PROJ410 Case Study 2

PROJ410 Case Study 2

DeVry University
Contracts and Procurement
PROJ410 Case Study 2
Company Background:
ABC Maretin! Services is t"e com#any t"at #rovide t"eir c$ients a com#$ete suite o% maretin! and e&
commerce so$utions t"at "e$# t"em to 'in ne' customers( retain t"eir c$iente$e and a$so "e$# t"em deve$o#
t"eir maretin! services and strate!y) ABC Maretin! Services desi!ns and mana!es t"ousands o% c$ient e&
commerce 'e*sites '"ic" "e$# im#$ement customer maretin! tar!etin! and se!mentation strate!ies to
increase and measure t"e revenue #otentia$ in every customer interaction+se!ment) ABC Maretin!
Services, customer -nnovation so$utions are s#eci%ica$$y tai$ored to im#rove eac" customer,s end&to&end
e.#erience( "e$#in! to *ui$d *rand $oya$ty and drive t"e "i!"est $eve$s o% satis%action across a$$ customers)
/"e com#any "as 'ide ran!e o% customers s#read a$$ over t"e !$o*e and "as *een in t"e maretin! services
*usiness %or 20 years no') /"e com#any "as anot"er division t"at s#ecia$i0es in t"e ca$$ centre and re$ated
customer interaction services) /"e com#any "as e.#anded its o#erations over t"e $ast %e' years and "as
severa$ de#artments 'it"in t"e com#any to tae care o% various %unctions suc" as o#erations 1ecommerce
so$utions deve$o#ment and mana!ement2( sa$es 3 maretin!( administrations( -n%ormation tec"no$o!y(
4uman Resources( 5e!a$( Customer Services( Procurement and Purc"asin!( 6inance and accounts(
Business Strate!y( distri*utions and $o!istics and 4ead O%%ice)
Business processes to outsource
ABC Maretin! Services is t"inin! o% %ocussin! on t"eir core *usiness and outsource t"eir ot"er non&core
*usinesses) 6or t"is( it 'ent t"rou!" t"e due di$i!ence o% cate!ori0in! t"e core and non&core %unctions
'it"in t"e com#any) Core %unctions t"at 'ere identi%ied are7
O#erations
Sa$es and Maretin!
-n%ormation /ec"no$o!y
6inance and accounts
Business Strate!y
4uman Resources
Procurement and Purc"asin!
4ead O%%ice o#erations
8on&Core %unctions t"at 'ere identi%ied *y t"e mana!ement are7
PROJ410 Case Study 2
5e!a$ De#artment
Customer Services
Administrations
Distri*utions and $o!istics
Out o% t"ese %our non&core %unctions( t"e 5e!a$ de#artment and Administrations "ave very $o' "ead counts)
Personne$ in t"ese de#artments are e.#erienced and "ave *een t"ere in t"e com#any no' %or a$most 10&19
years) Distri*ution and 5o!istics "ave t"eir "eadcounts increasin! every year *ut at a very s$o' rate) /"e
Customer Services cater to t"e re:uirement o% *ot" interna$ and e.terna$ customers) ABC Maretin!
