The Fallacy About Cost Plus Outsourcing Contracts

There is a large national law firm outsourcing RFP project that is in progress now where the RFP project management vendor is prescribing a Cost Plus Model for the contracted services. Generally, labor costs make up 75-80% of an outsourcing services contract, so this is primarily in an attempt to “reign in” labor costs. The theory behind a cost-plus labor contract model (or any cost plus model) is that you know what the supplier’s true costs are and you can control their overhead and profit on top of those costs.  The problem is, that’s rarely the case.

Outsourced labor costs as provided by outsourcing provider are laden with a bevy of miscellaneous costs all that fall under the umbrella of “fringe benefits”  which include anything from leave/vacation costs to guaranteed replacement costs (to replace out/sick staff), investment plans, training plans, education reimbursement, facilities costs, etc., some of which get plugged into a nebulous “overhead” cost, which may also include sales commissions.

But how does one know how many of these “benefits” apply to the rank and file staff members actually assigned to the client? And the salary figures, which are often “plugged” numbers (because the actual salaries of the employees are unknown until they are actually hired) are also not carved in stone. Are they revised when the actual names/faces are hired at whatever those wages are?

In short “cost-plus” model contracts rarely accurately depict the vendor’s actual cost due to the tendency to “bury” all kinds of costs in the figures, therefore is not an effective tool in reducing or controlling/managing those costs in an RFP process. But what’s worse is, the cost plus model may identify the initial costs but what happens over time if the supplier doesn’t turn over the staff at the client site? The Cost Plus model, merely allows the vendor to give raises/increases to staff with impunity because the client will simply pay the increase. Moreover, the client also pays the increases in medical or other costs. And all of this would have to be perpetually verified by the vendor/client (where’s the consultant now?) in an on-going basis unless you continually pay a vendor to do it for you, every quarter or so.

In contrast, the traditional “bill rate” model, where the vendor combines all their costs into a proposed bill rate, hourly, weekly, monthly, for each employee position/rank, which can be bench-marked against similar vendors in similar markets is the model that has gotten far more traction in recent years. This is for a good reason–the bill rates are locked in for a 3-year term with only a margin, indexed increase (typically the CPI, generally 2-3%/year).

So indexed increases minimize the up charges to the contract and actually puts the onus on the vendor to contain costs at the client site, by promoting prominent staff to other sites and even by turning over staff, to stay within their costs and margins.   There is simply no better alternative to benchmarking costs through a competitive bidding process.  In conclusion, in RAS Consulting’s view, cost plus is not an effective tool for limiting cost increases when those costs are highly variable.

 

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All the things your copier vendor DOESN’T want you to know about

These are example of things your copier vendor doesn’t want you to know about:

  • Problems with non-co terminus leases and how it costs money and reduces your flexibility and bargaining power and is a tool of the copier vendor to put you in a disadvantageous bargaining position
  • Are you paying for service & maintenance on copies/prints you’re not even making? The fallacies of included copy figures on service & maintenance leases.
  • Unfavorable contract terms can cost you big dollars
  • The bigger, faster the copier/MFD, the higher the cost and bigger the margin, just like cars. Why every copier vendor is always trying to get you to lease a bigger copier than you need
  • Unused technology add ons add cost and loss of productivity. Why most copier vendors actually have a disincentive to deploy and support technology solution add ons
  • Copier resellers are public companies. Be aware of how to use that to your advantage, and how to anticipate where this is not to your advantage in terms of their offerings, e.g., higher margins and less flexibility.
  • The fallacies of the copier vendor’s leasing strategies to get you to buy out leases and replace MFDs before they expire at a “discount” or cost savings. Avoid this with the correct lease term in the first place!
  • If you have more than one location you should always have a composite or national program to leverage your collective needs and volumes for more favorable pricing.

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Executing a Copier/MFD Fleet Refresh

Properly executing a copier/MFD fleet refresh or a new acquisition is a major decision for most firms. Moreover, there are a lot of solid copier equipment choices out there today, with some major factors having recently stirred up the copier manufacturing and distribution world. A copier/MFD (for multi-functional device) is also a choice that needs to involve various different stakeholders at the law firm, not just operations/procurement, but also IT, Litigation Support Services and other legal representatives at the Firm. For these devices are truly multi-functional, not one-dimensional; they are used for copying and printing and scanning for both a centralized and decentralized (convenience) standpoint.

