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• 10 years of consulting experience in Supply Management (North
America, Europe and the Middle East)
• Focus areas:
- Large procurement transformation programs
- Procurement enabled localization
- Strategic sourcing
- Training
• Education:
- MBA (Supply Chain Management)
- Masters in Industrial Management
- Chemical Engineering
Companies looking at BPO should start by answering three
basic questions
Source: A.T. Kearney
Why? To…
- …reduce cost
- …improve service
- …reduce complexity (focus on core)
What…
- …functions?
- …activities?
Who?
- Selection criteria?
- Profile?
- Location?
Source: IDC; Gartner; Forrester; AMR Research; A.T. Kearney
An ocean of activities are potential BPO targets – prioritize…
Some key considerations
• Where is the cost concentrated?
• How complex are these
activities?
• What is the value of
conducting them in-house?
• How mature is the BPO
supply market?
• What are the potential risks
and tradeoffs?
• Research & Information
services in HR
• Program Oversight &
Delivery Training
• Strategy Development
Training
• General/
Open book
Accounting • Equity Financial
& Insurance
Research • Core Banking
• Revenue Cycle
Management • Underwriting &
Asset Mgmt • Health
Benefits
• Workforce
Planning
• Pension
Benefits
Planning
• Welfare
Benefits
Planning
• Financial
Administr
ation
• Data
Analytics
• Compliance
and recovery
management
• Offshore
Servicing
• Document
Processing
• Facilities
Optimization
• Credit Risk
Management. Analysis
and Reporting
• Consumer
Credit
• Automated Order
Placements and
Delivery
• Security
Management
• Technology
Management • Content
Design &
development
services
• Remote Data
Center Operation
services
• System Management
consulting & Design
Services • Application
Development,
Testing and
Maintenance
• IT Consulting
• Systems
Integration
• Optimization of
network Traffic
• Managing
Network Firewalls
• Programming &
Maintenance
services
• IT Spend
management
• Facility Operation
and Management
• Vendor
Management
• Enrolment
Management
• Vendor
Sourcing
• Vendor
Negotiations • Contracts
allocation
• Commodities
Determination • Transportation
Management • Warehouse/
Inventory
management
• Freight
Payment
Processing
• Logistics Trade
Management
• Order Mgmt
• One-stop
solutions
• Research &
Development
• Vertical Integration
across functions
• Product Engg,
Design, Dev &
Testing
• Paralegal
Consulting
• Research
& Analytics
• Medical Content
& Consulting
Services • Knowledge
Management
• Captive Offshore
• Payroll
Processing
• Employee
communication
• Transaction
Management
• Bills/Payment
Processing
• Claims/ Cheque
processing
• Programming &
Maintenance
services
• Security Services
• Multi Vendor
Management
• Business & Market
Research
• Category
Management
• IT Infrastructure
Management
• Loan processing/
servicing
• Customer
interaction
• Tax
Management • Pension/ Welfare
Benefits
administration
• Treasury & Risk
Mgt.