Services is #$annin! to outsource Customer Services de#artment to an o%%s"ore vendor as t"ere is a "eavy
need to em#$oy more num*er o% "eadcounts %or tain! care o% "i!" vo$ume o% ca$$s and :ueries %rom t"e
customers a$$ over t"e 'or$d) Because o% t"e tremendous !ro't" in t"e com#any,s *usiness( t"e need %or
"irin! in&"ouse em#$oyees "ave !one u# considera*$y and t"e com#any is not a*$e to ram# u# its resources
%or various reasons suc" as cost( $ac o% e.#erienced resources in t"e maret and a$so *ecause o% t"e
com#$e.ity in t"e "irin! #rocess) Overseas Vendors "ave a massive ;n!$is"&s#eain! #o#u$ation trained as
'e$$ as e.treme$y $o' $a*or rates)
One o% t"e ma<or advanta!es o% outsourcin! customer service is t"at t"e *est su##$iers "ave !reat
e.#erience in ra#id$y insta$$in! ca$$ centres) /"is inc$udes ac:uirin! and trainin! ne' sta%%( $ocatin! ne'
%aci$ities( insta$$in! #"one and com#uter termina$s( and *ui$din! re:uired $ins to t"e com#any,s com#uter
system) /"e customer service %unction is not considered *y em#$oyees to *e a critica$ <o* %unction so
com#anies routine$y "ire su*&#ar em#$oyees '"ic" $ead to #ro*$ems 'it" "avin! to constant$y recruit ne'
em#$oyees and train t"em) A com#any can avoid t"is issue *y !ivin! t"e tas to a su##$ier) /"e *est
su##$iers "ave !ood recruitin! si$$s to se$ect ri!"t inds o% #eo#$e( #ay and *ene%it $eve$s ca$cu$ated to
retain t"eir e.istin! sta%%s( and on!oin! trainin! #ro!rams desi!ned to maintain t"e :ua$ity o% t"eir sta%%s)
An im#ortant reason %or usin! a customer service su##$ier is t"at t"e com#any is dea$in! direct$y 'it" t"e
customer t"rou!" t"is %unction and must #resent t"e *est #ossi*$e %ace to t"e customer) A !ood customer
service su##$ier "as e.tensive e.#erience in tain! ca$$s and "irin! a :ua$ity customer service su##$ier
!ives a com#any a #ro%essiona$ ima!e 'it" its customers)
="en a com#any "as its o'n ca$$ center( t"is is entire$y a %i.ed cost as t"e com#any must #ay t"e sa$aries
o% a$$ em#$oyees irres#ective o% ca$$ vo$ume) A com#any can convert t"is %i.ed cost to a varia*$e one *y
s'itc"in! to a su##$ier '"o 'i$$ on$y *e #aid *ased on t"e vo$ume o% in*ound+out*ound ca$$s) /"is
conversion %rom %i.ed costs $o'ers a com#any,s *rea&even #oint( since t"ere are %e'er %i.ed costs to
cover( '"ic" maes it some'"at easier to earn a #ro%it on $o'er sa$es vo$ume)
PROJ410 Case Study 2
Establishing the preliminary performance targets / level of service
A ey #art o% any outsourcin! a!reement is t"e service&$eve$ a!reement 1S5A2) /"e S5A de%ines t"e
#er%ormance $eve$ e.#ected o% t"e su##$ier *y t"e com#any and is tied to suc" #er%ormance indicators as
s#eed( avai$a*i$ity( re$ia*i$ity( ca#acity( time$iness( and+or customer satis%action) /"e S5A and Per%ormance
metrics in t"is outsourcin! a!reement 'ou$d *e as %o$$o's7
Performance metrics - /"e su##$ier,s #er%ormance must *e measured o*<ective$y *y inc$udin!
#er%ormance metrics in t"e contract) /"ese metrics can s#eci%y a 'ide ran!e o% issues( suc" as t"e s#eed
'it" '"ic" t"e su##$ier com#$etes transactions( on!oin! cost reductions( :ua$ity $eve$s( and customer
satis%action $eve$s) Per%ormance metrics identi%ied are7
8os) o% in*ound and out*ound ca$$s 1/ransaction Vo$umes2 attended *y t"e Customer account
re#resentatives
8os) o% customer :ueries reso$ved
/urnaround time #er :uery taen on eac" :uery
Customer service ratin! -nde.