How each copier manufacturer’s devices interface with your firm’s computer network, cost recovery devices, decentralized scanning applications and litigation support services application software is also critical to the decision-making and is the reason why you must involve a broad-based spectrum of firm participants in procurement, technology, accounting, operations and legal staff in the sourcing process.

The copier/MFD choices today are also much more abundant. In the past, Xerox and then later Canon dominated the copier/MFD market, particularly in legal. But now, both Ricoh and Konica Minolta represent virtually the same if not a larger market share than Xerox or Canon in the domestic copier/MFD market space. The reason? All of these manufacturer’s devices virtually provide the same comprehensive and quality features and output capabilities and both Ricoh and Konica Minolta have grown significantly in the US market in the past several years while Xerox and Canon have flatlined their growth.

What distinguishes these copier devices and their manufacturers, again, are the individual nuances we mentioned earlier in terms of the integration with your network and other third party firm hardware/software. Bottom line is, you’ve got to be able to measure and quantitatively analyze these distinctions to arrive at the best copier/MFD solution for your Firm, and it isn’t easy; it takes a trained, experienced eye.

There’s another piece to the puzzle as well, and that is the service and maintenance that you contract for on your eventual copier/MFD equipment. You will lease your copier/MFD equipment (fair market lease; recommended time frame is 48 months in RAS’ view). But you will pay a per click or per impression fee for your service and maintenance. There are 2 things you should never do re: service and maintenance: 1) Never include it in your lease so you’re paying interest on it. 2) don’t let your copier dealer talk you into “including copies” in your copier lease, usually in advance. This will almost always lead to you paying for copies/prints you never make.

Only pay for what you use for service and maintenance (the clicks you actually generate); structure a service and maintenance deal that has no included copies and where you pay your click costs each month after your monthly volumes are established. However, IF the copier dealer is trying to entice you to include copies in the monthly lease by offering you a lower cost per click rate than by paying for your actual volume after the fact (after you tell him “shame on you”), if you do decide to include some monthly copies, try to avoid going beyond 50% of your total monthly aggregate copy + print volume. This way, you’ll still likely exceed the included monthly copy/print figure every month anyway so you won’t wind up paying for unused copies. The copier reseller will try to incentivize you to include copies/prints in the monthly bill because it looks better on a balance sheet for him for the sale that a variable, non-included pay per copy fee will. So make he/she earn it ! (by lowering your per click fee).

How do you evaluate copiers/MFDs effectively to qualify the answers to which device overall is the best choice for your Firm? By tapping into your stakeholder group and embracing their assistance. The  best first step, of course, is to put together an RFP or RFQ for your copier equipment where you can ask all the salient questions regarding the equipment regarding integration, security (how well protected is the device against hacking against file; how quickly does it erase temporary files of scanned documents or prints, etc.), functionality, productivity and of course cost.

Of course, RAS Consulting can help you with that as this is one of our core business functions. RAS recommends you bid out your copy equipment both to the manufacturer directly (e.g., Canon, Ricoh, Xerox, etc.) as well as VARs (value-added resellers). VARs often provide better service than the manufacturer themselves, who are often slaves to service metrics that are focused more on minimizing service costs that providing good service (VARs make their name on service) and VARs also sometimes have access to better discounting due to the fluky nature of the reseller business.

Once you have your RFP response results in, you want to arrive at a short list of maybe 2 or 3 finalists. Again, your decision-making criteria is going to be integration, cost, security, reliability, features, market share, etc. Once you have your vendor/solution short list, the perhaps most invaluable stage of the evaluation now begins–getting loaner equipment from each of your vendor finalists to deploy fully configured in your environment for trial testing. Ask each vendor finalist to loan you a model that they’ve specified in your solution, for 30 days, BOTH a convenience device and a central copy center, duplicating class device and test it in your environment.

The devices should also be fully configured the way you want and the way they would have been in in full operation in your firm, for scanning, cost recovery equipment, lit support application software, etc. For the convenience devices, get stakeholders involved to use the devices and put them to the test. Get pilot test users to record their feed back on usability, ease of use, features, productivity, concurrency, etc. Same for your copy center; let them put all the loaner devices through their paces on normal copy/print/scan as well as more complex lit support jobs.

