Order Management Models: Outsourced, In-House, or On-Demand

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1 Educational Whitepaper Order Management Models: Outsourced, In-House, or On-Demand Which is best for your company?

2 Order Management Models: Outsourced, In-House or On-Demand Which is best for your company? Outsourced, In-House or On-Demand: Which OMS is Best for your Business? The competitive telecommunications marketplace continues to evolve, driven by time to market pressures and the need to offer the latest services. CLECs, virtual network operators, and resellers of complex globally deployed networks now find themselves in the business of selling VoIP, VPNs, FMC, and trunk replacements, such as SIP trunking, just to remain competitive. Reselling next generation services is a more technical sale and more complex to administer. Improving and installing back-end systems while simultaneously launching and selling new services and capabilities can oftentimes be the wrong approach strategically, based on the stage of the business. Finding the right balance between customer facing efforts, vertically integrated backend functions, and outsourced functions based on stage of company is critical to success and sustainability. Back office efficiencies such as reducing order entry and provisioning errors, decreasing cycle times and driving down the cost per order are imperative efforts to maintain and improve margins. Achieving these goals can be difficult when resources are scarce and when the resources on hand need to focus on sales and customer service as a top priority. On-demand software as a service (SaaS) offerings are now available for order management. SaaS is making the headlines today for a variety of applications but is this the best approach for your order management system (OMS)? This white paper will survey the landscape of OMS models available today and provide some analysis to assist in evaluating which offering might be best for your business in both the near and the long term. The default choice for most SPs is to take it in-house. They often don t realize that there can be other, more efficient options to consider depending on the stage of the company. In-House Order Processing In-house services tend to work best for the larger Tier 1 carriers that are constantly handling very large and predictable volumes of orders. The following list of questions can help you decide if this option is best for you: Do you have a large and predictable volume of orders that will remain fairly steady for the foreseeable future? Do you already have a large in-house order management department that has a high level of utilization? Do you have the investment dollars to spend on high fixed costs for software and labor to build and maintain an order management center? Do you have a large labor pool in closely aligned disciplines that you could quickly and easily train for order processing functions should you see a spike in demand and then move back to an allied field when demand for order processing diminishes?

3 3 Are you concerned about having complete control over all of your order management processes? Do you feel that ordering is a part of your core competency that you don t want to entrust to a third party? Do you have strong documentation and processes in place for order processing and management that are working well? Do you have a conviction that you can do it better, cheaper and more efficiently than anyone else? Do you already have best in class software and tools for order processing and management in place that are being properly maintained and kept up to date? Carriers that process tens of thousands of transactions per month benefit the most from keeping their order processing and management in-house. Having a large staff in place, the loss of one employee won t make as big difference in your ability to process orders as it might at a smaller carrier. Handling all of your order management in-house ensures complete control of your company s role in order management. Keeping it all in-house means that no extra points of contact or processes are required to work with a third party. You won t need to worry about the financial strength or health of the partner. You don t have to worry about the security issues that come with giving a third party access to your systems. You also won t need to spend time bringing them up to speed on your internal processes. If you answer yes to the previous questions, you are a likely candidate for keeping your order processing in-house. If you have expectations for extremely rapid high growth expectations that would take you from a low volume of orders to a very high volume in a short period of time and you can afford to invest in the necessary order processing software, infrastructure and talent, then it would be best to keep the ordering function in-house. For the smallest carriers just starting out who may be processing in the range of 10 orders per month, it might also make the most sense for them to do it themselves because no special software or tools are required to maintain this level of ordering. Benefits of Keeping Your Ordering In-House There are many benefits to doing your order management in-house. If you have a large staff and a steadier and predictable work load you can benefit from full staff utilization, which means that you are running a cost-effective operation. Outsourced Order Processing How do you know if you should outsource? There is a large category of Tier 2 carriers for whom outsourcing can make a lot of sense. These smaller carriers may often prefer to spend their resources on relationship management and may feel that they don t have all of the required ordering expertise in-house. Because their staff is small, they may find that they have a hard time finding, training and retaining the technical staff required to do this type of work. If they have 4-6 people doing ordering for them, losing one would make them fall behind in order processing, which can have negative impacts on their business and their ability to deliver services. In addition, when a carrier begins to do more than orders a month, the volume begins to warrant having the necessary software and tools to properly manage the effort. And as volumes increase to the range of orders per month, investment in a new order management software and staff resources will be required.

4 4 The following questions can help you determine whether or not to outsource: Are your internal provisioning costs too high? Are you at a point where you need to invest in your first OMS? Are your order management human assets unstable, with sub-par utilization? Are the complexities of new services bogging down your existing provisioning systems? Are you spending too much time managing back office systems rather than selling services and building customer relationships? Are you experiencing pressures to lower your order management costs? Are your order volumes unpredictable and non-linear? Benefits of Outsourced Order Processing If you answered yes to more than one of these questions, then you should consider an outsourced option. The key benefits to a traditional outsourced approach include: Ability to focus on core business including sales and marketing efforts Cost-savings on staffing overhead Ability to access state-of-the-art systems and services that are continuously upgraded Elimination of the need for major network integration projects that can drain resources Ability to leverage a provisioning talent pool that has experience in simple to complex services and the most recent methods and procedures for order management With traditional outsourcing it is the service provider s job to tell the outsourcer exactly what to do and how to do it. This works well if all of your processes are documented and if you can provide the outsourcer with a manual showing them exactly how to process an order for them. Smaller service providers tend not to have such documentation in place. An outsourcer can not only do the ordering work for them but can also document the process. This can be helpful if the SP decides to take its ordering in-house at a later date. A cost analysis and benchmarking study of each carrier s internal provisioning costs can also help to determine if outsourcing is the best way to go. If you do decide to outsource your order managing processes to a third party, the vendor should be thoroughly vetted in the areas of technical competence, knowledge of your business and financial viability. On-Demand Outsourcing If you have determined that it would be worth your while to consider outsourcing, your next step is to decide whether you should pursue a traditional outsourced solution or a transactionbased, On-Demand solution. Like the traditional outsourcing option, On- Demand order management can offer a full range of provisioning, project management, and complex IP provisioning services and can manage all functions in the ordering and provisioning cycle from pre-sales to invoicing. CLECs, virtual network operators, resellers of complex globally deployed networks, and top tier carriers launching new services can leverage the outsourcer s expertise in complex project management to reduce costs in existing services while improving customer service. Communications providers can choose between supplementing internal resources, using a combination of outsourced and internal resources or outsourcing the entire function. This allows them to pay as they grow with a flexible transactional model. They can leverage the partners order management system, which

