Read about ways to transition to F&A BPO, the new thinking for generating continuous operational benefits and emerging areas where retail business performance can be optimized by partnering with a managed business services specialist.
How BPO Can Reduce Back End Costs to Create Front End Flexibility
• Cognizant 20-20 InsightsHow BPO Can Reduce Back-End Costs toCreate Front-End Flexibility Executive Summary turnaround times, transaction accuracy, team utilization, data analytics and to standardize SKU rationalization, increased private brand pen- operations. This white paper offers guidance on etration and fact-based merchandising decisions ways to transition to F&A BPO; new thinking for helped retailers survive, if not thrive, in the generating continuous operational benefits; and previous decade. By 2015, consumers will be emerging areas where retail business perfor- calling the shots as they demand more and better mance can be optimized through a partnership interactivity, segmentation, localization and with a managed business services specialist. customization, as they exert more leverage on increasing visibility into product availability and F&A Process Outsourcing pricing. This will require unprecedented levels of Companies that task a partner to manage their value chain collaboration. F&A processes retain only key finance personnel Business process outsourcing (BPO) can be a to coordinate the BPO relationship. This frees useful weapon in this battle. Retailers need new managers and subject matter experts to spend ways to reduce back-office costs to free up capital more time on merchandising and supply chain that can be invested in multichannel selling, optimization, as well as being more customer-cen- where they can concentrate on customer pref- tric rather than operation-centric. Once a retailer erences. To achieve this, many retailers are successfully tasks a partner with traditional F&A looking to specialists to manage business processes, it should consider other areas such processes ranging from support functions such as payroll, accounts receivable, fixed assets, as finance and accounting (F&A), payroll and general ledger (GL) accounting and treasury human resources (HR), to more revenue-enabling operations, among others. BPO programs can activities such as supply chain management, mer- be structured so cash flow benefits stream imme- chandising and replenishment, store operations, diately without undue capital burden. sales and marketing, e-commerce and real estate Streamlining Accounts and store planning. Payable Processes The main decision maker — the CEO, CFO or Our recent work with a large privately-owned, business unit head — needs to look beyond U.S.-based department store is a case in point. expense-related factors (though the goal should Saddled with a variety of systems, paper-inten- be to reduce operating costs by approximate- sive processes and multiple communication ly 30% to 40%) to the value delivered by the channels within an inefficient legacy accounts service provider, as measured by its ability to payable platform, the company had limited drive process efficiencies, improve service levels, reporting, visibility and decision-making velocity. cognizant 20-20 insights | august 2011
Process Improvement Due to OCR Implementation 2 1.75 1.62 1.6 1.53 Turnaround Time (in Days) 1.22 1.2 0.72 0.77 0.72 0.8 0.4 0 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Months in Production Client Baseline TAT TAT After OCRFigure 1Data entry was slow and cumbersome. Working over 30 days. Using our customized workflowwith this company, we transformed the accounts and other tools, we were able to bring down thepayable function by developing 55 small- to number of unprocessed invoices by more thanmedium-sized tools (that wrapped around its core 50% (see Figure 2).legacy systems). Key processes were streamlined,standardized and integrated across multiple Our proprietary cloud-based workflow platformlocations. A customized OCR solution reduced is deployed in most F&A processes and is usefulinvoice processing time by 60% and workflow for automatic work allocation, metrics tracking,management tools provided much greater quality check, report generation, audit trail andvisibility on unpaid invoices, which resulted in monitoring associate performance. With the helpfaster resolution (see Figure 1). of synergies between our IT and BPO practices, we are able to deliver value to our client by notIn another example, a large private, U.S.-based only improving but also automating processes,grocer had a huge volume of unprocessed invoices thereby reducing its head count.Unprocessed Receipts Over 30 Days as a Percent of Total Receipts 2.00 1.50% 1.50 % of Unprocessed Receipts 1.00 1.10% 1.05% 0.87% 0.85% 0.78% 0.75% 0.50 0.00 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Months in Production Target ActualFigure 2 cognizant 20-20 insights 2
Retail BPO Options: At a Glance Functions Processes to Consider Vendor data management, including handling of routine vendor queries, assurance audit, duplicate payment control, negative balance Merchandising vendor management, spend management and analytics, EDI data rec- and Replenishment onciliation, pricing support help desk and forecasting and demand planning. Item management/SKU data management, inventory master data Supply Chain management, bill of lading reconciliation and delivery scheduling and planning. POS help desk, local hours/shift planning, customer data analysis and Store Operations resource utilization (full time/part time mix) and store analytics. Customer help desk, after-sales support, loyalty program management Sales and Marketing coupon and gift card management. Online help desk, online surveys, content review and social media E–Commerce support. Real Estate and Store Planning Planogramming, lease management and property management.Beyond F&A: Other Processes software platforms. The system has variousto Outsource embedded components, such as process adminis- tration, reporting and collaboration tools, to offerThere is a great need for retailers to put busi- retailers greater transparency around how theirness process at the “high end” of the value chain business processes are performing. Thus, weto both cut costs and improve top line revenue see traditional BPO (e.g., lift and shift of busi-growth. Consequently, we are investing in a busi- ness process to a third party, predicated on laborness process management (BPM) system which arbitrage) and BPaaS (e.g., invoking third-partycan be used for modeling and managing busi- automation and expertise to optimize processness running on proprietary and third-party performance) as co-existing in the short term. In retail, there is a major push to divest overheadEstimated Annual Savings associated with in-house processes — labor, hard-Per Retailer ware, applications, real estate and management. Many of these functions can be better handled by a managed services partner. The table above 18.00 shows which processes should be considered. 