Outsourcing for Results John Riley, C.P.M. Arizona State University.

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

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tion

Gain CapabilityGain Capability

Telecom

App Hosting

Storage

Web Hosting

Wireless

1:1 Devices

Cell Service

Document Management

Google

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.


• Transfer of costs to outside the institution.– Health care.– Retirement.


• 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?


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• Getting the investment we requested.

• Adding VOIP phones.

• Generally working well.

• Occasional personality conflict.

• WDTCS.

• What Does The Contract Say?


• 60% of budget for new.

• Save $12.5 million over five years.


• 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

• 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.

Thanks Thanks

• ASU Purchasing:

• [email protected]

• http://cfo.asu.edu/purchasing

Outsourcing for Results John Riley, C.P.M. Arizona State University.

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