• Recruitment &
Selection • Customer
Analytics
• Order
Management
• IT Application
Management
• Technical support
• CRM Solutions
• Contact centers
management
• Help Desk
BPO maturity
…and treat BPO implementation as a transformation program where change management plays a key role
BPO partner selection process
Source: A.T. Kearney
• Detail transition
plan
• Finalize
negotiations
• Confirm business
case
• Select vendor
• Define and sign
operating
agreement
• Evaluate vendor
operations
• Refine vendor
evaluation
• Down-select top
vendors for
negotiations and
due diligence
• Evaluate RFP
responses
• Down-select
vendors based on
evaluation criteria
(technical and
commercial)
• Develop evaluation
criteria based on
business goals
• Develop and launch
a comprehensive
RFP
• Align migration teams
• Plan migration
activities
• Establish connectivity
to remote locations
• Establish vendor
management
organization
• Confirm scope of
the initiative
• Validate baseline
and initial savings
estimates
RFP responses evaluation
Site visits & detailed
solutioning
Negotiations & solution
finalization Implementation Long
vendor list
RFP launch
Strategic assessment validation
Ongoing evaluation of BPO business case
Go/No-Go gates
While BPO can help you achieve your business goals, it can also have some undesirable side effects
1. Significant differences exist by country and industry Source: A.T. Kearney
BPO impact on local labor
GCC national to expat ratio – Private sector1
GCC national to expat ratio – Government1
BPO most common target
2016 A.T. Kearney GSLITM (Global Services Location Index)
1 India
2 China
3 Malaysia
4 Brazil
5 Indonesia
6 Thailand
7 Philippines
8 Mexico
9 Chile
10 Poland
11 Vietnam
12 Bulgaria
13 Romania
14 Sri Lanka
15 US
16 Egypt
17 Russia
18 Latvia
19 Costa Rica
20 Columbia
21 Turkey
22 Bangladesh
23 Germany
24 Ukraine
25 UK
Replaced by labor
from:
1.54
2.48 5.32
5.31
0.87
2.37
1.10
1.72
2.14 2.32
3.34 5.31
1.121.14
5.310.84
5.332.70 0.99 1.64
5.382.23
5.512.88 2.11
5.543.37 1.03
2.99 0.94 1.66
5.663.19 1.25
1.14
5.592.79 1.16 1.64
5.60
1.42 1.89
6.492.28 2.71 1.51
6.963.22 2.55 1.19
1.40
3.04 1.44 1.44
5.993.23 1.54 1.22
6.002.34 2.07 1.59
6.052.75
1.38 1.46
5.32
1.22
5.682.41 1.37 1.90
5.72
3.03 5.29
2.332.280.67 5.28
1.61
5.883.17 1.43 1.29
5.92
1.80 1.34
5.453.20 1.29 0.96
2.70 0.90
2.58 1.26 1.88
5.872.71 1.56
Business Env.Financial Attrac. People Skills and Avai.
95%80%
20% Expats
Nationals
Support Functions
430
Core Functions
1,000
5%
60%34%
40%66%
Expats
Nationals
Support Functions
470
Core Functions
1,000
Focus on financial
performance
Outsourcing of activities
performed by local labor
Challenged long term
sustainability
Focus on promotion of
local labor
Impacted financial
performance
Challenged mid term
sustainability
At first sight, within the context of BPO, financial performance and promotion of local labor seem hard to reconcile
Catch-22
Financial
performance
Promotion of
local labor
Source: A.T. Kearney
What if we were to reinvest part of the cost savings derived from BPO into creating local value
Reinvesting in local value creation
Source: Auguste Rodin; A.T. Kearney
BPO
Interestingly, the solution lies within a BPO target
• Research & Information
services in HR
• Program Oversight &
Delivery Training
• Strategy Development
Training
• General/
Open book
Accounting • Equity Financial
& Insurance
Research • Core Banking
• Revenue Cycle
Management • Underwriting &
Asset Mgmt • Health
Benefits
• Workforce
Planning
• Pension
Benefits
Planning
• Welfare
Benefits
Planning
• Financial
Administr
ation
• Data
Analytics
• Compliance
and recovery
management
• Offshore
Servicing
• Document
Processing
• Facilities
Optimization
• Credit Risk
Management. Analysis
and Reporting
• Consumer
Credit
• Automated Order
Placements and
Delivery
• Security
Management
• Technology
Management • Content
Design &
development
services
• Remote Data
Center Operation
services
• System Management
consulting & Design
Services • Application
Development,
Testing and
Maintenance
• IT Consulting
• Systems
Integration
• Optimization of
network Traffic
• Managing
Network Firewalls
• Programming &
Maintenance
services
• IT Spend
management
• Facility Operation
and Management
• Vendor
Management
• Enrolment
Management
• Vendor
Sourcing
• Vendor
Negotiations • Contracts
allocation
• Commodities
Determination • Transportation
Management • Warehouse/
Inventory
management
• Freight
Payment
Processing
• Logistics Trade
Management
• Order Mgmt
• One-stop
solutions
• Research &
Development
• Vertical Integration
across functions
• Product Engg,
Design, Dev &
Testing
• Paralegal
Consulting
• Research
& Analytics
• Medical Content
& Consulting
Services • Knowledge
Management
• Captive Offshore
• Payroll
Processing
• Employee
communication
• Transaction
Management
• Bills/Payment
Processing
• Claims/ Cheque
processing
• Programming &
Maintenance
services
• Security Services
• Multi Vendor
Management
• Business & Market
Research
• Category
Management
• IT Infrastructure
Management
• Loan processing/
servicing
• Customer
interaction
• Tax
Management • Pension/ Welfare
Benefits
administration
• Treasury & Risk
Mgt.
