In many ways, our upcoming event, The CPO Rising 2016 Summit, 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. Readers can find the first 10 episodes here and get caught up on what has become an insightful and instructive real world case study focused on outsourcing the procurement function.
In our last episode, our CPO walked us through more headaches, miscommunication, and mismanagement of what has become a tale of procurement (and AP) outsourcing gone bad. In today’s episode, we learn that this procurement outsourcing project went from bad to worse, and that this CPO and his team realized that they had to get their act together and exert greater influence in the process if they were going to resurrect it.
CPO Insider: Episode 11 – Situation Normal
Chief Procurement Officer: So, the first couple of months were terrible. We sent over (to India) the AP team manager and assistant manager who meant to stay there for three days, but ended up staying for two weeks. They worked US hours in India, which means they worked from 6 PM to 3 AM in India, just trying to get the BPO staffers to understand how to process invoices. Additionally, the BPO provider thought that they had many, many good ideas for how to do things better, but they would not ask us before they changed things. They would make a change without understanding the consequences further along in the process. Of course, it created issues because if you change this file, well, it links into that file. Now, they couldn’t reasonably know that, but that’s why we told them, “Don’t change anything.” They just didn’t see the logic in it. Finally, it got so bad that we had to ask their executive of AP to send a message out that basically said, “The next person who changes one of the client’s workflows without permission from the client will be fired.” Through that whole first quarter, it just continued to be a total snafu.
AB: Situation normal…..
CPO: Exactly! I’ll give you another example. When someone would call into the help desk, they would just route the message either to someone performing a procure or pay activity, and they just acted as a ticket service. So you would call them, they would give you a ticket, they’d send you one of those annoying automated ticket things, they would route it to somebody, but that person had like 50-60 tasks pending. So the help desk task would come on the end (of that task list). And the help desk should have had an escalation flag to ensure a response within 48 hours. Instead at 48 hours in or when someone would follow-up, the help desk would respond that, “We routed your request,” but the request would never get managed, because the people tasked with responding were way too busy doing their primary activities.
Additionally, the BPO provider had grossly underestimated the bandwidth that was needed to support our business. We needed 120 mbps, but they had planned, I think, for 40 mbps. So then came this round of mutual accusations about, “What the hell? What happened?” Well, we had given their IT team all of our parameters, how many transactions, and so on. Their IT team had sent a 25-page proposal to the project team and to our IT team, and in that proposal, was the number of bandwidth per seat that the BPO provider believed was needed – their proposal. Our IT had not properly checked that.
AB: So, both stakeholders dropped the ball on that one.
CPO: Yes, absolutely – the BPO underestimated the bandwidth requirement and our IT team didn’t call them on it. So at that point, we explicitly said to them, “Look, you’re the outsourcing expert. We were relying on your expertise for the bandwidth calculation,” in addition to the transition phase and the timing. As a result, transactions were incredibly slow because we’ve all been in third-world countries where there was insufficient bandwidth, right? So, the wheel was turning, transactions were slow to process, everyone had to work extra hours, they had to come in on Saturdays and Sundays to make up for the very slow bandwidth. We actually found online – I had found, just Googling – that this type of platform that we’re using typically requires 100 mbps, and that should be common knowledge. Now, the BPO’s consultants said that none of their other clients required that much; that they had absolutely no idea about the requirement; that they had neither planned nor budgeted for that increase. Therefore, it would take two months to order what they called, “the tube” to connect and bring that broader bandwidth into the company. So, for two months we hobbled along with everyone on insufficient bandwidth, which just adds to the total mess of the situation.
AB: Frustrating to say the least.
CPO: Oh, absolutely – I was very annoyed through this whole thing. The line that was on everyone’s lips – and I don’t want to sound like a saint because I royally screwed up on my own and in many ways – was, “Well, the BPO is the outsourcing expert.” And the line that we at the head of shared services kept on saying – and this still drives me absolutely crazy – was, “Well, we’re not outsourcing experts – we know very little about outsourcing – we’re counting on your expertise.” And after hearing that ad nauseam, I said to my colleague, “You know, I’m sorry, but at the end of the day, we’re outsourcing. So, I understand we’re not outsourcing experts, but we’d better get our act together because otherwise we’re just going to suffer for it. So let’s not face future generations of outsourcing with this incredibly passive attitude of, ‘Well, we know nothing about outsourcing and we’re counting on you,’” because look where it got us!
AB: Exactly. You took their word, relied on them to shepherd you through this process, but in the end you were led into rough terrain.
CPO: I think what is actually the most interesting part of this story is the mistakes we made and the lessons we learned. The rest of this is more of a “tale of woe.” But the lessons learned part is more about what companies need to consider before they launch on outsourcing and what would have made this successful or more successful for us.
AB: Right, absolutely. We’ll leave it here and figure out how to invite you back to share those lessons and maybe add in a few of our own. I would like to thank you for sharing this story with us, it has been a fascinating, honest, and comprehensive first-hand look at how you and your team managed a larger initiative to outsource procurement and AP. It has been absolutely great
And, there you have it – CPO Serial, Season 1 is in the books. We hope you have enjoyed the story’s many surprising twists and turns and we’re sure that our readers have gleaned many key lessons and takeaways from this series. And while Season 1 of CPO Serial has concluded, we’ll return soon with some of the Chief Procurement Officer’s lessons learned and some final thoughts of our own.