outsourcing for results john riley, c.p.m. arizona state university
TRANSCRIPT
Outsourcing for ResultsOutsourcing for Results
John Riley, C.P.M.John Riley, C.P.M.
Arizona State UniversityArizona State University
Do Not Outsource:Do Not Outsource:
• Core function.
• Policy making.
• Oversight.
• Purchasing
Why Not Purchasing?Why Not Purchasing?
• Core function, and oversight function.
• Diet Coke.
• Wouldn’t it be irresistible to…
• Get rebates from contractors.
Why Are You Outsourcing?Why Are You Outsourcing?
• Primary reason is money.
• Next is management.
• Or the need to change.
'95 '00 '05 '10
Inno
vatio
nIn
nova
tion
Gain CapabilityGain Capability
Telecom
App Hosting
Storage
Web Hosting
Wireless
1:1 Devices
Cell Service
Document Management
Gain CapabilityGain Capability
Make a Process ChangeMake a Process Change
• Mail Services.
• Single exchange point per building.
• Central mail facilities.
Secure the FutureSecure the Future
• What is the future of the textbook?
• Thought about this for two years.
• Decided an outside firm could answer.
• Private firm not subject to competition with private enterprise restrictions.
Why Do You Need to Know Why?Why Do You Need to Know Why?
• If you don’t know where you want to go…
• Drives the evaluation criteria.
• Prioritizes the evaluation criteria.
What Are You Outsourcing?What Are You Outsourcing?
• Not a simple question.
• Is it everything you are now doing?
• Do you even know what you are doing?
• Or what it costs?
• Who are you going to ask?
In-House vs. Out-House?In-House vs. Out-House?
• Is the comparison fair?
• Suppliers win contracts because:– They are more efficient than their profit.– They cut benefits.– They do not do all that they promise.– They know more about their business than
you do.
In-House vs. Out-House?In-House vs. Out-House?
• Transfer of costs to outside the institution.– Health care.– Retirement.
In-House vs. Out-House?In-House vs. Out-House?
• Pay for inventory.
• Watch incentives.
EmployeesEmployees
• Requirement to hire your employees?
• Under what terms?
• With what compensation?
• And what benefits?
• Union issues?
• Social justice issues?
Use Your Stuff?Use Your Stuff?
• Does the contractor occupy your building?
• Use your vehicles?
• Use your equipment?
• Covered by insurance?
• Replacement?
• Ownership of equipment.
• Buyout schedule.
Ready to OutsourceReady to Outsource
• Develop detailed specifications.
• Write exact requirements.
• Pay the lowest price…
• …to whoever says they can do it.
Ready to OutsourceReady to Outsource
• If not happy…
• …fire the contractor.
• Write bigger and better specifications.
Requirements Requirements
• We are the University!
• We are experts at everything!
• We are the source of all human knowledge!
• We should tell the contractor what to do.
• Slight problem with this.
The Problem The Problem
• If we tell the contractor what to do…
• And the contractor does it…
• But it does not achieve the result…
• Whose fault is it?
Who is the Expert? Who is the Expert?
• Is it Professor Milton Smedley?
• Is it the Chief Purchasing Officer?
• Or is it the business owner?– The person making a livelihood.– Feeding his family.– Leaving a legacy for future generations.
Question Question
• So if the business owner is the expert…
• Should we tell him what to do…
• Or should he tell us what he is going to do?
Specifications Specifications
• Try to write the specifications for a sustainable food program.
• You could spend a long time writing…
• And still not get what you want.
Expectations Expectations
We expect that you will provide a sustainability program that reflects our leadership position, and emphasizes:
Purchase and transport of food
Preparation
Disposal
Innovation and education
Again, Why Expectations? Again, Why Expectations?
• You are not buying the process…
• You are buying the results.
• Do you want to buy carpet cleaning?
• Or do you want to buy clean carpets?
Clean Carpets? Clean Carpets?
• Here is how we use the building.
• We agree to e-mail you a schedule of events a week ahead.
• You tell us how you will keep our carpets clean.
• What measuring system will you use so we both know the carpets are clean?
Clean Carpets? Clean Carpets?
• We will normally clean carpets on Fridays.
• We will also clean early the following morning after Friday or Saturday night event.
• The cost is X per cleaning.
• If you call us out because you failed to tell us about an event, the cost is Y.
Clean Carpets? Clean Carpets?
• We expect that you will use green cleaning methods.
• We expect that you will conserve energy.
• We expect that we can have our cake and eat it too.
The Solicitation The Solicitation
• State who you are.
• Why you are outsourcing what.
• What results you want to achieve.
• Identified expectations.
• Evaluation criteria from expected results.
• Give us your promises, your measurement system, and your transition plan.
Where Are We? Where Are We?
• Know, what, why, expected results, and considered employees and other aspects.
• Wrote the solicitation with evaluation criteria driven by the expected results.
• Requested promises and measurement system.
• Got any good stories.
Stories Stories
FOOD SERVICE
Food ServiceFood Service
• Always contracted for food service.