16.00 0.49 Estimated Annual Savings (in $ millions) 1.79 Figure 3 to the left reveals potential cost savings 14.00 retailers across categories could realize by 12.00 2.55 engaging a managed services partner with many 10.00 of the processes enumerated above. 3.79 8.00 BPO’s Value Proposition 6.00 The benefits of engaging a managed services 0.20 4.00 partner cover a wide range of activities. They 6.91 0.46 0.66 0.05 0.15 include: 2.00 0.99 0.24 1.66 0.30 0 0.54 Store Operations Support: Global experts knowl- Big Box Large Medium edgeable in a wide array of retail processes and Order Management Supply Chain Management products can provide input around the clock E-commerce Merchandising and to help when issues arise. For example, if a Store Operations Replenishment customer’s coupon will not scan in the system, the cashier can call the support team for helpFigure 3 in solving the problem. Retail personnel can ask cognizant 20-20 insights 3
about everything from inventory availability to of some late documents in order to resolve dif-promotions to store technology; the support team ferences. Due to timing differences between thewill help resolve any issue at hand, freeing store transition of electronic data between systems andemployees to interact with customers. imaging of the hard copy documents, they would look up the same document multiple times onFor one of the largest office supplies companies consecutive days until it was found in the imagein the world, we assumed responsibility for repository. We developed a macro to look forhelp-desk support processes, including Level 1 that documentation automatically to determineand 2 troubleshooting, incident and knowledge if the document has been received. A two-hourmanagement and support for hardware and process was thus cut down to 15 minutes everysoftware across stores, corporate centers, dis- day, which is approximately 450 hours saved pertribution centers and contact centers. Our team year on this process. By tapping into additionalcomprised generalists and specialists for POS, resources such as Six Sigma, quality control andcopy centers and ship centers, PCs, pick-to- buffer resources, we were able to deliver processlight systems, conveyor belt systems and order improvements that benefited our client throughsystems. Working with us, the client realized a increased accuracy and automation.savings of $2.1 million over a three year contractterm with productivity gains of 10% Y-o-Y. Financial Incentives Tied to Business Impact: Service-level agreements (SLAs) have improvedLoyalty Programs: These programs have become over the years between service providers and theira major force in retail, one that can often be better clients. In the early years of managed services,managed by a third-party service provider. Many SLAs were normally stick-driven agreementsretailers have switched from stand-alone loyalty that penalized performance that declined belowprograms that are promotional in nature to house the agreed-upon level. Today, incentive-basedcredit cards that offer shoppers incentives to buy. agreements that offer financial rewards whenLoyalty programs are expanding as retailers seek vendors exceed expected performance areto reward their most valued customers. commonly accepted.Merchandising Processes: These processes Visibility and Control: Retailers need informa-have emerged as another area of managed tion quickly and want to interpret it easily. Currentbusiness service opportunity for retailers. For ERP/legacy platforms are geared to handle largeexample, planning and analysis can be handled chunks of data and integrate with other applica-by any service provider with proven and relevant tions such as general ledger and sales ledger.experience. We have helped retailers with Reporting — and hence visibility and control — cancustomer and product segmentation, including be simplified and accelerated with the servicecategory analysis, store analysis, same-store provider’s tracking and tools.sales and customer profitability analysis. Innovation: Retail business leaders need solu-Enabling Better Business Performance tions to business problems, yet often find itRetailers evaluating the business case for difficult to motivate internal technology teams tomanaged business services, or BPO, have ample innovate and evolve. With the right provider, BPOevidence based solely on cost savings. But this is a guarantee of continuous process improve-approach can also help drive continuous business ment, analysis and innovation.performance improvements for the followingreasons: The Glocalization of RetailBPO and IT/IS Synergies: We are continuously All retailers need to fundamentally rethink theirimproving the performance of legacy systems brands to better reflect customer needs andwith wrap-around solutions that combine appli- desires while aligning business processes withcations expertise and process understanding. corporate strategy. Initiatives to rebrand andThese add-ons achieve speed and flexibility while refocus on the customer may have limited capitalmanaging development costs. if back-end costs can’t be effectively trimmed.The aforementioned large U.S. grocery chain Working with a managed business serviceshad thousands of receiving documents that were provider allows reinvestment in the all-importantscanned and transmitted by its imaging partner. front end. Retailers that succeed with this willThe grocer’s associates had to manually log in increase agility and seize new opportunities toto the imaging repository and verify the receipt innovate. cognizant 20-20 insights 4