Industry news

In the current economic climate, organisations are looking to their procurement departments and their supplier partners to deliver more in terms of real, tangible bottom line cost savings. How many times have you heard the CFO or CEO say the only real saving is one that can be removed from the budget and in year!

This demand creates a real challenge for the Procurement team. They could end up asking themselves;-

In order to deliver the cost savings, do I:-

 Look to renegotiate pre-existing deals?

 Change current contractual terms e.g. payment terms

 Focus on short term spot deals with regular tenders/e-auctions to deliver instant cost reduction

 Offer longer term commitment with suppliers to gain additional discounts?

OR

 Reduce the specification

 Step down the quality of product

 Reduce the Service Levels currently delivered to the end customer?

 Automate parts of the process to drive out cost?

Different individuals come up with various plans to achieve the aim of cost reduction. There are different drivers which affect the decisions made. For example, a company in survival mode should be ruthless in seeking to drive out immediate cost to survive. The business drivers greatly impact the wider engagement with the supplier community.

The problem is, the end customer whilst maybe applauding the sentiment to drive out cost, does not appreciate the degradation in the perceived level of service.

On the one hand you save the company money, on the other, the end customer feels the level of service and product is being degraded. What can you do to balance what appears at face value to be conflicting demands? There are a few steps you can take to improve your chances of striking the right balance:-

Understand Your Current Service

You should examine the deliverables and service currently received from your suppliers. This should include a review of the “gimmes”, these are the things they do for you but they are not contractually obliged to do so.

Undertake a Process Review

How do you build up demand and order the products and services. A suggestion would be if there is a large enough spend area and there is complexity that you would look to use six sigma experts for assistance in this space. You could also offer to extend this service into the vendors operations and supply chain.

Understanding Your Supplier Segmentation

You need to have reviewed your supply base and the products and services criticality to your business. Again, it is common sense, but trying to force a strategic supplier with a product which is critical to your companies’ performance into a tactical relationship would be a big no- no.

Assess the Marketplace

You must understand the competitive nature of the marketplace and the relevant power of the suppliers and buyers. It is no good recommending a short term approach and spot deals if there is a shortage of product and suppliers in the marketplace.

You also need to understand what competitors are doing. If you are looking for deeper relationships with key suppliers and seeking to get ahead of your competition by taking advantage of new features and supplier product developments, this wont work if they are about to do something similar with your main competitor!

Involve Suppliers

Whether you are changing your strategy to simply spot buy and go for short term deals, or are looking for longer term and deeper relationships, communicating with suppliers is key. It is something that sometimes is forgotten, but from a supplier perspective being kept in the dark as to your plans breeds an unhealthy situation. Sometimes the supplier will be willing to assist and offer an insight into what you could do to drive efficiencies as obviously it is in their interest to be viewed as on board and adding value.

Map Your Customer – Who really is your customer? Is it the requisitioner, the head of department or in reality Joe Public? By understanding who will physically use the product or service and what they will actually use it for, will give you a better understanding of the impact of any changes.

Meet with the specifiers

In a collaborative fashion, look to challenge the specification. Seek to understand what can and cannot be modified and the reasons behind it. Explain the importance of your review and impact it could have on the bottom line of the company.

Offer up Options

If you are endeavouring to change a specification, always look at various options, assess the impact and look to discuss with the customer/specifier. No one likes a fait accompli! You need to explain the changes and obtain input.

Obtain buy in before you execute the strategy

It is really important that you line all the key stakeholders up and gain their buy in before you execute the strategy

Baseline Current Service Satisfaction

You need to understand how happy the end customer is with the current service and how much they value it. You should then continue to track service perception to see what impact the changes are having.

In Summary, you need to:-

 Place a value on the current product and Service

 Look to save money through process efficiencies before you look to cut elsewhere

 Segment your supply base and products effectively – use this data to shape your approach

 Manage the engagement with the customers and suppliers

 Research your options

 Obtain Buy In

 Execute the plan and track performance

 Stay close to your customers and suppliers

Hopefully, through this type of approach, the CFO will be happy with the improvement to the bottom line, the customer does not complain about the service being delivered and your suppliers still want to supply to you.

Outsourcing is now a strategic choice for many companies and a continuing issue for managers and consultants. The transfer, negotiation and ongoing management of outsourced contracts all demand a great deal of people management. Yet, while the implications for those directly affected may be numerous and wide-ranging, little has been written on how to sensitively and successfully manage the transfer of such individuals and staff within an on outsourcing agreement.

