IT Contracted Professionals: Optimizing and Managing the Supply Chain
Pamela M. Beard, C.P.M.
Pamela M. Beard, C.P.M., Relationship Manager - Contracted Professionals.
S. J. Coleman, C.P.M.
S. J. Coleman, C.P.M., Director - Supply Chain Management BellSouth Telecommunications, Inc. Atlanta, Georgia 30375, (404) 420-6009
82nd Annual International Conference Proceedings - 1997
Like many corporations, BellSouth is facing increasing needs for high tech professional expertise - often this need is filled by "contract" or "temporary" personnel. BellSouth reduced the supplier base from over 90 firms to 9, instituted internal engagement process changes and the relationship management of a team of "preferred" suppliers. Results? Assured supply of needed talent, competitive pricing, and increased quality.
Overview of the "old" methods. Like many corporations, BellSouth is facing increasing needs for high tech professional expertise, particularly in the areas of application design and software development. Often this need is filled by "contract" or "temporary" personnel. At BellSouth, this grew out of control as our usage grew over 1000 contractors and cost well over $100 million each year. It became impossible to manage the growing number of suppliers - over 90. Problems with obtaining the appropriate skill sets, spiraling costs, and service quality issues demanded that BellSouth change its approach to the professional services industry. At the same time, BellSouth was also evolving its approach to acquisition and supply management of all product and service lines and began to embrace the following concept:
BellSouth can maximize its opportunities for competitive advantage by drawing upon a platform of suppliers who have proven competitive market positions supported with leading edge practices and cost structures.
This statement is the reason that the Contract Professionals initiative began at BellSouth in May of 1995. It continues to be our focus and goal today.
However, this was not always the way we conducted business, as was evidenced by the way we procured, used and managed contract professional services in the past. There was a time that we had no clear definition of or understanding of the skill sets required to run the business. We had no established measurements. The clients engaging professional talent were spread over at multiple BellSouth subsidiaries, at least five departments, and as many as fifty work groups with no central control or organization. Suppliers capitalized on this decentralization and their rates for the same type of work fluctuated between work groups and organizations with the supplier responding to the highest bidder. Often one part of BellSouth unknowingly cannibalized talent from another part of BellSouth through its willingness to pay a higher fee. In addition, supplier selection was often based on relationships and contacts with upper management, not on the best available price and expertise. In other words, we were conducting our business in a continuous reactive mode based more on the suppliers wants rather than the needs of our business. We had lost control and with it our ability to leverage our buying power.
Establishing a baseline supplier group. Our primary goal was to move away from a transactional means of engaging professional technical services towards an environment where the entire supply stream is managed to gain competitive advantage, increase quality of service, lower costs and reduce administrative burdens. The reduction in the number of suppliers was considered critical to the success of this plan.
What follows is a brief explanation of the steps that we took to optimize our supplier base and maximize the benefits of using external service providers.
The first step was to form a cross-functional team consisting of IT and Procurement management. The team at this point in time was led by Procurement. We began by canvassing our end-user community to determine the skills being utilized as well as those skills being forecasted for near term use.
An RFP was sent to a wide base of suppliers in order to 1) establish cost based on existing job definitions and 2) establish supplier capability. The result was the awareness that those suppliers already under contract to BS could provide almost all of our needs - only 5 new contracts were negotiated. Several of the existing contracts were expanded to allow the supplier to provide for additional services. We issued our initial preferred supplier list of 34.
One of the most critical success factors for us was the endorsement of the list by our upper management/officer body. Without this buy-in, adherence to the preferred list could not be expected. At this point in time, we began some minor process improvements to shorten cycle time (reduced number of signatures required, began using a standardized form for requests, etc.)
To introduce our suppliers to the user community, we sponsored a supplier fair. Each and every supplier participated, however, most did not see a very noticeable increase in their business.
Our first report card was developed and issued to the end users. Information was gathered on the 34 suppliers relating to quality of service, expertise of engaged personnel and overall satisfaction.
Market Analysis. The first phase of our optimization process guaranteed that BS would have an adequate supply of professional talent. This was essential, as we progressed into a period of heavy reengineering, necessitating even greater needs for professional services. Once continuity of supply was assured, we were able to focus energies on learning more about the technical professional services industry. This industry is one that is incredibly volatile as corporations depend on external resources more and more, rather than increasing headcount, moving away from a fixed cost structure to a variable cost structure. Our focus was not only on the suppliers, but also on the best practices of customers for acquisition and management of this supply stream. Below is a list of the areas we researched, through literature reviews, supplier interviews, customer best practice visits and external consulting services such as the Gartner Group:
- Existing Suppliers
- Who were their best customers - who was the easiest to work with?
- How did they define/describe their job categories/titles?
- Corporate Best Practice visits:
- Did you reduce or attempt to optimize the supplier base?
- What were your goals? Price? Skills? Availability?
- Were you successful?
- How long did the process take?
- What was the "right number" of suppliers?
- How did you select these suppliers?
- How did you transition from existing suppliers to the select few?
- How did you handle client resistance to change?
- How did you maintain a viable Small, Minority & Women Owned Business Enterprise (S/MWBE) program?
- Skill Gap Analysis
- Canvassed our end-users to determine what needs, if any, were not
- being met or what skills were difficult to procure.
- Researched on how the dollars were being spent internally
- Reviewed Corporate Goals for S/MWBE
- Gartner Group and other literature
- Model for External Service Provider Evaluation
- Understanding of the type of services offered (low to high focus)
- What firms competed in what service categories
- Basic Analysis of pricing
- Supplier cost/profit models
- What skill sets will be high demand skills in the future?