What are some of the key distinctions you’ll look for? For Copy Center equipment; do the devices require separate print servers to do large blow back printing, which can result in delays? Do the devices scan at the same rated speeds as they copy/print? How about duplexing? How do these devices comparatively produce the nature of the copy/lit support work your center and firm generates? What is its’ footprint? Paper capacity? What is the paper path (how efficient) and how does this relate to paper jams? Is the equipment licensed to operate LAW or IPRO lit support application software? (not all are; if so, for how long?). What are the punching options? How much extra does it cost? What comes standard with the unit? A lot of questions!

On the convenience side, does it have it’s own embedded decentralized scanning solution that mitigates the need for eCopy/AccuRoute, or if you have either of those solutions, can it run embedded or on external devices? What is the scanning compression rate on documents? Document formats it scans to? Do the black & white devices scan in color? Does it have a place for a keyboard; offer secure print;what is that work flow? Some of the same questions you’ll need to ask on the copy center equipment also apply.

Finally, what is the quality of the customer service response from each vendor in responding to questions, setup issues, bugs and the inevitable performance issues that will crop up? Are they responsive? Informed? Tireless? Regarding third party integrations, do they offload the responsibility on those partners or do they take responsibility for this part as well?

Again, major copier/MFD decisions are not for the faint of heart; they require research, proper sourcing techniques and the buy in and participation of many stakeholders at a firm in order to make an informed decision.

And on top of that, it’s a buyer’s market today with at least four major players now vying for the overall domestic copier market and each providing award-winning equipment, Xerox, Canon, Ricoh and Konica Minolta. There are other second tier vendors like Sharp, Toshiba and others that provide fine equipment as well, though they just don’t have the market share in legal nor offer the same level of integration. In addition, most copier/MFDs now own major Office Support Services outsourcing companies, which they use as a distribution channel for their copier/MFD equipment. Ricoh owns IKON, Canon, OCE Business Solutions and Xerox has always had it’s own outsourcing division.

As always, take whatever time it takes to make an informed decision. And write us with any questions you may have.

 

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State of the Office Support Services Outsourcing Industry Today: One Man’s View

State of the Office Support Services Outsourcing Industry TodayOffice Support Services Outsourcing Industry

The office Support Services outsourcing industry has seen some consolidation in recent years with Ricoh acquiring IKON (which no longer exists as of Jan 2013) as well as Canon’s acquisition of Oce Business Solutions (also, no longer, as of January 2013). These unions have changed the landscape a bit in the office support outsourcing arena, as well as the equipment arena as clearly neither Ricoh nor Canon are equipment agnostic, like the companies they acquired were.

In recent years, on site office support services (Mail, Distribution, Document Production, Fax, Repro, Supplies, Conferencing, etc.) has become more price-driven and handled more like a commodity at law firms, unfortunately, in our view. This diminishes the reality that on site outsourcing services is still largely about people; human beings, and the management of them in providing the services and that career paths, training, benefits are important part of their offerings, same as if the staff worked for the firm.  There is also a cost to managing these resources and bringing expertise to the market place and customer by the outsourcing provider that has also sometimes fallen off the radar and is not accounted for, due to commoditizing of these services.

One key valid reason for onsite office support outsourcing services are  becoming more commoditized and price-driven is the continuing diminishing of transactional activities handled by most law firm mailrooms, distribution, fax and reprographic areas.

Volumes in these service areas have diminished by as much as 80% in the past 5 years (fax, copy) and the perception to many Firms is it simply isn’t economically feasible to continue to pay a premium for high level services in these areas, which are becoming less and less critical to the Firm, in particular as distribution means, with fax and interoffice mail volumes all but disappearing. Other areas like conferencing, litigation support services (paper based primarily) have seen increases i services needs, in contrast.

In addition, most documents are now digitized with legal staff doing far more scanning and document conversion work themselves at decentralized copier/MFDs than in central copy/repro centers, where volumes have been greatly reduced. However, this has opened the door for former Copy/Repro shops to now operate like digital document management services departments, offering a wider breadth of more specialized and higher caliber offerings (that require higher caliber trained staff as well).