8os) o% customers attended
8os) o% esca$ations #er mont"
Avera!e /ime s#ent #er ca$$ #er customer
Performance metrics penalties - Once #er%ormance metrics are inc$uded in a contract( t"ey must *e
en%orced 'it" si!ni%icant #ena$ty c$auses t"at s#eci%y c"ar!es to *e $evied i% t"e metrics are not ac"ieved)
Assessment of the type of contract chosen for each business unit outsourced

6i.ed&#rice contract is one in '"ic" t"e *uyer #ays t"e se$$er a %i.ed #rice %or t"e !oods or services t"at it is
#rocurin!) 6or t"e customer service outsourcin!( t"e nos) o% ticets+ca$$ vo$umes is not no'n) /"e
com#any ABC Maretin! Services "as around 100 em#$oyees current$y and t"is is e.#ected to increase *y
90&100> every year !iven t"e nos) o% customers, !ro't" and increase in t"e ca$$ vo$ume or ticets+:ueries)
?iven t"e maret situation and t"e demand o% ecommerce activities and maretin! services increasin! very
ra#id$y every year( t"e com#any doesn,t 'ant to commit any %i.ed vo$ume to t"e su##$ier) A$so( t"e
demand cou$d *e %$e.i*$e and so t"e num*er o% "eadcounts is not %i.ed or can,t *e estimated at t"is sta!e)
PROJ410 Case Study 2
Unit&cost contracts are simi$ar to $um#&sum contracts in t"at t"e #rice o% eac"
@unit@ is determined at t"e start o% t"e contract) /"e sco#e is 'e$$ de%ined( so t"at t"e ty#es o% units are
de%inedA "o'ever( t"e num*er o% units needed is not no'n at t"e start o% t"e contract) ?iven t"e a*ove
scenario( t"e com#any is considerin! to !o %or unit #rice contract *ased on t"e some *ase$ine transaction
vo$umes) /"ere 'i$$ *e unit #rice %i.ed as %o$$o's de#endin! u#on t"e transaction vo$umes)
/ransaction Vo$ume 1Per Bear2 Price Per Ca$$ 1in USD2
0 & 90000 8os) USD 2
90000 & 100000 8os) USD 1)90
A*ove 100000 8os) USD 1)00
Su##$iers 'i$$ reduce #rices i% transaction vo$umes increase a*ove a *ase$ine amount) /"e su##$ier 'i$$
'ant to *ase #rices on an avera!e *ase$ine vo$ume t"at 'ou$d *e determined *ased on t"e data co$$ection at
t"e *e!innin! o% t"e contract) /"e com#any 'ants #rices to dec$ine in con<unction 'it" an increase in
transaction vo$ume( so it is reasona*$e in many instances to move a'ay %rom %i.ed %ees to'ard a #ricin!
structure t"at varies direct$y 'it" vo$ume) -n case o% "i!" vo$ume( setu# costs 'i$$ *e s#read over more
units( resu$tin! in $o'er #er&unit costs t"at s"ou$d *e #assed on to t"e com#any as $o'er #rices)
/"e ey #ricin! issue to %ocus on is t"e #rice #er ca$$) /"ere are many #ricin! variations to consider %or t"e
contract( *ut most o% t"e money t"e ABC Maretin! Services 'i$$ #ay is %or t"e #rice #er ca$$( so t"is
s"ou$d *e t"e %oca$ #oint o% ne!otiations)
Assessment of any issues that may arise (both in the short-term and long-term
/"e issues t"at may arise *ecause o% t"is outsourcin! are7
1) Su##$ier may need access to t"e com#any,s data*ase) ="en t"e su##$ier is ans'erin! customer :ueries
and t"e su##$ier must access t"e com#any,s data*ase to ans'er t"e :uestion) /"is #resents t"e dan!er o%
"avin! su##$ier em#$oyees !ain unaut"ori0ed access to com#any,s data*ase( as 'e$$ as main! incorrect
