MSP, A growing fade!

35% savings in print/POSM material purchase, WOW!. 30% savings in temporary staffing, just WOW!

And with rationalization in number of suppliers, it is a pure gold!

I have been lucky to have completed multiple sourcing projects and make a positive impact with various initiatives.

MSP is surely one of those initiatives.

Business owners love it as they have less people to manage and far better results.

It’s a win-win for both i.e. business owners and procurement.

Where it is applicable: When you have multiple suppliers to manage and they all work at varying costs. And where you see or don’t see an opportunity to reduce cost. Doesn’t matter!! Saving would definitely come if it is done in a proper manner. It doesn’t need to be for one item/service but can work for entire category or set of similar goods/services.

Where it works well: Geographically, when you are taking supply and services within a country instead of multiple countries. Though it can also work there but it works well when it is within city/state/country.

What is MSP: Managed service provider which manages the suppliers efficiently and effectively to ensure goods/services are delivered as per expectations.

What do you need to get started: Spend data, suppliers information, SLA/KPIs applicable and Voila! You are good to go!

Step 1: Analyse the Spend. What items/services are being purchased and what are their specs/SOW.

Step 2: Look for standardization but not at the cost of business. An example if the organization is buying posters for marketing communication, and is buying posters of different sizes and GSM, then talk to marketing to seek opportunities of standardization. Less the variation, the better would be the outcome. We would be able to use economy of scale to get better financial benefits. (Standardization is not a mandatory step before going for MSP but if done, can give great rewards)

Step 3: Once the items/services are standardized and KPI/SLAs are known, we may share it with prospective MSP suppliers. They would ask for volume forecast, delivery location etc. which needs to be provided so that can go out in market and explore on your behalf.

Step 4: Review and select good no of prospective suppliers. Discuss what is expected of them. More the number of quality suppliers, greater the benefit. Talk to business owner, google it, search your repository as key is to find sufficient number of interested parties.

Step 5: Suppliers can be shortlisted basis RFI (Request for information) which can include their revenue, current clients, presence in required locations, office locations etc.

Step 6: Formulate the commercial model. Formulate because it needs to be scientific. It needs to be designed carefully and intelligently. For example of posters. Price may significantly vary if you are buying 100 posters instead of 100,000. So make slabs so that you can get the benefit when volume is higher. Every business has fixed cost and variable cost. Higher the quantity, less would be the fixed cost/qty.  One major factor is to study the current trend as well. If most of the times, you purchase it in higher quantity lot, it doesn’t make sense to have slabs for lower volume. For example, if 90% of the times, you have ordered in excess of 5,00,000, 10% times lesser than 500,000 and 70% times between 5,00,000-10,00,000 then we need to target the volume slab of 5,00,000-10,00,000 more.

Step 7: Decide whether you want MSP to manage your current set of suppliers or you want MSP to ensure goods/services are delivered as per fixed KPIs/SLAs, no matter who is supplying at back end. That’s a decisive step. Suggestion would be to let MSP explore in the market rather than working with your set of suppliers. Reason being that current set of suppliers will not be willing to reduce cost and having an MSP would add up the management fee to current cost. We may suggest 2-3 suppliers during the transition period to mitigate risk but in long term, it works beautifully if MSP decides the supplier set and we decide the item/services, specs/sow, KPI/SOW etc. It has other benefits as well. It will make MSP the owner like it should be. In case of any delay, MSP should not come back quoting that our supplier is not delivering. If MSP decides the supplier, it would take complete ownership.  Moreover, MSP will go all out and use its expertise to negotiate the best cost with supplier. Have a penalty matrix in place with MSP in the contract/agreement and monitor it regularly.

Step 8: Conduct a RFP with your commercial model. This would help MSP to get familiar with commercial model, KPIs/SLAs, penalty matrix etc. Prospective MSPs can then go to market and get best cost for us. MSPs are expected to quote the end cost i.e. including their margin. Buyer can compare the cost with existing and see whether it is making any sense. If the cost if on higher side, don’t get disheartened as negotiation holds the key.

Step 9: Conduct reverse (E-auction) auction: It is not a mandatory step but an important step which might make/break the decision of having an MSP in place. You will be surprised to see the results and difference b/w RFP and auction rates.

Step 10: Compare the commercials to know which MSP has given the best commercials.  Evaluate other parameters as well as per your organization process and select the most preferred supplier. Calculate the savings comparing old model and proposed MSP model. Close the contract/agreement and you have reached the stage where you can reap the benefits of your hard work.