Insight

Commercial Insight: Reducing project costs by 25% through integrated commercial management

Insight

Global distributor Medias ships thousands of next-day parcels and needed to access versatility in different markets, reduce software development and license a highly flexible workforce

*Protecting our clients’ confidence is of utmost importance at ITAA. While our case studies are based on true projects, we have used fictitious names and removed or changed other identifiable details.

 

Background

Medias is a global distributor of electronic and maintenance parts. With over 500,000 products, they operate via multiple channels and have more than a million customers worldwide. They ship more than 46,000 parcels on the same day the orders are received, making their supply chain critical to their success.

With established distribution centers (DCs) in the UK, US and Europe, they needed extra capacity to meet demand and deliver their future business strategy. This resulted in a project to expand one of their existing DCs by 50% and provide a fully automated solution.

Their key IT objectives were to:

  • Identify a supplier and software solution that could be replicated globally
  • Select a product that in its vanilla form could meet business needs
  • Present a commercially viable licensing solution for a flexible workforce of more than 2,000 employees
  • Select a warehouse management solution that was agnostic to the automation solution, reducing exposure to a single supplier.

Our role was to lead the supplier selection process alongside the business and technical teams.  Given the scope of the requirement, it was clear a market appraisal was required, incorporating the full procurement lifecycle.

Our approach

Step 1: Collating requirements

The process of identifying and formatting requirements was a true example of cross business collaboration. Our role was to work with the business and technical teams to understand the functional (FRs) and non-functional requirements (NFRs), facilitate discussions to reach an amicable conclusion between the two teams, and finalize a consolidated view that could be incorporated into a request for proposal (RFP) to go to market.

Alongside these requirements were the in-life support, commercial and legal requirements that needed to have a global remit to meet the project objectives. We also sought experience from outside the organization of recent projects in the retail sector, to help us understand what outcomes we could reasonably expect.

The final RFP was a hefty tome, approved by all the teams and levels of management within Medias. We wanted to ensure the potential suppliers had the depth and detail of information that would deliver a comprehensive and commercially accurate response, first time.

 

Step 2: Mapping the market

Each team and level of management had their preferred supplier in the market based on previous experience. It wasn’t realistic to issue the RFP to them all given the time available and scope of the requirement. We sought independent third-party insight into the most appropriate licensed software and supplier in the market and agreed to issue the RFP to five suppliers.

There was no clear leader in the selection process given the requirements of the project, so the RFP was critical in identifying the strengths and weaknesses of each provider, their solution and Medias’ wider requirements.

The scope of the RFP was not only the software solution itself, but also the licensing model, implementation, integration services and in-life support model. The commercials needed to include:

  • The initial investment and licensing model
  • The cost of implementation, including the integration into the existing warehouse and ERP solutions
  • The ongoing support and maintenance operational costs.

We had set strict budgets for all three areas and ideally, the solution would deliver savings beyond these.

 

Step 3: Evaluating responses

While waiting for the responses, we turned our efforts to the evaluation criteria to ensure the selection met everyone’s requirements. Info Sec, Legal, and Finance teams were all included to verify the suppliers met the minimum organizational level requirements and were financially viable.

We held workshops with the Technical and IT teams to formulate a scorecard based on each section of the RFP. The criteria were broken down into line items with a scaled scoring that subject matter experts (SMEs) applied to each item. It is this stage of a selection process that can often cause delay in a large and complex RFP scenario, but planning ahead and ensuring everyone was ready to respond delivered an efficient and comprehensive result.

Once we received the responses, the approach was:

  • One-day technical and business workshop with each supplier to ensure FRs and NFRs were fully understood and met
  • Half-day commercial and legal workshop to review financial and contract responses
  • Financial evaluation of supplier questionnaire to determine organizational security and stability
  • Info Sec evaluation to meet the minimum level of business requirements.

The outcome of these stages was fed into the consolidated scorecard, delivering an overall score by supplier to inform the final selection. It was a close-run race, and three of the five original suppliers went through to further negotiations and evaluation.

 

Step 4: Negotiating the outcome

Taking three suppliers forward led to commercial tension, increasing leverage with the remaining parties. Based on our recommendation, Medias agreed that our role was to lead the commercial negotiations given that we wouldn’t have an ongoing relationship with the chosen supplier and could therefore play a more hardline role.

We formulated a pack per supplier, with input from the stakeholders, and scheduled meetings with each party’s SMEs to finalize the outstanding areas. It swiftly became clear that there was a lead supplier, so we reduced the supplier pool to two.

As a team we produced a comprehensive overview of the selection process and our recommendation to proceed with the preferred supplier. This decision had to be approved by the Medias board given the public nature of the organization and scrutiny given to project governance. We were successful and took the preferred supplier to final round negotiations with C-suite and director level engagement and approval.

We led the final round negotiations, identifying target areas with each of the senior stakeholders and the least and most desirable outcomes.

Results

The formulaic approach to supplier selection meant that each stage was clearly defined, documented, and engaged the right stakeholders at the right time. We demonstrated the value of defining requirements upfront rather than being led by what is available in the market, which is so often the case.

Engaging with senior and board-level stakeholders smoothed the supplier selection and contract sign off process, and meant the project could easily highlight that we had met the objectives:

  • A global framework agreement for the licensed solution that could be implemented group wide
  • An agreed pricing structure for the software licensing and support, plus fixed rates for implementation
  • 25% savings against budget for the initial investment
  • A blended rate for the implementation services that would be held for the life of the project.

The transparent selection process enabled a positive start to the relationship between Medias and the supplier, as well as an optimal implementation, engaging both the business and IT teams with open and efficient channels of communication and delivery.

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