• Recruitment &
Selection • Customer
Analytics
• Order
Management
• IT Application
Management
• Technical support
• CRM Solutions
• Contact centers
management
• Help Desk
BPO maturity
Vendor negotiation
Vendor selection
Contract allocation
Ability to influence
vendor’s behavior
Vendors create local value in multiple ways beyond the generation of local jobs
How do vendors create local value?
Source: A.T. Kearney
Skills
Procurement of
products
Local jobs
(& salaries)
Investments in
certain provinces
Historical Capital
Investments
Current Capital
Investments
Future Capital
Investments
Expenditures
(opex)
Investments
(capex)
Development
Platforms
Foreign jobs
(& salaries)
Procurement of
services
Local labor plans Investments in high
value added steps of
the value chain
Investments in R&D
Foreign jobs Medium
Local jobs High
Source: A.T. Kearney
A comprehensive way to measure local value creation is the cornerstone of this approach…
Expenditures (opex)
Investments (capex)
Development Platforms
Driver
Skills development
Foreign COGS Low
Local COGS High
Sub-driver Contribution
VLV creation
(USD/year)
Strategic Investments
Clustering potential
Historical Capital Investments
Current Capital Investments
Future Capital Investments
High
High
High
High
High
Low
Total cost vs. Local value (for a given performance)
0
10
20
30
40
50
60
70
80
90
100
Vendor D Vendor C Vendor B Vendor A
…shifting the question to “if I am going to invest, whom do I get the best return from?”
1. TCO: Total Cost of Ownership; 2. VLV: Vendor Local Value; 3. Excludes company profits Source: A.T. Kearney
VLV2 (USD MM / Year)
TCO1 (USD MM / Year)
baseline
US
D M
M /
Year
• Vendor A
‒ TCO = USD 90 MM / Year
‒ VLV = USD 10 MM / Year
‒ Return = 0.11 (for every dollar company spends with this vendor, this vendor generates 0.11 cents of local value)
• Vendor B
‒ TCO = USD 80 MM / Year
‒ VLV = USD 35 MM / Year
‒ Return = 0.44
• Vendor C
‒ TCO = USD 55 MM / Year
‒ VLV = USD 30 MM / Year
‒ Return = 0.55
• Vendor D
‒ TCO = USD 50 MM / Year
‒ VLV = USD 20 MM / Year
‒ Return = 0.40
Vendor local value creation becomes part of the supplier evaluation and selection criteria
Source: A.T. Kearney
Vendor selection criteria (into RFP)
• Vendor Capabilities
‒ Production capabilities
‒ Technical capabilities (e.g., design)
‒ Product quality (references, inspection reports)
‒ Supply risk (e.g., financial)
‒ Logistics (e.g., lead time)
• Total Cost of Ownership
‒ Acquisition price
‒ Installation cost
‒ Operational cost
‒ Maintenance & repair cost
‒ Disposal cost
• Vendor Local Value Creation
Expenditures (opex)
Investments(capex)
Development Platforms
Driver
Skills development
Foreign COGS Low
Local COGS High
Foreign jobs Medium
Local jobs High
Sub-driver Contribution
Strategic Investments
Clustering potential
Historical Capital Investments
Current Capital Investments
Future Capital Investments
High
High
High
High
High
Low
BPO
Procurement
Source: A.T. Kearney
Within the context of
BPO, financial
performance and
promotion of local
labor seem hard
to reconcile
Reinvest part of the
cost savings derived
from BPO into
creating local
value
The solution lies
within one of the
prime BPO targets:
Procurement
Key takeaways