c"an!es in t"at #ortion o% t"e data*ase t"at t"ey are aut"ori0ed to access) /"ese #ro*$ems can *e overcome
*y a$$o'in! read&on$y access to t"e data*ase( as 'e$$ as *y constructin! a s#ecia$ inter%ace %or t"e su##$ier
t"at does not #resent any ot"er menu o#tions t"an t"ose %or '"ic" t"e su##$ier is a$$o'ed access)
2) Anot"er #ro*$em is '"en incomin! ca$$s are re$ative$y unstructured( '"ic" re:uires a muc" "i!"er $eve$
o% trainin! *y t"e ca$$ centre sta%% to #ro#er$y "and$e) -% a !reat dea$ o% e.#ertise is re:uired( t"e ran!e o%
#ossi*$e :uestions is *road( or ans'ers cannot *e reduced to a set o% sim#$e res#onses( t"en it may *e *est
to train t"e customer service sta%%s)
C) /"e com#any must a$so s#eci%y in t"e contract t"e avai$a*i$ity o% t"e ca$$ center) One o% t"e e$ements o%
avai$a*i$ity is t"e *usiness "ours o% t"e ca$$ center) /"e $en!t" o% o#en "ours 'i$$ *e a %unction o% t"e time
PROJ410 Case Study 2
0ones served as 'e$$ as t"e ty#es o% #roduct #ro*$ems encountered *y customers) 6or e.am#$e( i% customers
are 'or$d'ide( t"e ca$$ center must *e o#en around t"e c$oc( *ut i% t"e time 0ones served are <ust in t"e
United States( t'o s"i%ts 'i$$ #ro*a*$y *e su%%icient) 6ina$$y( avai$a*i$ity is im#acted *y system do'ntime(
'"ic" can *e caused *y "ard'are *reado'ns in t"e com#uter or #"one systems( or *y #o'er s"orta!es)
A$$ t"ree o% t"ese avai$a*i$ity issues s"ou$d *e addressed in t"e contract)
)Evaluating Potential !utsourcing "uppliers
Se$ection criteria inc$ude a 'ei!"tin! o% a num*er o% criteria( suc" as a su##$ier,s #rice( e.#erience(
%inancia$ sta*i$ity( and re%erences) /"e ABC Maretin! Services may see to outsource its contract to
su*contractors '"o "ave s#ecia$ e.#ertise in customer services) /"e com#any 'i$$ 'ant to revie' t"e
:ua$i%ications( e.#erience( and sta*i$ity o% eac" su*contractor to ensure t"at re:uired service $eve$s 'i$$
continue to *e met) ABC Maretin! Services 'i$$ assess t"e %o$$o'in! criteria to eva$uate outsourcin!
su##$iers)
"upplier#s reputation - /"e re%erence $ists o% a$$ su##$ier %ina$ists s"ou$d *e used %or $en!t"y #"one
intervie's and #ossi*$y %or on&site visits) ="en conductin! t"ese intervie's( t"e revie' team s"ou$d use a
standard set o% intervie' :uestions so t"at t"e res#onses to a$$ :uestions can *e more easi$y com#ared
*et'een candidate su##$iers)
"upplier#s level of e$perience and past %ork done & /"e revie' team s"ou$d re:uest %rom eac" su##$ier
a set o% resumes %or t"e !rou# $ie$y to *e #er%ormin! services %or t"e com#any) /"ese resumes s"ou$d *e
summari0ed *ased on si$$ $eve$s( industry e.#erience( and years o% %unctiona$ e.#erience to determine t"e
:ua$ity o% t"e !rou#)
'echnical kno%ledge & /"ere are s#ecia$ customer ca$$ tracin! so%t'are t"at 'ou$d *e re:uired to *e used
as #art o% t"is contract) /"is no'$ed!e is usua$$y con%ined to very s#eci%ic nic"es in t"e customer service
area to *e served( so t"e com#any must *e sure t"at t"e no'$ed!e t"e su##$ier #ossesses is t"e same
no'$ed!e re:uired to service its needs)
"upplier#s financial condition - Arran!in! outsourcin! a!reements re:uires an e.tensive amount o% 'or(
