership team and I start going through forced ranking exercises to determine who stays and who goes, trying all the while to do it as impartially as possible – relying on talent review data, their potential rating, system data versus people’s opinion. I feel that the process was brutally fair, but at the same time, it was a very difficult and at times very emotional process. You have to understand that for a variety of reasons, we had very low turnover and many career professionals. And despite the way the project had been run, we also understood that the company needed to take action if it was to turnaround. So, we buckle down and push hard to get the contract and then begin informing individuals on the team.

AB: With that announcement – you know that you had a specific headcount retention target of around 150. Are you looking to keep the most talented 150 in the organization and the allocate them as needed or is the decision based more so on their job roles and teams?

CPO: We did a combination, you can say. We kept some people who were on the transactional team who we considered had the good potential to move into a category management position. We moved about 10 people from that transactional team onto the retained functional team. Sadly, we had some high-potential people within the transactional team that we could not move because it would have crippled the team immediately and because we simply didn’t have the headcount. We had people that we would have liked to have moved into the category management team but we could not, so they remained on the transactional team until they were outsourced. Most of the transactional team was cut, as well as the people who were rated at the bottom of category management team.

AB: A tough process for sure. From a timeline perspective, remind us where we are now.

CPO: On month 21 we signed the contract. We aimed to transition a piece of US procurement activity and all of the already outsourced AP to the vendor provider by month 25.

AB: That leaves you about three months to shift that work. How about the procurement piece.

CPO: We began to transition procurement in month 25, starting with 25% of the US procurement operation and then every week another 25%. Then we had six months of concurrent operation, and then our people were fully transitioned out. That was all of the US employees. The global implementation kept on going. So we had several waves, plus knowledge transfer – that was like a week accreditation program of some sort – and then the 25% transitioned to 100% transitioned. Geography by geography we went……..

From the initial analysis, to competing recommendations, to the RFP and source selection process, to finally the implementation and transition processes, it took this CPO and their organization a 21 months to sign a contract and about 2 years to begin actively transitioning a majority of their procurement processes.

Next time on CPO Insider: This CPO and I continue our discussion and get down to brass tacks about the finer points of BPO implementation.

RELATED ARTICLES

CPO Insider: Procurement Outsourcing (Episode 5) – Vendor Selection

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

CPO Insider: Procurement Outsourcing (Episode 3) – The Counterproposal

CPO Insider: Procurement Outsourcing (Episode 2) – A Business Case is Made

CPO Insider: Procurement Outsourcing (Episode I) – It Begins

 

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