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There are a variety of pricing approaches to BPO. By far the most common approach is the fixed-price contract where a vendor manages a buyer’s process and gets paid a fee based on meeting preestablished performance benchmarks.

2 Comments · Business outsourcing

Many managers reading this article are employed by companies that have never undertaken a BPO initiative or whose culture is generally opposed to BPO.

Closely held family companies, for instance, may believe that it is contrary to their culture and values to consider outsourcing work to an external party.

In such cases, additional effort may be needed internally to communicate the benefits at outsourcing to top executives.

One way to introduce the idea of outsourcing in such a culture is by identifying a particularly inefficient or cumbersome business process.

Finding a vendor who is willing to pilot an effort to take over this process and demonstrate new efficiencies is a powerfully convincing approach to the overall business case.

Kohler Company, in Kohler, Wisconsin, is a family-held business that has not been active in outsourcing. However, when Dan Theune, manager of cash management, ran into an accounts payable record-tracking problem, he turned to API, an onshore accounts payable outsourcing vendor, for help.

Kohler is a leader in plumbing and power systems products. The Kohler portfolio at businesses extends beyond kitchen and bath items, including furniture and accessories, cabinetry and tile, engines and generators, as well as resort, recreation, and real estate businesses.

For nearly 25 years, each at Kohler’s domestic divisions had its own accounts payable (AP) department and handled its own AP functions. And, for nearly 25 years, this approach worked tine: Invoices were processed, microfilmed, indexed by control number, and stored independently at each location.

But in the late 1990s, with the Y2K problem looming, the company decided to not only update its computer systems, but also to centralize the AP departments of all ten at its domestic businesses then housed in various locations throughout the United States.

In addition to technology upgrades, a new building was constructed on the corporate headquarters site to house the new shared-service division. In the old building, the microfilm room was one floor below the AP department.

With the move to the new building, however, AP staff lost its ability to simply run down to the film room to look up information. Besides, with the new enterprise resource planning (ERP) system it had recently installed, remote offices all over the U.S. needed access to the microfilm records.

As the process of installing the ERP system began, the AP team discussed using the SAP imaging system to create electronic files invoices.

Nevertheless, with the ERP implementation dominating staff time, Theune’s team did not have the resources to tackle the imaging problem. It decided to seek an outsourcing vendor who could provide the needed competence.

Kohler had no prior experience with outsourcing, so it needed to find a vendor who would help it ease into thus new approach to doing business.

After reviewing several potential vendors, Kohler decided to wonk with API on an outsourcing pilot program. Kohler chose API in part because the company has developed a preoutsourcing analysis known as a Requirements and Definitions (R&D) study.

The R&D study is an in-depth evaluation of the BPO buyer’s business process, costs associated with outsourcing that process, and expected performance outcomes.

API performs such an analysis with each new customer before beginning service.
API’s R&D report helped the Kohler team develop a business case for its outsourcing vision.

The report spelled out all of the processes and procedures of the process handover and described details such as what the indexing parameters would be. The report also provided details on costs and benefits.

Theune said, “Initially, our most difficult task was to convince management that we should outsource the imaging function. We’re a privately held family company, and we just don’t outsource much.

This was new to us, so the R&D study was very valuable and helpful to our management’s decision-making process.”

The turnaround time from the start at the R&D process until Kohler’s AP department began sending data and documents to API was only 90 days.

This included time for API to purchase a Kohler-dedicated server and to implement connectivity and data transfer capabilities.

One of the greatest benefits at outsourcing for Kohler is the fact that API is responsible for purchasing and maintaining the server, which stores the AP images and requires limited assistance from Kohler’s IT staff.

Although the IT staff was involved initially, their overburdened resources were not further taxed because API handled much at the technical setup and maintenance.

With the technology and processes in place, Kohler now sends accounts payable data to API electronically and the actual invoices by FedEx daily. The invoices are scanned and match-merged to the related electronic data by reading the preprinted ban code an each SAP cover sheet.

For documents with multiple bar codes, API uses zonal scanning to accurately pick up the right bar code by searching for a bar code positioned in a particular spot an the cover sheet.

Having access to electronic images has greatly improved the level at service Kohler’s AP department provides to its internal and external customers without the challenges at managing an un-house imaging department.

The central AP department and authorized remote locations can now retrieve, view, print, e-mail, and fax AP information in a matter at seconds. And, rather than search ton invoices using a single control number, the documents can be retrieved using any one of ten index parameters.

Outsourcing has helped Kohler improve the process at tracking payables and shorten internal research time by providing immediate access to electronic images at AP documents.

The increased efficiency has resulted in enhanced customer care and profitability, prompting Kohler to deploy API services to its accounts receivable department and to other subsidiaries.

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