and t"e $ast t"in! a com#any needs a%ter a$$ o% t"is revie' 'or is %or t"e su##$ier to !o out o% *usiness due
to %inancia$ di%%icu$ties) /"e sa%est a##roac" is to stay 'it" a *i! su##$ier '"o "as a "istory o% $on!evity)
4o'ever( sma$$er su##$iers tend to *e "un!rier %or t"e *usiness and t"ere%ore #rovide *etter service( so
t"ere are reasons %or not !oin! 'it" t"e *i!!est su##$iers in t"e industry) At a minimum( any su##$iers
s"o'in! strain on t"eir %inancia$ statements s"ou$d *e avoided)
Bid prices - Care%u$ com#arison o% t"e *ids 'i$$ *e done to ensure t"at t"e :uoted #rices are a$$ %or t"e
same *ase$ine services) A common su##$ier #$oy is to s"rin t"e *ase$ine services *ein! :uoted( '"ic"
PROJ410 Case Study 2
a$$o's it to :uote a reduced #rice and $ater c"ar!e "i!"er %ees %or non&*ase$ine services) -% t"e *ase$ine
#rices are not com#ara*$e( t"e com#any can eit"er re:uest ne' *ids *ased on a common set o% *ase$ine
services( or ca$cu$ate estimated tota$ costs *ased on t"e di%%erent #ricin! structures su*mitted *y eac"
su##$ier)
"trength of argument on the number of vendors selected to provide the services(
A%ter "avin! revie'ed t"e su##$ier *ids( it is #ossi*$e t"at t"e com#any 'i$$ %ind t"at no su##$ier #rovides
t"e correct mi. o% services to ade:uate$y meet t"e com#any,s needs) -n t"is case( it may *e #ossi*$e to
se$ect a $ead su##$ier( 'it" severa$ ot"er su##$iers su*contractin! to #rovide services to t"e com#any) /"is
a##roac" "as t"e advanta!e o% a$$o'in! t"e com#any to create a tai$or&made #aca!e o% services t"at
e.act$y %its its needs) /"e do'nside is t"at t"ere may *e too many su##$iers to e%%ective$y mana!e( and t"e
su##$iers may *$ame eac" ot"er %or service #ro*$ems( resu$tin! in some service #ro*$ems *ein! *andied
a*out %or too $on! *e%ore *ein! so$ved) -% t"e mu$ti#$e&su##$ier a##roac" is used( it is *est to ee# t"e tota$
num*er o% su##$iers to a mana!ea*$e si0e even i% t"e resu$tin! mi. o% services is not #er%ect and assi!n tota$
res#onsi*i$ity %or t"e %unction to a sin!$e su##$ier( #re%era*$y t"e one 'it" t"e *est mana!ement e.#ertise)
/"is one su##$ier 'i$$ tae care o% a$$ *i$$in!s to t"e com#any and 'i$$ "and$e a$$ com#$aints) -n e.c"an!e
%or #rovidin! t"is e.tra service( t"e $ead su##$ier s"ou$d *e #aid some'"at more t"an t"e maret rate %or its
services) 6or ABC Maretin! Services( it 'ou$d *e !ood to !o a$on! 'it" a sin!$e vendor as t"e
mana!ement o% a sin!$e vendor 'ou$d *e *etter *ot" %rom t"e cost and #eo#$e #ers#ective)
Assessment of timeline for bid activities and time duration for each contracting process(
Contracting Process Plan )uration
P$an Purc"ases and Ac:uisitions sta!e 1 Mont"
Procurement P$annin! 2 Mont"s
Re:uest Se$$er Res#onses 1 Mont"
Vendor Se$ection 2 Mont"s
Contract Administration C Mont"s
Contract C$ose&Out 19 Days
/"e com#any,s se$ection team s"ou$d s#end a $ar!e amount o% time intervie'in! t"e mana!ement o% eac"
#otentia$ su##$ier( visitin! su##$ier $ocations( and( i% #ossi*$e( ta$in! to em#$oyees o% t"e su##$ier) /"is
!ives t"e com#any a !ood idea o% "o' t"e com#any o#erates) Contract Administrator,s team s"ou$d devise
