This paper will lay out the critical success factors to minimize the costs of vendor services. We’ll primarily use examples from telecom, but this applies to services purchased from vendors in general.
The process is simple.
1. Create granular visibility into your spending, creating an inventory of every single service.
2. Review every single service for savings, checking to see if:
a. The service is billed for correctly.
b. The service doesn’t support business needs (i.e. is unprofitable, underused or unused, and can be removed or consolidated.
c. There are better rates available.
3. Remove all billing errors and unnecessary services. Consolidate services.
4. Negotiate and implement better rates and plans.
5. Track all these changes to completion.
6. Document your work so you can show other people how much money you saved.
If you do all of these things you will have minimized your spending.
If you do all of these things you will have minimized your spending.
In order to manage something you need visibility. You can’t manage what isn’t being measured.
1. Identify all the vendors you’re buying from and their accounts and bills and your spending. In the telecom category, we’ve seen that some firms don’t even have visibility in to all the telecom vendors they work with and their total telecom spending.
2. Gather all bills and billing data.
3. You need people who have the time and expertise – many organizations don’t have enough qualified people with time to minimize substantial vendor spending. We’ve seen this lead to individual organizations spending millions of dollars unnecessarily, and in just one category of spending like telecom.
4. Create an inventory of services – break down the bills in to individual services.
Building the Inventory
For every service in the inventory you must identity the:
5. Total cost.
6. Business need it serves. This requires real expertise – understanding the service and the business. We’ve seen many companies keep paying for services because they didn’t know what they were really for.
7. Type – What it does and the location, person or process it is associated with.
8. Vendor name and account # associated with it.
9. Base cost.
10. Usage cost.
11. Taxes and surcharges.
12. Utilization – how much it is being used, and how it maps to business needs.
13. Status – does it actually work? What does it actually do in reality, in contrast to what the bill says it does? Especially important for redundant services you depend on in an emergency.
14. Relevant contracts, including contract end date and whether the service can be terminated.
15. The contractual cost of the service.
16. Unique identifier to determine if the service appears in multiple bills. (E.g. phone companies have been known to bill for the same toll free number or phone line in more than one bill.
You need usage data to achieve visibility in to usage:
17. Usage data from the vendors.
18. Internal data about what you’re using.
19. A way to match the two.
Single Pane of Glass – your inventory must be stored in software that allows you to do the following. (E.g. Properly designed Microsoft Excel spreadsheets can easily handle inventories with tens of thousands of services.)
With your inventory can you?
20. Predict bill total for each account based on the cost of services meeting current business need, not past bills.
Can you pull up all services?
21. Of a given type.
22. In a certain location, or relating to a certain process or person?
23. From a certain vendor.
24. Above or below a given cost.
25. Using combinations of the above or other criteria.
26. For every service have you identified if there is a gap between the cost on the bill and the contractual cost?
27. Is there a person with sufficient time to review every service for billing errors?
28. Is there a system to track resolution of billing errors?
29. Is there a system to track removal of services from bills?
30. Is there a person with sufficient time to deal with the vendor?
Does the system and process identify potentially unnecessary or unused services based on the following criteria:
31. Business need. Does the service meet a real business need? We’ve seen Finance departments tell us they can’t match their revenue segments to the corresponding vendor spending segments. Make sure costs are driven by profitable customer demand. E.g. services with usage costs can be used to deliver what clients want. However the revenue can be less than the costs of the usage. Therefore usage costs need to be tied to the business need driving the usage.
32. Utilization – how much is the service being used?
33. Service Status – is it functional on the vendor end? Is it not connected to your systems and processes? E.g. a phone line or data line ostensibly on standby for disaster recovery might be unplugged.
34. Actual location, person, or process the service serves.
35. Mismatch between above – Does the usage not match with a real business need?
36. The service serves an abandoned location, former employee or customer, or a de-commissioned process or equipment.
37. Is there a person with sufficient time to review each service?
38. Is there a person with sufficient time to deal with stakeholders?
39. Is there a person with sufficient time to deal with vendors?
40. Is there a system to track removal of services from bills?
41. Does the process or system discover services buried in bills?
42. Does the system and process identify services you’re obligated to buy, but aren’t using?
43. Are there people and processes to ensure you use unused services you must buy, replacing services you are using but aren’t obligated to buy?
44. Does the system and process identify contractual discounts and credits you’re eligible for but aren’t using?
45. Are there people and processes to work with the vendors to ensure you take advantage of unused contractual discounts and credits?
Above market rates
46. Does the system and process review each individual service to identify services with above market rates?
47. Can you compare rates for identical services across all locations, identifying locations with the lowest costs for the same services?
48. Does the system and process identify additional discounts or lower pricing you may be eligible for?
49. Is there market data for current market rates from providers serving your locations for your desired services?
50. Do you know how your rates compare with rates other firms have?
51. Is there an internal or external expert with current market data who can help negotiate contracts with current vendors, or move you to new or current vendors?
52. Is there a system to track enforcement of new contracts, implementation of lower rates, and ensure clean bills?
53. Is there a person with sufficient time to deal with vendors?
You’re now aware of the 53 critical success factors for minimizing vendor costs. Unfortunately most vendors don’t supply their clients with a clear path to minimizing costs. They leave that up to the client to figure out for themselves. In areas like telecom, where companies purchase large numbers of services across multiple locations, companies spending $100,000 or more in service annually often discover 50% of their telecom spending is unnecessary. Fortunately outside help is available from firms like Berlin Pacific.
Berlin Pacific has published a book, Principles of Telecom Expense Management (available on Amazon,) explaining each step of the process and why each one is important.
Experts at companies like Berlin Pacific can help you recover savings as well as improve your level of service.
If you or anyone you know is in a similar situation or spending a lot of money on telecom, and would like to find out how much you could save, please contact us. We’d be happy to look at it for you or anyone else at no charge, and there’s no fee to learn how we can help.