Once this research was complete, our team of Procurement and IT professionals realized that our supplier base could be reduced much further. Beginning with a goal of moving from a contract/transaction management culture to a supplier/relationship management culture, we developed a strategy to reduce the supplier base to less than ten suppliers. Additionally, we determined that these suppliers should include high level "Tier One" management consulting firms for our most strategic needs and emerging technology, Mid-range suppliers for more tactical roles, and low-end "body shops" to service simple requirements for standard skill set programmers, technical writers, etc. A detailed evaluation model consisting of price, technical and business issues was developed and adopted. Finally, this strategy was reviewed by a host of executives in all user organizations for concurrence.
Selection Process. Seventy five suppliers were included in our initial Supplier Conference for distribution of the Request for Proposal. Hosted by our CIO and other IT executives, the following topics were covered:
- Overview of the Anticipated Program
- Definition of Services Required by BellSouth
- Recognition and encouragement of partnering between firms
- Statement of commitment to S/MWBE objectives
- Endorsement of the initiative from the Executive Level
The selection process proceeded through three distinct phases: Phase I - Formal RFP Evaluation, Phase II - Reference Checking/Performance Feedback, and Phase III - In-depth Interviews.
During the RFP review, the team analyzed supplier responses and developed a "short list" of 18 candidates based on the following:
- Results of the evaluation model (cost/technical/business issues)
- Mix of both high-end and low-end focused suppliers
- Current business/strategic relationship with BST considered
- Officer review and suggestions
The Reference Checking/Performance Feedback conducted during Phase II, involved reviews of references provided by the suppliers as well as internal assessments through our own internal review of projects, BS client interviews and previous report cards.
Finally, in Phase III, In-depth Interviews were conducted with each finalist company. These interviews were led by Procurement, but involved IT staff and user group representation from inside and outside of IT. Suppliers were requested to begin with a presentation covering the following areas:
- What competitive advantage did the supplier bring to BST?
- What were their core competencies - Technical capabilities?
- What was their BellSouth/Telecommunications Expertise?
- Discuss previous alliance type relationships.
- Explain their programs for insuring Quality.
- Did they have any Certification Programs for their employees.
- How would they support our commitment to S/MWBE Programs? Through partnering? Subcontracting?
- Resource Management (Account Managers/Partnerships/Employee Issues)
From these sessions, nine suppliers - three in each tier, were selected. Several of these suppliers represented additional partnerships and alliances between niche firms, S/MWBE firms and major players in the contracted professional services field.
Internal Process Changes. Our selection team then evolved into an implementation team to move the recommendations into reality. Since the majority of technical services requirements continues to be resident in IT, leadership moved from Procurement to IT. This team developed an process for transitioning to the nine suppliers and away from the throng of suppliers currently being used. The team also reviewed and revised the internal ordering process to reduce cycle time, eliminating a number of approvals when the nine suppliers are used...and instituting additional control points if a client believes the nine aren't capable of fulfilling his needs. Finally, the team established Departmental Points of Contact familiar with the suppliers, their capabilities and our new internal processes. These points of contact will also monitor expenditures and "time on site" to avoid co-employment concerns.
Change Management. What has been and continues to be the most difficult portion of this process is managing the resistance to change in our client organizations. Accustomed to engaging the supplier they were most familiar with, regardless of capabilities or price, the client has been reluctant to utilize the preferred supplier list. However, our CIO and the other IT executives aided in this by their consistent support and communication of the requirement to use the preferred list and only the preferred list. In addition, both the selection and implementation teams have consistently communicated to the client base about the selection and transition process. Finally, internal business pressures such as rapidly declining expense budgets, executive focus on the effective use of consultants, and adverse audit findings related to the use of contractors have increased the awareness and willingness to use a disciplined approach to this large and growing cash flow.
Supplier Relationship Management. We have employed a number of techniques for managing our relationship with the suppliers. We conduct periodic meetings with the all suppliers together to review our needs and their concerns, The suppliers have a significant input to our processes and have even developed inter-company committees to address issues such as skill definition and resources allocation. Our goal is to make our suppliers be a team to serve our clients. To this end, we have also indicated that we may not always have nine suppliers or these same nine. While we want very much to keep our supplier base stable, only those suppliers who cooperate with both BS and each other will remain with us long term, thus creating an environment of "coopetition" within this group.
We also insist on two-way feedback (end-user to supplier/supplier to end-user) to continuously improve both the supplier's delivery process and quality as well as improving BS's ability to be a world class customer.
Finally, we continue our market research of our region and continued best practice research to insure competitive pricing without bidding.
BS Benefits. As a result of this initiative, BS is enjoying a number of benefits, among them are:
- Published, stable pricing for budget planning that is competitive
- Negotiations are centralized
- Process has been forced down into the organization - no more deals with the Executives
- Reduced cycle time
- The end-user may engage the supplier in the up-front planning process
- Driving the market place
- Established measurements
- Better service quality
- Reduction in the co-employment liability
- Opportunities for continuous improvement
- Long-term relationships
- Economies of Scale
Supplier Benefits. The suppliers of professional services have also indicated to us that they have garnered benefits from their new relationships with BellSouth, to include:
- Long term relationship
- Additional Revenue - greater piece of the pie
- Opportunities to expand business presence at BST
- Ability to establish partnerships with other suppliers - creating opportunities for new avenues of revenue
- Promotes the supplier's involvement in the user's planning/pre-planning process
- Valid feedback from the user community
- Ability to focus more on service delivery and less on marketing to a diffused customer base
Conclusion.: While the Contracted Professionals Initiative was a difficult endeavor for all involved, Procurement, IT, end-users and suppliers, it broke new ground for BellSouth in supply management. It has been a role model for similar projects across the company and has brought us the ability to assure a supply of critical when we need it at a competitive market price.