a standard set o% :uestions to *e ased o% eac" re%erence and s"ou$d o*tain com#$ete ans'ers to a$$
:uestions) /"e activities in eac" o% t"e contractin! #rocess 'ou$d *e as %o$$o's7
P$an Purc"ases and Ac:uisitions sta!e & /"is #"ase invo$ves mae or *uy ana$ysis) At t"e end o% t"is #"ase(
com#any 'i$$ "ave a documented #ro<ect #rocurement #$an)
PROJ410 Case Study 2
Procurement P$annin! & -n t"is #"ase( ABC Maretin! Services 'i$$ #re#are t"e so$icitation document
1R6P2) /"e R6P !ives t"e su##$ier *ac!round in%ormation a*out t"e com#any and its industry( and it
descri*es t"e %unction t"at t"e com#any 'is"es to outsource( s#eci%ic tass to *e taen on *y t"e su##$ier(
current transaction vo$umes( e.#ectations %or #er%ormance( and a dead$ine %or '"en t"e R6P must *e
received at t"e com#any)
Re:uest Se$$er Res#onses & -n order to accom#$is" t"is ste#( ABC Maretin! Services 'i$$ deve$o# a
#rocurement #aca!e t"at 'i$$ *e distri*uted to #otentia$ se$$ers) /"is #rocurement #aca!e inc$udes t"e
re:uest %or a #ro#osa$) /"e Contract Administrator o% ABC Maretin! Services s"ou$d derive a set o%
se$ection criteria %or #icin! a su##$ier) /"ese criteria s"ou$d *e as :uantitative as #ossi*$e( inc$udin! t"e
su##$ier,s record in settin! u# ca$$ centers( t"e de!ree o% su##$ier no'$ed!e o% t"e com#any,s industry(
e.#erience 'it" t"e vo$ume o% ca$$s t"e com#any is antici#atin!( and tec"no$o!ica$ e.#ertise in $inin! to
t"e com#any,s data*ase)
Vendor Se$ection D /"e Contract Administrator o% ABC Maretin! Services and ot"er committee can use
t"e com#$eted criteria to com#are su##$iers and mae an in%ormed c"oice) /"e *est 'ay to use t"e criteria
is to assi!n an im#ortance 'ei!"tin! to eac" #otentia$ su##$ier,s score on eac" item( t"en mu$ti#$y t"e
scores *y t"e 'ei!"tin! %actors) /"e su##$ier 'it" t"e "i!"est score s"ou$d *e se$ected)
Contract Administration & -n t"is #"ase( *ot" t"e #arties "ave to meet t"eir res#ective contract o*$i!ations)
/"e #rocess a$so revie's and documents t"e su##$ier,s #er%ormance in accordance to t"e contract) Once t"e
su##$ier "as *een #iced( t"e su##$ier 'i$$ need a due di$i!ence #eriod in '"ic" to investi!ate a$$ o% t"e
com#any,s needs in detai$ so t"at it 'i$$ *e a*$e to ne!otiate t"e contract on a no'$ed!ea*$e *asis) -t is
*est to !ive t"e su##$ier a$$ necessary #ro<ect detai$s #rior to si!nin! a contract( since t"e su##$ier mi!"t
ot"er'ise a!ree to terms t"at are unrea$istic *ased on actua$ re:uirements( resu$tin! in a $en!t"y
rene!otiation o% t"e contract at a $ater date) /"e vendor may not "ave enou!" e.cess ca#acity avai$a*$e to
"and$e it) -nstead( t"e su##$ier must construct or rent a %aci$ity( insta$$ cu*ic$es( and add com#uter termina$s
and te$e#"one connections)
Contract C$ose&Out & /"is #rocess 'i$$ invo$ve a$$ veri%ication o% a$$ 'or and de$ivera*$es are met as #er
t"e contracts)
PROJ410 Case Study 2
*eferences:
Jo"n E) 4a$vey and Bar*ara M) Me$*y) 1200F2) Business Process Outsourcin!) Second ;dition) Jo"n =i$ey
and Sons( -nc)
Steven M) Bra!!) 1200G2) Outsourcin!) Jo"n =i$ey 3 Sons)