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CHAPTER 9
OUTSOURCING & MANAGED PROCUREMENT SERVICE
Operator’s success will depend on their ability to significantly reduc...
Missing Bricks for Value Creation

GUIDLINES

ASSESSING POTENTIAL OUTSOURCING OPPORTUNITIES

Make or buy analysis - NOT JU...
Missing Bricks for Value Creation

MANAGED PROCUREMENT SERVICES
What is Managed Procurement Services (MSP) ?
Orange FT, Vo...
Missing Bricks for Value Creation

OUTSOURCING NETWORK OPERATIONS AND MAINTENANCE
Outsourcing elements of network and main...
Missing Bricks for Value Creation

NETWORK MAINTENANCE AND OPERATIONS ELEMENTS
Network planning and development. This func...
Missing Bricks for Value Creation

Operators that outsource this function to network infrastructure suppliers achieve more...
Missing Bricks for Value Creation

specific KPIs that properly reflect the targets of their sales and marketing organizati...
Missing Bricks for Value Creation

Case Study
MAKE OR BUY ANALYSIS OF WORKFORCE

Page 7
Missing Bricks for Value Creation

Case Study

Page 8
Missing Bricks for Value Creation

Case Study
Case study
Network & Service outsourcing

CHAPTER 10

Page 9
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Outsourcing - Reza Hagel CPO & Principle

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Outsourcing - Reza Hagel CPO & Principle