The NOA seminar on ‘The Human Side of Outsourcing’ illustrated the following key issues through real-world case studies:

• People process - how to manage what is going on and how people react with associated behaviors)

• A customer’s perspective on their outsourcing experience

• A HR view on balancing the commercial imperative of the sourcing with the human angle

• The Legal and Practical Aspects of TUPE and Collective Consultation

Adrian Quayle - Board member for the North, introduced the event and explained the role of the NOA to communicate the significant benefits and strategic lessons of outsourcing to a wider audience.

Tony Morgan, IBM and NOA presented “From Customer to Service Provider – a Personal Journey” and emphasised the importance of mentoring and having a clear career model in the outsourcing industry.

Dr. Stephanie Morgan, BSc, MSc, PhD, Chartered Occupational Psychologist at Kingston Business School discussed best practice in managing staff. Stephanie outlined that human reactions at work are dependant on various contingencies such as varying stages and timescales.

Best Practice - Client?

• Over-communicate, and start as early as possible to minimise rumour mill.

• Ensure managers are trained to handle the individual, emotional aspects – don’t leave it all to HR.

• Let the supplier in as early as you can (and choose carefully!)

Best Practice – Supplier?

• Individualise staff induction processes as much as possible

• Remind staff that their client knowledge is also vital to you

• Over-communicate and try to engender a sense of belonging

• Need to socialise into your ways of working more due to group contagion

Kirsty Rogers and Fiona Miller, from DWF presented Legal & Practical Aspects of TUPE and Collective Consultation.

TUPE Key Points

Transferor

• Will TUPE apply?

• Who is in scope?

• Start preparing employee liability information

• Identify potential problems - ‘difficult’ employees

• trade union/employee representation

• Identify your management team

- allocate roles and responsibilities

• Contract – transfer of employee costs?

Transferee

• Will TUPE apply?

• Identify:

– information required from Transferor

– which employees may transfer

• Identify potential ‘measures’

– Restructure/reorganisation

– location change

– variation of terms

• Identify your management team

– allocate roles and responsibilities

• Contract – identify which employee costs will be taken on

Dr Mark Batey, Manchester Business School, presented on the Psychology of Creativity: Why we need to encourage Innovation in Outsourcing Agreements.

Mark said: “Innovation is the application of creativity to give rise to a new product, service or process delivering something new to the world. Creativity and innovation are a major source of competitive advantage. Are you encouraging creativity and innovation in your organisation?”

• Creativity - Solving problems, exploiting opportunities, leads to competitive advantage

• There is a problem but that is an opportunity!

• Recognise different styles, set the environment, use tools

Break Out Sessions – Notes

Potential Topics

1) Aspects of human side when moving offshore

2) Is creativity in an outsourcing agreement important?

3) How do we keep people on board after transfer?

Scenarios

1) Onshore transition and run

2) Transition and offshore run

3) Transition – six month transform (remove staff)

- Communications (plus sensitivity)

- Matching people to opportunities or vice versa

- Training and development

- Cash and retention bonuses

- Impression to client

- Understand and treat as individuals

- Address legal requirements

- Reputation and impact

- Cultural matching – awareness raising

- Induction processes

- Mentoring

- Social events

- Recognition of the good times

- Value from value

All slides from ‘The Human Side of Outsourcing’ event are available on the NOA website. The next NOA event is the NOA Summit and Awards – 9th and 10th November.

HMV is deploying Wax Digital’s web3 e-sourcing platform in a bid to cut costs and boost efficiency.

The software-as-a-service (SaaS) system will replace an Ariba sourcing solution, and according to Paul Barker, procurement manager at HMV, will enable the retailer to negotiate with suppliers more efficiently.

HMV will initially use web3 to source print and stationery products before rolling it out across other divisions.

“We chose Wax Digital for its intuitive platform and local sourcing expertise. It has helped us to procure more efficiently,” said Barker.

Wipro has announced financial results for its second quarter ended September 30,2011.

India's No. 3 software services exporter, beat brokerage estimates with its quarterly profit and forecast better-than-expected IT services revenue growth despite global uncertainty, sending its shares as much as 3 percent higher.

Highlights of the Results:

 IT Services Revenue was $1,472 million, a sequential increase of 4.6% and YoY increase of 15.7%.

 Non-GAAP constant currency revenue growth was 5.5% sequentially.

