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ABC Marketing Services is considering outsourcing its customer service department to an offshore vendor. This would allow the company to rapidly scale its customer service capabilities as its business grows without having to increase its own headcount. Key aspects of the potential outsourcing agreement would include performance metrics and penalties, as well as a unit price contract structure where the price per call decreases as call volumes increase. Potential issues that could arise include the outsourced vendor needing access to ABC's databases and maintaining data security and quality.
ABC Marketing Services is considering outsourcing its customer service department to an offshore vendor. This would allow the company to rapidly scale its customer service capabilities as its business grows without having to increase its own headcount. Key aspects of the potential outsourcing agreement would include performance metrics and penalties, as well as a unit price contract structure where the price per call decreases as call volumes increase. Potential issues that could arise include the outsourced vendor needing access to ABC's databases and maintaining data security and quality.
ABC Marketing Services is considering outsourcing its customer service department to an offshore vendor. This would allow the company to rapidly scale its customer service capabilities as its business grows without having to increase its own headcount. Key aspects of the potential outsourcing agreement would include performance metrics and penalties, as well as a unit price contract structure where the price per call decreases as call volumes increase. Potential issues that could arise include the outsourced vendor needing access to ABC's databases and maintaining data security and quality.
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)