  1. 1. CHAPTER 9 OUTSOURCING & MANAGED PROCUREMENT SERVICE Operator’s success will depend on their ability to significantly reduce their cost structures to free up investments for future service offerings that really add customer value. A major Risk is a loss of skills and knowledge from the organization which need to planned as a core process. OUTSOURCING METHODOLOGY & STRATEGY
  2. 2. Missing Bricks for Value Creation GUIDLINES ASSESSING POTENTIAL OUTSOURCING OPPORTUNITIES Make or buy analysis - NOT JUST TARGETING COST REDUCTION Examples of value creation - Providing access to leading technology or a service critical to customers value perception - Contributing to innovation - Offering a real value to end customers and providing competition advantages - Concerning a core Domain/Activity not technically stable - Risks in supply dependency in case of outsourcing - Contributing to corporate transformation strategy Detailed cost and activities review (in IT, Network, CC, other) and guidelines definition Outsourcing prioritization & high level quantification based on CLIENT operating model (current and planned ) and strategic pillars Outsourcing strategy development • • • • • Definition of strategic rationale Outsourcing model definition (directional) Governance model definition Commercial model definition Initial potential vendor listing Identification of potential collaboration models Total spend and high level savings potential Operational benefits and risks QUANTIFICATION AND ASSESSMENT OF OPPORTUNITIES AT DEPT (IS, NETWORK, ETC) LEVEL) BASED ON DEFINED OUTSOURCING MODEL, GOVERNANCE MODEL & COMMERCIAL MODEL • Detailed costing & operational model definition Vendor collaboration models definition Definition of critical KPIs and SLA per activity Detailed outsourcing solutions definition o Guidelines on operational model key process interfaces IMPLEMENTATION OF SELECTED OUTSOURCING OPPORTUNITIES Deal structuring process management Page 1
  3. 3. Missing Bricks for Value Creation MANAGED PROCUREMENT SERVICES What is Managed Procurement Services (MSP) ? Orange FT, Vodafone Group, Southwest Airlines, UK Hospital NHS Trust » MPS is not only about traditional outsourcing but about focusing on the right set of initiatives and leveraging the tools and expertise of a partner to drive ongoing results » » Partner to own the results and savings Hybrid approach delivering the maximum value to the bottom line Tailored solution by management of categories, processes & procurement infrastructure » » » » » » MSP Outsourcing approach Transfer of responsibility for Specified category outsourcing Expert third party provider Sustainable, ongoing purchasing improvement Reduction or/and stabilization of headcounts Lowering risk Measurable business results » » » » » » » » » » » Best fit commodities for MPS outsourcing Maintenance, Repair & Operations Global Travel Marketing & Advertising HR benefits & Services Facilities & Property Services Temporary Labor Telecom & Network Services Capital equipment & Leasing Transportation & Logistics HR benefits, insurances & Services Business & Professional Services » Page 2
  4. 4. Missing Bricks for Value Creation OUTSOURCING NETWORK OPERATIONS AND MAINTENANCE Outsourcing elements of network and maintenance operations. Many outsourcing manufacturing partners claim that they are able of cutting costs and expenses by 20 to 30 percent, reducing headcount by 30-40 percent, improving lines per employee by 50 percent and increasing revenues per employee by upwards of 50 percent. Lifting operating profits by 10 to 20 percent. Combined with improved cash flows, reduction in capital expenses and freeing up management to focus on customer-centric issues, the impact on shareholder value has been extremely positive. OUTSOURCING NETWORK MAINTENANCE AND OPERATIONS • Reducing resources and OPEX and CAPEX investments. The supplier takes on the costs and responsibilities for process improvements, cross-training, investments in new automation, and most light assets such as tools, vehicles and PCs. No capital investment. • Improving customer focus. By outsourcing network operations, operators increase the number of employees directly involved in customer activities, thus formally changing the organization to one that is customer centric. • Establishing a variable rather than a fixed cost structure. Outsourcing provides for a variable cost structure that allows Operators to be more flexible and better align their costs with actual market demand. • Meeting the demands of a dynamic market. With new competitors on their heels, operators have to stay a step ahead. They must be able to influence product rollouts such as DSL, and create special offers or bundles that address changing market conditions. • Improving cash flow. Slashing operating expenses combined with the reduced need to purchase light assets quickly improves cash flow. By outsourcing network maintenance and operations, operators are supporting a customer-centric strategy while setting the strategy for future competitive advantage. Operators have been handing over much of the network deployment function to technology partners, allowing them to design, build and install core telecom equipments and infrastructures. Network maintenance contracts usually cover third-level maintenance support, spare parts and technical support for major problem. And most manufacturers outsource the construction function to subcontractors during Greenfield and Brownfield telecom network roll-out projects. As core business, there are potential risks that require a strategic and longer-term transformation plan. Deciding what makes the most sense to include in an outsourcing initiative often depends on corporate strategies, and its explicit labor and vendor situations. Page 3
  5. 5. Missing Bricks for Value Creation NETWORK MAINTENANCE AND OPERATIONS ELEMENTS Network planning and development. This function typically incorporates the network planning and design activities, which most operators view as strategic and are therefore not willing to consider for outsourcing. However, a few operators are beginning to change their minds—believing that certain technology providers can perform this function more effectively if they openly agree to best design criteria. Network engineering. Operators are split as to whether or not the actual engineering of the network must be retained in-house, with some operators expressing concerns about the security of the network if it is outsourced. Ensuring security and protecting network integrity are elements to be considered in case of outsourcing option. Construction. Most operators already outsource network construction to partner manufacturer who are outsourcing it to subcontractors but continue to manage it to control quality and performance. These manufacturers retain the materials management function to ensure quality and price. Network documentation. An electronic format that is outsourced to a qualified provider. Supporting the improvement of service provisioning, and key performance indicators (KPIs) for repair and maintenance. Operators must keep ownership of the database for maintaining the value of outsourcing. Network management NOC. Operators oversee routing traffic by handling peak surges, establishing