In the domestic onsite office support services outsourcing space there are perhaps 10 or so major national players, along with some regional players in the Northeast.  They are;

Merrill Corporation: a company that specializes in legal office support outsourcing services, with 98% of their clients legal. Merrill is a solid company that invests in its employees through training programs and offers solid employee benefits. However, recently, that has put them in the cross-hairs of some of their clients, particularly the larger national or multinational law firm clients of theirs where Merrill’s often premium pricing (compared to some other players in the market place) has been subjected to pricing pressure.

In particular this has happened with Merrill law firm clients who retain consulting firms like Profit Recovery Partners (PRP), who treat outsourcing primarily as a purely price driven commodity–forcing Merrill to lower their margins and reorganize the client contracts downwards.  This trend is saving law firms money, but potentially jeopardizing their vendor/client relationships and has led to unattainable service levels and SLAs for the money in the contract.  True process reviews and or process re-engineering are rarely in the scope of these evaluations–how things can be done more efficiently with less people, vs. simply reducing the costs of those people of headcount overall based on a ration of staff to support benchmark. Of course, the customer and the vendor are left to manage the relationship long after the consulting firm is gone (and the consulting firm does not participate in change management, leaving that to the customer and vendor).

Merrill recently lost one of their largest customers, Bingham, to competitor DTI, when PRP was brought in to drastically cut the outsourcing services costs and Merrill eventually lost the business to DTI in a closed bid scenario. Essentially, according to Merrill, DTI absorbed most/all surviving Merrill staff members but at lower wages and benefit costs to achieve PRP and Bingham’s cost reduction objectives.

DTI has been growing, and indeed added Bingham and others recently to the fold. DTI has an outstanding track record in never losing a customer and like Merrill, most of their customers are law firms. DTI has been rumored to be up for sale for some time, something DTI fiercely denies, with several larger suitors like Williams Lea or Swiss Post the likely buyers.

DTI was perhaps the first outsourcing provider that really honed the onsite/off site it support services offering in the industry, having started out as an offsite lit shop in Atlanta some 14 years ago. DTI has made numerous acquisitions that have strengthened their position as a leader in eDiscovery and Lit Support Services. They provide onsite lit support services for many of their customers and generally do it well.

Pitney Bowes Management Solutions (now Novitex) continues along. PBMS formed a Legal Solutions Division some years back to solidify their on/off site lit support offerings and legal outsourcing services in general, but has never really made this a successful strategic offering to the extent they anticipated. PBMS too acquired a coding house and other eDiscovery companies to compete in the space. Pitney does run numerous successful on site lit shops for large law firms such as Foley Hoag in Boston and Snell Wilmer in Phoenix.

IKON/Ricoh, is now Ricoh, with the IKON brand all but gone, other than some of the IKON software products used in scanning and eDiscovery. Ricoh has taken over IKON’s former Management Services brand, appearing to be more polished and corporate in their approach. But partnering with Ricoh, likely leads down a path of only using their equipment. How the two cultures, IKON and Ricoh, will assimilate is now largely done. IKON/Ricoh has never been strong in legal, especially in the Northeast, though they have made some recent inroads like Fried Frank in the northeast.

Oce/Canon is now Canon USA, with the OCE brand finally discontinued in January 2013 officially. The cultures appear somewhat in contrast. Many of the OCE people have been with that company many years, even in the days it was still Archer Management Services before the Oce acquisition. It is expected that there may be turnover and people leaving once the Canon management team takes on more of a prominent role, though the former Oce President will lead the new combined division. Oce has done well in recent years, winning Weil Gotshal’s mail services and it will be interesting to see how the Canon take over impacts going forward.

Williams Lea continues to target large banking customers and some large law firms (although they lost Dewey LeBeouf in 2012). As a UK-based company, they had some challenges coming into the US market but that appears settled. Still a very viable player in legal outsourcing, though they tend to target large, national/international law firms only,  who also has made investments in eDiscovery companies and has diversified into IT outsourcing.

Swiss Post Solutions is one of the stronger outsourcing providers in terms of their financial strength (thanks to the backing of Swiss Post, one of the more profitable national postal services) who have been making inroads in legal and strengthening their overall market share. They offer diversified outsourcing solutions but are not quite as strong as some of the others in lit support and eDiscovery offerings, though getting stronger.