 Total Revenues were `90.94 billion ($1.85 billion1), an increase of 18% YoY.

 Non-GAAP Adjusted Net Income was `13.06 billion ($266 million1), an increase of 2% YoY. Net

Income was `13.01 billion ($265 million1), an increase of 1% YoY.

 IT Services Revenues were `68.29 billion ($1.39 billion1), an increase of 7% sequentially and 19%

YoY.

 IT Services Earnings Before Interest and Tax (EBIT) was `13.64 billion ($278 million1), an increase of

7% YoY.

 Our Operating Income to Revenue for IT Services was 20% for the quarter.

Azim Premji, Chairman of Wipro, commenting on the results said – “Macroeconomic sentiments continue to remain uncertain. We have seen growth momentum build up in our IT Business with healthy

volume growth. Our focused investment strategy will get the business to a higher growth trajectory. ”

Suresh Senapaty, Executive Director & Chief Financial Officer of Wipro, said – “We are continuing to see incremental progress in our client mining strategy with 5 customers contributing more than $100

million of revenues and our top customer hitting a revenue run rate upwards of $200 million. We had an impact on operating margins in the quarter due to salary increases.”

Janet UK plans £80m network deal Suppliers sought for upgrade to higher education and research councils' Janet network

Janet UK has advertised a framework contract worth up to £80m for the managed fibre infrastructure to upgrade its network of the same name for the higher education and research sectors.

According to a notice in the Official Journal of the European Union, the framework will supply services for 'Janet 6', the first stage in the replacement of SuperJANET5, the telecommunications network between the regional networks that together form JANET.

Advanced Computer Software Group secures £17m 10-year contract

Advanced Computer Software Group, a leading provider of software and IT services to the UK health, care and business sectors, has signed a 10-year, £17m agreement with the Northern Ireland Department of Health, Social Care and Public Safety to supply a province-wide finance, procurement and logistics solution.

The solution is part of the Business Services Transformation Programme aimed at saving Health and Social Care (“HSC”) in Northern Ireland in excess of £8m per annum over the 10 year contract. The contract will enable the HSC to streamline processes and reduce administration and purchasing costs.

Vin Murria, Chief Executive of Advanced, commented: “This key contract win is a clear demonstration of our Group-wide capabilities to provide a range of interlocking services and products to enable our customers to materially improve their operational efficiencies and reduce costs.”

G4S has pledged “not to throw in the towel” on its plans to buy ISS for £5.2 billion, despite growing opposition among shareholders who will hold a key meeting this week.

The world’s leading security company needs the backing of three quarters of investors to buy the Danish outsourcer, which specialises in cleaning and catering.

As they prepare for an extraordinary meeting on Wednesday, several institutions have indicated that they will abstain or vote against the acquisition, leading to speculation that G4S might abandon the deal or delay the meeting.

An independent tribunal in Australia has ordered a permanent end to the industrial dispute that has grounded all Qantas flights.

Fair Work Australia issued its ruling after hearing evidence from the airline, unions and government at an emergency session in Melbourne.

In August, Qantas announced restructuring and outsourcing plans to combat annual losses in international operation of about $200m. Unions responsed with a series of strikes, pressing for more job security

IBM announced that Medio Systems, Inc., a leading provider of mobile predictive analytics, has selected IBM System x servers to power its cloud-based IT infrastructure that analyzes the behavior of over 90 million users within Medio’s network of game developers, mobile publishers, handset OEMs and wireless operators.

Medio Systems worked with IBM to deploy 230 IBM System x servers powered by intelligent Intel Xeon processors running Apache Hadoop and Linux to offer its predictive analytics solution in a distributed, cloud-based environment. This software and hardware solution is purpose-built for the wireless application and smart device industry.

“With IBM's support, we will continue to provide best-of-breed predictive analytics solutions that allow our partners to take data-driven actions that optimize revenue and increase customer engagement,” says Medio CEO Rob Lilleness. “We’re already seeing the benefits from this new partnership and look forward to extending our industry reach. Our scalable data-driven business is built on IBM’s smarter hardware and software, systems and services.”

Bournemouth Council is to take independent advice on an outsourcing contract after staff unrest over the suspension of a senior official who questioned the deal.

Chief accountant, Stephen Parker, was suspended on full pay after raising concerns over Bournemouth’s plan to outsource its HR and finance services to the troubled firm Mouchel.