2005 Supply & Demand Chain 100 Case Study  Fortune 500 Software Company / Expense Management Solutions

Profiles in Supply Chain Enablement: Enabling strategic management of an outsourcing contract yields performance improvements and savings

Profiles in Supply Chain Enablement: Enabling strategic management of an outsourcing contract yields performance improvements and savings

Company: Fortune 500 Software Company (U.S.)
Company Size: Large
Company Sector: Non-manufacturing (Software Development)
Area(s) of Enablement: Sourcing, Decision Support
Enabler: Expense Management Solutions (Southborough, MA)

SDCE 100 2005Case Study:As part of an ongoing effort to improve shareholder value, this Fortune 500 provider of software, services and Internet technologies was looking to enable strategic management of a facilities management outsourcing contract under an extremely lean staffing model. The company also had the goals of embedding continuous improvement and performance management into its supplier relationship and promoting a greater alignment between its objectives and supplier goals.

The company engaged Expense Management Solutions to lead a complicated second-generation facilities management outsourcing process that covered 62 detailed services delivered across a 10-million-square-foot portfolio of properties.

Expense Management Solutions designed a solution comprised of detailed service level agreements (SLAs), a base fee at-risk compensation structure, shared incentives and annual third-party contract compliance reviews to meet client concerns. The solution provider identified services and developed SLAs that were the foundation for the RFP to bid the services, the contract with the supplier to provide the services and the scorecard used to evaluate performance for purposes of ongoing supplier management.

In addition, the client and supplier negotiated the percentage of compensation to be placed at-risk pending the results of quarterly and annual performance measurement. In addition, the supplier was offered opportunities for incentive payments based on shared savings initiatives of the supplier.

Finally, annual third-party contract compliance reviews provided a framework for structured communication and identification of areas for improvement. Review by an independent, third-party contractor has helped ensure objectivity and improved the credibility of the review for both the client and the supplier.

As a result of the project, the client met all its goals with no increases in staffing, and the supplier's performance scores have increased by 47.6 percent over the first eight quarters of the contract. The client has also seen a 91.5 percent improvement in the alignment of client scoring of vendor performance with the vendor's self-score over the same period.

Moreover, even though the client realized average savings of 21.7 percent on its outsourcing contract, continuous improvement and shared incentives created an environment in which an additional 9.11 percent reduction in costs was delivered. Overall, payback on the company's investment was estimated to have been achieved in less than 30 days.

For more stories of successful supply chain implementations, read the "2005 Supply & Demand Chain Executive 100" article in the June/July 2005 issue of the magazine. Also watch the Today's Headlines section of SDCExec.com every Tuesday and Thursday for more in depth best practices drawn from this year's Supply & Demand Chain Executive 100.