FSO, which bears Mitch Weiner’s moniker, has experienced tremendous growth thanks to the Chief Happiness Officer’s persistence and marketing and innovative approach. While they have added some recent law firms, it is still not their strong suit nor is providing lit support services or eDiscovery to the extent of some of the other players. They recently were awarded the Price Waterhouse Coopers national outsourcing contract which has FSO poised for a national thrust.

IST Management Services has recently made a push at being a national player with over a dozen offices now open throughout the country though legal is not their strength.

There are a few other largely regional players additionally such as MCS Management Solutions (based in Philadelphia) and the Millennium Group who now has a national presence and has typically targeted smaller mid-size markets and has done well there.

Most of the above players, especially DTI, Merrill, Novitex and Williams Lea offer an onsite/off site strategy for providing end to end litigation support services, for both paper and electronic discovery. However, in evaluating whether this program can be effective at your firm, there are several key discussion points:

1) There must be sufficient, detailed data on litigation support services and eDiscovery spend (both on and off site) so that a) the frequency, b) the volume, c) the nature of the work and d) the expected turnaround times can all be analyzed to determine what percentage of the work could be done on site, and what percentage off site by the outsourcing provider’s own off site lit shop. Even with this data, there is no guarantee that an onsite/off site program can be determined that can handle 100 % of the lit support work or eDiscovery going off site. The data is typically individual invoices that detail specific work.

The Firm and the vendor would come up with a profit/loss budget to determine a) how much lit support work could be done on site b) what the transaction/setup fees would be to the vendor c) savings to the customer vs. sending off site d) cost recovery rules (very often it is easier to get a standalone off site lit support invoice paid and rebilled to the customer than it is to present that same customer with an internal invoice/bill for those same services, even at a lower tariff, because clients tend to question external invoices less than internal ones). Don’t forget that in many cases, a key but often overlooked cost block in performing lit support services is not just the transactional costs such as blowbacks, coding, scanning, etc., but the setup or project management hours involved. Plan to include this in your pricing tariff.

2) In general, the rule of thumb at most major law firms re: lit support work has always been to give the onsite outsourcing provider all the paper-based lit support work but the electronic discovery work, which is more diversified and is typically fulfilled by a multitude of specialty vendors, is usually vended to each paralegal or lit support team member’s preferred vendor. Generally speaking it has neither been viewed as desirable nor effective to try to go the one-stop shopping direction on electronic discovery work due to the specialization of the work, even though this is what every office support services outsourcing provider craves—a chance at all your business.

3) One stumbling block at many law firms has always been the law firm’s reluctance to give all the lit support work to the onsite outsourcing provider or to any one vendor in general. Because the nature of this work is such that any mistake can be tantamount to a disaster, it remains difficult procedurally or by policy to enforce that all lit support personnel at a law firm must use only the onsite outsourcing provider as the single source for most/all lit support work.

Getting the buy-in from the lit support specialists at the Firm, plus litigation partners, associates and paralegals across the board to use predominant providers is challenging. Often, lit support vendors will be used until they make a mistake, then another vendor will be used on the next similar job to avoid a repeat.

4) When considering an on/off site lit support solution with your incumbent outsourcing provider, make sure your service provider has the ability to prepare an invoice and capture chargeback on all the on and off site lit support work so that it can be billed to the client in a format they won’t question, and can be integrated within the Firm’s client chargeback mechanism (usually at a profit as the Firm can typically negotiate far more aggressive rates to your onsite vendor, for on and off site lit support work than the street charges. It becomes a profile center).

 

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Closed Bid Renewal Process for Outsourcing Services

If you’re engaging in a closed bid renewal process for your outsourcing services there are a number of keys to remember and to operate by:

In any renewal process, in the current economic environment where all business are trying to cut costs and increase their revenue opportunities, nothing should be off the table. Labor reductions, equipment right sizing, changes to service levels that result in cost savings as well as changes to print management workflows that change end user habits to redirect print output to the lowest cost device should all be on the table. At the same time, the renewal process is NOT all about beating up the (incumbent) vendor to get them to reduce their costs to such a point where their margins are untenable and the operation becomes a burden on them financially.