network priorities and restoring service as strategic functions. Service provisioning and assurance. Service activation. Thousands of work orders are issued, each of which require special skills and expertise to complete. By necessity, service provisioning is decentralized and comprises the largest segment of the network workforce. Operators that outsource this function do so because they recognize that an outside provider can increase efficiencies by automating processes, improving records management and cross training the workforce. Service assurance is divided into on-demand and non-demand activities. On-demand activities have a direct impact on customer satisfaction, while non-demand activities are preventive maintenance calls, which have a direct impact on the demand activity and can extend the life of network components. As with service provisioning, this is a decentralized function that encompasses a significant part of the workforce. Dispatch. The daily scheduling of customer provisioning and repairs is integrally linked to an operator's workforce management system. Dispatch is typically integrated with service provisioning and assurance and has an impact on the overall network KPIs. Therefore, an operator that decides to outsource service provisioning and assurance should outsource dispatch to the same provider. Logistics and warehousing. Operating a network requires a significant logistics capability. Maintaining inventory levels requires considerable amounts of capital, which only creates value once it is activated. Warehouse operations are expensive and do not provide much in the way of customer value. Lost, inactive or underused inventory is not an easily identified expense—and few operators are able to track assets at the item level. Page 4
  6. 6. Missing Bricks for Value Creation Operators that outsource this function to network infrastructure suppliers achieve more efficient logistics and warehouse operations and maintain lower levels of inventory that could potentially be used across multiple customers. These are the major elements of a network. But given the number of full-time employees in the network unit of an operator, other support functions are also necessary. Activities such as IT, human resources and finance, which are dedicated to the network unit, need to be identified, isolated and incorporated into any network outsourcing evaluation. Building the Business Case An initial due diligence provides a basis for building a strong outsourcing business case. This should incorporate all "in-scope" activities, such as identifying all costs including: • • • • • • Support costs Outlining forecasts Potential rate of return, Valuing all assets, Construction & Civil Works, Logistics and materials procurement A well-defined program management plan will ensure that the business case is developed around actual costs that can be offset by network outsourcing. It will also identify potential risks. These mostly involve process and governance issues. Internal improvements prior to outsourcing Employees might reject outsourcing strategy, claiming the benefits can be achieved without outsourcing. It is key that improvement is made prior to an outsourcing strategy rollout. Formal performance evaluation process This will alleviate confusion brought on by outsourcing suppliers that have a slightly different approach to network outsourcing and will try to steer operators accordingly. During this process, the operator should ensure that the potential provider can meet the required responsibilities, can be held accountable for its performance as measured by defined service level agreements (SLAs) or key performance indicators, and has the scale necessary to achieve the expected cost reductions. Commercial aspects: Operators should pay special attention to the commercial aspects of the outsourcing provisions. For example, it is critical to split the scope of work into distinct services, identify a clear scope of work and define responsibilities for each service. Make it "modular" to provide the flexibility necessary to accommodate changes in market conditions, technology and services. For compensation, it is best to establish a fixed/variable scheme. This provides the flexibility that fluctuating markets require and the month-to-month predictability that an operator needs. Also, firms that establish Page 5
  7. 7. Missing Bricks for Value Creation specific KPIs that properly reflect the targets of their sales and marketing organizations have a better chance of meeting their goals. Strict forecasting requirements will ensure that providers deliver the expected services with the targeted KPIs and SLAs, while penalties for falling short should be incorporated into the agreement. In addition, if tangible financial rewards can be linked to the provider's overall performance, put them into the agreement as well. All of the commercial elements should be incorporated into a master agreement with supporting service documents that can be modified as conditions for a specific service change. Step-in rights and governance along with exit, liability, renewal and key operating provisions should be addressed in the master agreement. Finally, given the complexities of most outsourcing agreements, a strong legal team, supported by experienced outside legal counsel, is generally required. The commercial terms should be agreed upon during the evaluation process and nailed down in a detailed memorandum of understanding early in the process. Ensure executive-level involvement. Top executives must be involved from the beginning of the network outsourcing project. The board of directors and, if appropriate, supervisory boards need to be advised and updated throughout the process. Clearly define the operating model. The scope of activities to be outsourced and the interfaces that will be required are central elements in the network outsourcing operating model, aligned with specific service offerings such as DSL provisioning or assurance. The operating model should be designed to give the provider the flexibility to make it work and to ensure financial success. Design the outsourcing process. The right design has a major impact on the overall benefit to the operator even if the project is stopped at one of the go or no-go decision points. The four main outsourcing process steps are: • Optimize relevant processes before outsourcing • Define distinct phases and make go or no-go decisions at the end of each phase • Assess what outsourcing offers against the internal improvement options • Plan implementation on a phased basis to test the operational quality of the selected provider Create a life cycle process. Finally, the outsourcing process has to be understood as a lifecycle that requires reassessments over time based on changing conditions. Management needs to continuously monitor the outsourcing agreement and the supplier to ensure the company is achieving maximum benefits. Page 6
  8. 8. Missing Bricks for Value Creation Case Study MAKE OR BUY ANALYSIS OF WORKFORCE Page 7
  9. 9. Missing Bricks for Value Creation Case Study Page 8
  10. 10. Missing Bricks for Value Creation Case Study Case study Network & Service outsourcing CHAPTER 10 Page 9

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