• Looking for better contractor.
• Incumbent there for 52 years.
No Summary Criteria Weight A B C1 RAVA Plan 28 5.91 7.09 6.312 Transition Milestone Schedule 2 5.17 6.96 6.333 Interview 25 15.77 16.78 13.534 Past Performance Information - Survey 9 9.80 9.99 9.825 Past Performance Information - #/Clients 1 5.67 3.00 4.426 Past Performance Information - Financial 15 7.02 8.67 6.907 Financial Rating 5 4.00 8.00 8.008 Financial Return - Commissions 7 30,254,170$ 60,137,588$ 64,000,000$ 9 Capital Investment Plan 6 14,750,000$ 20,525,000$ 12,340,000$
10 Equipment Replacement Reserve 2 7,213,342$ 4,100,001$ 8,171,811$ 52,217,512$ 84,762,589$ 84,511,811$
No Summary Criteria Weight A B C1 RAVA Plan 28 16.55 19.85 17.672 Transition Milestone Schedule 2 1.03 1.39 1.273 Interview 25 15.77 16.78 13.534 Past Performance Information - Survey 9 8.82 8.99 8.845 Past Performance Information - #/Clients 1 1.00 0.53 0.786 Past Performance Information - Financial 15 10.53 13.01 10.357 Financial Rating 5 2.00 4.00 4.008 Financial Return - Commissions 7 3.31 6.58 7.009 Capital Investment Plan 6 4.31 6.00 3.61
10 Equipment Replacement Reserve 2 1.77 1.00 2.00100 65.09 78.13 69.04
Aramark Annual Contract ReviewAramark Annual Contract Review
• Exceeding financial targets.– Sales up 13.5%– Meal Plans up 693.– Catering up.– Commissions up 22.0%
• $2 million capital expenditures.
• Meal Plan costs lower than peers.
Aramark Annual Contract ReviewAramark Annual Contract Review
• Food donations to Waste Not.
• 100% employees green trained.
• Waste audits done continuously.
• 100% fryer oil diverted to biodiesel.
• Sustainable food purchases.
• Campus Harvest program.
• Academic interface.
Aramark Annual Contract ReviewAramark Annual Contract Review
• High satisfaction scores.
• Barrett Honors College students demanding that no other students be allowed to eat there.
Aramark AdventuresAramark Adventures
• Million Dollar Staircase.
Aramark AdventuresAramark Adventures
• Dave’s Dog House.
Stories Stories
Sustainable Digital University™
Digital Imaging CompanyDigital Imaging Company
• Figure out how to do work digitally.
• Faster, better, data driven.
• Digital document management.
• Analog to digital.
Digital Imaging CompanyDigital Imaging Company
• Survey devices, show how to reduce number, add new technology, and save money.
• OK results, but not making this clear.
• Local dealer tried to sell to departments.
• Three years to start a consumer store.
Digital Imaging CompanyDigital Imaging Company
• Structural issue: organized in silos.
• Cultural issue: do not cross into other silo.
• But, even if we do not realize all the potential…
• We have a really good digital device contract.
Digital Imaging CompanyDigital Imaging Company
• Well on the way from analog to digital.
• Cannot yet say we are working digitally.
• But, lots of progress.
• Purchasing as an example.
• Financial Services as an example.
Stories Stories
Networking Company
Networking CompanyNetworking Company
• 20% of budget for new, 80% for maintenance.
• Not working in the face of new technology.
• Gain technology and save money.
Networking CompanyNetworking Company
• IT RIFed the people at contract start.
• No one to assist the transition.
• IT decided they would no longer handle billing to capital programs.
• Finally, Purchasing resolved with contractor, capital programs, and financial services.
Networking CompanyNetworking Company
• Getting the investment we requested.
• Adding VOIP phones.
• Generally working well.
• Occasional personality conflict.
• WDTCS.
• What Does The Contract Say?
Networking CompanyNetworking Company
• 60% of budget for new.
• Save $12.5 million over five years.
Networking CompanyNetworking Company
• UTO keeps trying to control this.
• Contractor says: “We don’t have to tell you squat!”
• Perhaps some room for compromise here?
• This is why we say: “WDTCS?”
• Unfortunately, still some holes in the contract.
Stories Stories
Bookstore
BookstoreBookstore
• “What is the future of the textbook?”
• We do not know.
• Lots of new technology, nooks, iPads, iPhones, idontknowwhatnest.
• An outside firm may figure this out.
• And we need cash.
BookstoreBookstore
BookstoreBookstore
BookstoreBookstore
• Someone told them that the only way a department could buy from them was via a purchasing card.
• The big national corporation believed her.
• Departments complained to Purchasing.
• WDTCS!
BookstoreBookstore
• Working well.
• Existing store renovated.
• Expansion underway.
• Second store in planning.
• And they gave us cash for the inventory.
ConclusionConclusion
• Buy the results not the process.
• Set expectations not specifications.
• Get the experts to do the work.
• The contractor owns the risk.
• Have fun.