While your outsourcing provider is your partner, remember that in outsourcing, outsourcing providers make margin on head count, the number and size/productivity levels of equipment, more challenging SLAs as well as expanding their services, e.g., lit support services, electronic discovery and other support services areas such as reception, word processing, catering/conferencing, etc. Therefore, don’t expect your outsourcing provider to come to you with the maximum head count and equipment reductions that you can accomplish, it is in the provider’s best interests that the opposite occur. They have a dis-incentive to reduce headcount, downsize equipment and reduce service levels as it reduces the overall revenue base of the operation and consequently, their margin. You may want to consider a clause in your contract that shares any cost savings through headcount, services or equipment reduction initiated by the vendor. This way, they do have an incentive to come to you with cost savings.

But a successful renewal process can’t be all slanted to the customer and against the vendor/partner. Outsourcing vendors today acknowledge that their traditional revenue basis in labor and equipment are drying up. That’s why they are pursuing other services such as lit support, print distribution/management cost recovery and output maximization schemes and other services areas to broaden their reach and revenue base. As a Firm, you should look towards these opportunities to reduce your own head count, reduce costs and achieve additional client chargeback where prudent. It is definitely not a one-way street.

Remember that office support services are NOT all commodity-based and if you have an incumbent provider, you no doubt have tenured outsourced staff and other operational cost blocks that have evolved over the course of time. If you have had the same vendor more than 8 or 10 years, contract creep has no doubt occurred in your contract.

Remember that you pay a high price if you require the vendor to keep staff turnover down, keep ramped up office equipment and insist on unnecessary service levels. Don’t let your outsourcing provider strong arm you into perpetuating high staffing costs buy appealing to your desires for low turnover and keeping the same familiar faces. Outsourcing providers are supposed to be cycling in/out non critical staffing positions (aside from site management) to reduce costs and keep staff fresh. Turnover is good to bring in fresh blood and lower costs. Complacency and familiarity breeds high costs and lesser productivity.

Finally, don’t fall into the trap that you must have the same copier models all over the Firm. Right size the fleet that is based on the output volumes for print, scan and traditional copy volumes. Remember that convenience copier volume is decreasing by as much at 10% per year with the push towards digital documents and decentralized scanning. Chargeback for decentralized scanning, especially by Corporate and litigation practice areas open up new areas for revenue enhancements too.

The last word when you renew is Service Level Agreement, KPIs and Performance Standards. In your renewal process, if you’re like most Firms today, you’re looking to cut costs, perhaps reduce service levels and really put your in house vendor to the test to deliver more for less. You want to be able to substantiate and regulate this. First off, you need meaningful management reporting and Key Performance Indicators that are tracked and reported, but are not just hallow numbers like many fall into–reports should show trending analysis.

Where are the KPIs headed: up or down; what is this telling me? Secondly, you want very detailed and descriptive Service Level Agreements. You MUST articulate and document all of the services, the service levels, the expectations, the unexpected–everything that you can think of to measure and that you want your provider to perform on paper so there are no disagreements or misunderstanding later on, no scope creep or “not my job”.

Finally, to substantiate, regulate and police these Service Level Agreements, you want Performance Standards in place that articulate the desired success rates in as many of the key and measurable services areas as possible. You want a risk reward system that puts the onus on the vendor to deliver, with penalties if they don’t, and yes, some reward if the provider EXCEEDS the standards. Note you are NOT rewarding the vendor for simply doing their job; subways and buses run on time because they are supposed to–you can reward the vendor when they go above and beyond the call of duty and perform to exceed service standards (assuming they are not overstaffed of course!) Again, you want strict, specific and strong control mechanisms to inspire and challenge your provider. Your provider will respect this and use this hopefully to make your operation the highest standard they can achieve.

You don’t need an RFP process to total revamp and revolutionize your outsourcing services. You do need to approach it with an open mind, make sure the provider knows everything is on the table and that you’ll listen to new services, it if makes sense to the Firm. As always, RAS Consulting is here to provide consulting and mentoring to help you achieve your Outsourcing Services Renewal Bid objectives.

