Informed RP Outsourcing: 7 Tips for Best-in-Class Procurement
Innovation is vital to success in any remittance processing environment. That’s why you need an informed RP outsourcing insight. To meet market demand Procurement is evolving sourcing strategies beyond the familiar “Request For” terms – RFI, RFQ, and RFP – toward embracing the Request for Solution (RFS) approach.
Today’s payment processors – whether in-house or third-party – are grappling with a range of challenges that require creativity to solve.
These challenges include:
- Integrating multiple payment types into fully integrated payments hubs;
- Meeting consumer demand for more secure, convenient payments options;
- Investment in potential fintech partners and service providers; and
- Mitigating regulatory compliance risks, to name a few.
In this environment, sellers and buyers are often frustrated by the restrictions of the traditional RFP process because it does not allow service providers to demonstrate the innovation and creative problem-solving they can bring to particular business needs.
Client organizations are increasingly sophisticated when it comes to sourcing suppliers but are still under pressure to contain costs and produce results despite myriad challenges.
In no particular order, this article will outline 7 key practices that we have observed through our work with clients that offers a newer approach to:
- Finding the best candidate
- Streamlining the “Request For” or RFx process, and
- Potentially embracing the RFS process.
#1. Leverage technology.
Companies can better manage and mitigate risk by leveraging technology in a way that drives supplier collaboration and innovation.
Best-in-class companies understand that technology is not a panacea. How processes are implemented is as important as what is implemented. If client organizations buy the latest whiz-bang solution without being properly vetted, the so-called solution is bound to be flawed.
However, modern Procurement managers focus more on ensuring they completely grasp both the specific business requirements of the business unit combined with requesting that vendors provide a creative or alternative solution as part of the bid process.
Companies need to adopt strategies to ensure that adopting new technology or upgrading existing technology aligns with the business needs of the organization as well as the available spend. Moreover, the life cycle of the investment in technology and other resources should be built to withstand additional change.
In remittance processing today, billers are seeking service providers who can implement a strategy that includes electronic payments. This requires adopting what is called an Integrated Receivables Hub. Adoption in this area has lagged behind interest, however. Many companies adopt the capability to accept epayments but fail to integrate legacy payment types like checks, credit cards, or even cash. This is just one of many issues that might cause an implementation to under-perform.
#2. Perfect the Statement of Work (SOW).
SOWs are the foundation of the buyer deliverable; SOWs should be written clearly, and concisely without sacrificing detail.
Clarify what you are sourcing. You will need to understand how useful the project is to your organization first.
SOWs with a product focus are easier to quantify than services-oriented SOWs. If you have thoroughly evaluated the project, and it is service-oriented, then consider issuing an RFS.
As a point of reference, here is a link to examples of technology SOWs available at the GSA (Government Services Administration) Website:
#3. Partner with internal business units and vendors.
Procurement has to ensure that it has good relationships with both the business unit requesting the bid and the chosen supplier.
Some best practices for developing a true partnership with the business unit are:
- Procurement should ask the business unit to define key differentiators;
- Suppliers should be incented to demonstrate that they are market leaders who merit inclusion;
- Discussions with the business unit stakeholders may generate new operational requirements;
- As suppliers respond, more market knowledge can inform sourcing; and
- Procurement, often an operational roadblock, should resist issuing RFPs based on price or policy considerations alone and instead demonstrate flexibility and strategic thinking.
When Procurement partners with business units, SOWs improve, RFPs improve, and supplier responses improve.
Companies that work in close collaboration with suppliers long after a deal is signed manage the relationship jointly employing good two-way communication. Representatives from both parties work together to enhance the buyer/supplier relationship throughout the process. Effective alliance management includes:
- Ability to seek continuous improvement due to better management controls;
- Meet performance goals with clearly defined Key Performance Indicators; and
- Communication and problem resolution processes are known at the outset and clearly defined.
The goal is to create sustained value and measure performance while always seeking improvement.
#4. TCO means more than price.
Something that is gaining traction in Procurement these days is the shift away from awarding business based on price toward understanding the total cost of ownership (TCO).
When companies want to outsource or switch their remittance processor, for instance, TCO can have a real impact on the bottom line.
One provider may offer a lower cost-per-item than competitors in a bid. However, if the lower-cost provider has higher exception item rates, banking fees (for return items, deposits, ICLs and more) or inadequate business rules in place then, the client organization quickly ends up with a higher spend.
Client companies can better manage TCO by comprehensively evaluating the entire procurement process with all internal stakeholders. They should also get to know suppliers early in the process so that a good dialog between buyer and seller develops.
TCO in the remittance processing space might encompass:
- Customer acquisition costs;
- Customer service costs: Exception item correspondence, look-ups, record retrievals, and so on;
- Staff overhead, training;
- Systems upgrades, tech investment;
- Regulatory compliance costs;
- Archival, storage, facility back-up;
- Transportation costs; and
- …much more depending on the implementation.
Today’s service providers tend to encourage client organizations to weight RFPs for Services over Products because they are eager to differentiate service offerings from the competition.
Clients may have to evaluate more ‘intangibles’ with a Services-heavy proposal (whether RFP or RPS), but the alternative is to adopt a product solution that might be a short-term fix but not have a lasting impact.
If you are awarding a remittance processing procurement based on price alone, you will likely not grasp your total cost of ownership until it is too late.
#5. Shift the request toward value.
As an RFP issuer, you can include a section in the RFP where respondents can propose alternative ideas. It is possible you have overlooked a business requirement or have not allowed for a creative or practical solution due to RFP format restrictions.
You might elicit better responses from bidders by asking open-ended questions like, “How would you solve this business problem?”
Given the rapid explosion of technical solutions for almost every business problem, it is difficult for even the most informed technology experts to stay abreast of what is available today let alone what new solutions might emerge over the course of the contract period.
Most vendors feel the RFP process is stifling and outmoded. Typically, RFPs emphasize price and compliance with technical standards that may be narrowly defined.
However, there is evidence that buyers and sellers – particularly those operating in complex sales cycles where there is a premium placed on problem-solving and the consultative relationship – are embracing the Request for Solution.
#6. Answer all questions.
Answering financial background inquiries might be the differentiator the buyer is seeking.
It might go without saying that companies would not respond to an RFP if they could not adequately answer financial inquiries. Bidders will, of course, be marked down or disqualified for not responding but obviously, bidders must answer all RFP questions.
Due to multiple, known complexities involved in remittance processing, for instance, many banks and other billers outsource their payments to third parties. It is important that Procurement understands going into the RFP/RFS process which service providers are not only capable processors but financially strong and healthy as well.
#7. Become fully engaged in the process.
For respondents, being fully engaged in the process means that you are available to:
- Submit clarification questions on the SOW;
- Answer clarification questions from the issuer on the SOW; and
- Make a formal presentation on your proposal if asked.
ient companies are now holding conference calls where they can ask questions of bidders and bidders ask questions of them. This is an advancement that adds transparency to the process.
The presentation step is key because the components presented – particularly around pricing and whether sub-contractors or other parties might be involved – might become part of a formal offer.
Ask permission of the buying organization if you are presenting an alternative solution to the one requested if you are in a traditional RFP process.
This would not be necessary if you are responding to an RFS.
Best-in-Class Roadmap : Informed RP Outsourcing
The 7 best practices described here is not intended as a complete list of every action that buyer and seller can adopt or perform. Your transformation to a best-in-class procurement organization can begin with these steps.
To get started with an outsourcing or payment strategy tailored to your needs, contact a 3 Point Alliance remittance processing expert, here.