 

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The Benefits and Results of our RFP/RFQ MFD bidding process

The Benefits and Results of our RFP/RFQ MFD bidding process will spare you from many pitfalls the vendors may try to navigate you through:

  • Optimized Fleet; copier vendors always strive to oversell or over-specify devices. The higher end the device, generally the more margin for the copier vendor/reseller. We have proven formulas and methods to determine what is a right sized device for each location/situation.
  • Reduced device costs from benchmarking other RFPs and bids for MFDs, service & maintenance plus our industry knowledge of copier device, industry and other trends
  • More competitive service and maintenance costs
  • True evaluation of your add on technology or third party needs by exploring your company’s workflow and requirements and helping you to select the best match/fit among the supplier’s offerings at the best price. Don’t buy what you won’t use or what is overkill.
  • More favorable contract provisions saving money and avoiding costly penalties
  • A strategy to co-terminate leases that eliminates copier buyouts, which is revenue out of your pocket straight to the copier vendors/reseller’s bottom line
  • True industry knowledge on the nuances and subtle distinctions between the major copier manufacturer’s devices.
    • While copier devices attributes and features are general comparable among the major manufacturers, how the device operates on your network, integrates with third party applications such as scanning solutions, DMS, cost recovery software and even the handling of company templates will vary.
    • Also copier workflows on how it handles functions such as secure print, data security, basic scanning can vary from device to device manufacturer.

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Be wary of the Business of Buying your business and treating Outsourcing like a Commodity

There’s been a recent trend in the procurement of Business Process/Office Support Outsourcing Services where to compensate for stagnant growth, Outsourcing vendors are “buying” a client’s business, typically in a competitive displacement. This is achieved by paying a large up front “incentive” or cash disbursement to the client, for a three-four year services contract. This upfront fee, which is some cases, such as was apparently the case re: the ill-fated Mail & Reproduction outsourcing services contract with the now defunct Dewey & LaBoeuf (according to several competitive vendors involved in the RFP process) exceeded $500,000, in RAS’ view, is fool’s gold. This kind of initial balloon “incentive” back to the client is typically difficult for a normal vendor bid structure, e.g., cost + margin, to overcome and is, in effect, analogous to “buying the book of business”, but with a significant value-diminishing upfront penalty.

Why would a vendor agree to such an arrangement (and in some cases it’s not the vendor actually offering the concession, it’s the customer, either independently, or through an unscrupulous RFP consultant demanding the concession and receiving it from a vendor willing to meet the demand) you ask, when it no doubt skews the financials and p&ls on the entire deal? Hasn’t business taught us that a deal with below market profitability is not a good one? This is an old procurement tactic that is consistent with the way some look at Business Process outsourcing–as a commodity instead of a management service, like widgets off a production line. This line of thinking basically asserts, the people/process do not matter; we can work within the narrower margins as the people are just empty place holders for services that are predictable and delivered without passion and strategy.

Some would argue that with most Business Process Outsourcing Services organizations today all espousing the same philosophies–that their people are their difference, that taking the “treat outsourcing as a commodity” is even justified. Have all the outsourcing provider vendors become so homogeneous that they deserve to be treated like a commodity? Not in my book and they will never be as long as there are human beings involved.

Treating outsourcing as a commodity, however, to use the literal adoption of the procurement method means the people, management and uniqueness of the vendor doesn’t matter–price alone should be the driving force in the decision-making for the services, or that price concessions are the end-all. But lowest pricing of course does have consequences–in the end you DO get what you pay for no matter what anyone says–providers all recruit from the same job pool, pay similar compensation rates, have similar training and technology budgets and provisions.

Again, to those that treat outsourcing like a commodity, remember that you or your customers are purchasing Managed Services and Outsourced Services. You’re buying the whole package, the management oversight, the technology integration and innovation, the corporate culture, the systems and procedures expertise, the cost savings initiatives, etc., NOT just the bodies and boxes. And when the consultant is long gone after negotiating that stellar pricing solution, who has to live with the consequences of a vendor, desperate to pickup additional revenue in any way shape or fashion to offset mediocre margins or that provides mediocre service or quality of employees that match the minimal margin earned with an offsetting level of apathy and lack of commitment in providing the services ? At the end of the day, no one likes being marginalized; put yourself in their shoes sometime and you will readily agree.

 

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Beware of a Disturbing New Trend in office support outsourcing services

A recent trend over the past several years in legal has taken shape where in particular large national law firms have partnered with Procurement Consulting firms such as (Profit Recovery Partners (PRC) to take a hard line negotiating stance with their incumbent office support outsourcing provider. Often the “negotiations” in the renewal process, which are based entirely by the procurement company’s benchmarking of what they claim industry labor costs to are contentious and adversarial, in contrast to the traditional RFP or closed bid renewal process. While these procurement firms do claim to extract at least 10% cost savings from incumbent vendors at minimum, there is no rationale in terms of where the savings is to come from.

What is particularly disturbing is the trend where an incumbent provider is essentially usurped or competitively displaced by a lower cost competitor, who simply assumes most/all of the former vendor’s on site labor pool, but reduces their wages and benefits to eke out cost savings to the law firm client. These tactics are predatory and underscore how these procurement-based consulting firms treat outsourcing labor-based solutions and the people themselves as commodities.

This commoditization of the on-site office support services outsourcing business is one of the real disturbing trends in the industry. It destroys the continuity of an incumbent vendor’s service capabilities, invalidates their loyal, effective service to the Firm, typically results in competitive displacements for bottom line reasons only, which effectively diminishes the quality of the service, the staff (as some employees will no doubt leave after having their wages reduced by the new provider) as well fewer equipment choices as often the procurement consulting firm attempts to influence the law firm customer to a single office equipment provider, regardless of the Firm’s historical vendor choice or integration experience.

Granted, an incumbent service provider’s cost structures often experience contract creep and increased labor costs, in particular if there is low turnover to the staff, often passed on to the customer in the form of annual increases. Often those annualized increases, if the contract is not negotiated by a seasoned outsourcing RFP veteran, are beyond the typical index, the local Consumer Price Index. But there means to reign in these contract creep costs during the contract renewal process or even by putting the services out to bid.

But this new trend effectively says on site outsourcing services are like office supplies, and law firms should indiscriminately look to change outsourcing vendors the same way they should change office suppliers for a small percentage of savings.

In a recent example of this practice, for national law firm Bingham, once one of Fortune’s top 100 companies to work for (no longer, however) incumbent vendor Merrill, which had their contract extension renegotiated by RAS and the Firm to a 20% savings in 2011 (after winning the services contract in early 2008), was ushered out the door in favor or a competitor, DTI.  Bingham recently had a change in its Executive Director position, who brought in PRC, a procurement consulting firm that specializes in strong arm tactics to reduce law firm vendor spend, based almost exclusively on its benchmarking data.  While benchmarking data is very useful as a tool to substantiate items such as labor rates, equipment costs, etc., it cannot be the sole source for decision-making for these services.

Merrill claims that they were told all along in the process by either The Firm or PRC that if they significantly reduced their costs, a renewal was eminent, only to eventually be displaced by DTI, who, Merrill claims, hired most/all of their former employees but cut their salaries and reduced their benefits by a reported 50% to save costs.

DTI, apparently, has been the recent beneficiary of several deals with this blueprint with PRC, in effect partnering with the procurement consulting firm (conspiring?) to supplant incumbent providers, a predatory practice that ironically DTI and other vendors fell victim to earlier in the decade with another vendor/consultant arrangement.  Granted other vendors would no doubt smear the same blood as DTI has in this case in order to get new business in an area that is shrinking in revenues.

On site outsourcing services are still operationally-driven, require SLAs and require a staff that is motivated and has high morale to fulfill these all important services.

But it is also possible that the commoditization of these services is also driven by an overall de-emphasis on the value and the diminished importance that mail delivery and distribution, facsimile and office copy center services, the traditional services that form the core of outsourcing services now have at law firm.

Simply put, these traditional core outsourced services are less critical to a law firm’s existence, what with digitization of so many documents all but eliminating central copy center copying services, dramatic reductions in incoming/outgoing mail and interoffice mail, also due to digitization and the virtual elimination of fax services all serving to make office support outsourcing services less and less significant. If the services are less significant, why a law firm would want to pay a perceived (and real) premium for these services is a very valid question.

In particular, Merrill Corporation, who specializes 98% of its business in legal but who has a higher cost structure typically than some of its competitors, may struggle to find relevance and retain its client base thanks to this new trend, or if they do retain their client base, their profit margins will be cut to the bone and difficult decisions on how to cut employee or overhead costs to maintain competitiveness to some of their smaller, more nimble competitors will be a challenge.

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