5 5 may be more advanced than their own internal OMS, or work with their in-house systems or a combination thereof. This provides a transparent service providing a broad range of operational reports for high-level visibility into key metrics, while maximizing return on investment. Often tier two and three Service Providers are too small to staff up to handle order volumes as they roll-out new services. Service Providers of all sizes can experience periodic peaks and troughs in their order workload that they can t afford to staff up for on an on-going basis. In both of the above scenarios, Service Providers may want to consider outsourcing some of this work on a transactional (On-Demand) basis. The following questions will help you decide whether an On-Demand Outsourcing model is right for your business: Do periodic fluctuations in your orderprovisioning backlog leave you either understaffed or supporting idle resources? Do you need to have the flexibility to add or remove services quickly and efficiently? Is your order department overwhelmed with the task of learning and implementing different processes and standards for each new carrier partner? Is your order volume non-linear and unpredictable from month to month? Do you see the need to offer more complex services to meet competitive pressures that will stress your current OMS model? If you answered yes to one of more of these questions then an On-Demand order management might be best for you. Service Providers need to decide whether it is more important to leverage their current assets and delay investing in new order management systems or to go ahead with new capital expenditures to remain current. You may find that you fall into one of the following categories: You have an in-house OMS but you are considering outsourcing for new services You have an in-house OMS but you are considering transitioning to outsourcing as a longer term solution You have no OMS and plan to use an On- Demand OMS in the near term, but want to transition back in the future You have no OMS and plan to use an On- Demand OMS in order to focus on your core business and business development imperatives for the foreseeable future You have no OMS but want to leverage On- Demand OMS to bridge to the point where it makes sense to vertically integrate the order management function within an in-house system down the road. Benefits of On-Demand Outsourcing In addition to the outsourcing benefits listed above, on-demand OMS offer the following advantages: The ability to quickly help clients maximize ROI and profit margin while securing longterm competitive advantages Provisioning costs can be slashed up to 40% Ability to efficiently handle non-linear and unpredictable monthly order volumes Transactional pricing plans eliminate costs associated with idle capacity Quick end customer turn-ups improve satisfaction ratings and speed cash flow Elimination of rework costs and other inefficiencies Reduced order backlogs improves revenues,

6 6 collections, and customer satisfaction Rapid time to market for new product launches, network upgrades, and migration projects Factors to Consider in Making this Choice Although the volume of orders to be processed per month is a key factor to consider in making this decision, there are several other important ones. For example, the level of complexity of orders to be processed is also important. Staff costs will be higher for some of the newer IPbased services than for more basic orders. Once you get to a certain volume of orders to be processed, you will need the most robust and advanced software on the market from vendors such as Convergys or Metasolve. These systems can run in the range of $1 million with a 15-20% annual maintenance fee. If you can afford to purchase and maintain this software yourself, then in-sourcing may be the best option for you. On the other hand, if you can t afford best of breed software and end up doing an inferior job in-house, that can negatively impact to your business. In this case it may make sense to outsource order processing at least until the company scales to a size large enough to consider taking this back in-house and purchasing the requisite software and staffing. If you are located in a major urban area, it may be difficult to find employees with the right skills that are within the required price range. In a more rural area, labor may be less expensive but it may

7 7 This approach allows the provider the ability to focus on their key business, while not losing their ability to be a competitive force in the marketplace. On-Demand provides a variablecost service that is based on orders processed. It remains independent of fixed costs to the provider, allowing them to focus resources elsewhere. Costs of idle capacity are eliminated and the cost of rework is offloaded to the On-Demand provider, who is incented to get it right the first time, every time. Quick turnbe tough to find and retain personnel with the skill level and understanding required to process orders. Large outsourcers that service multiple industries and work with only the largest clients generally won t know your business as well as a smaller organization that specializes in the telecommunications industry. Larger outsourcers generally are not as flexible in their offerings and are incapable of providing a transactional offering to a tier 2 or 3 carrier. For carriers that don t have tens of thousands of transactions to outsource per month, their options have been limited. On-Demand order management, however, is changing this belief. Making the Transition The three main options for order processing discussed in this white paper are illustrated in Figure 1. This chart shows some average costs associated with constant and predictable order volumes for each order management model and is based on the following assumptions: Costs are based on a medium order type complexity, such as a T1. The more complex the order, the more expensive it is. Costs in this graph are focused on order placement and management activities only. And lastly, this assumes No Monthly Volatility which is necessary for a cost model but a rare occurrence in the real world. As this figure illustrates, average order costs go down as economies of scale grow through an in-house solution. With consistent volumes an in-house solution can provide a cost-effective solution to order management operations. However there remain other issues to address such as staff recruitment and retention, launching new products and services, capital expenses on systems and tools, and the focus of the business. The purple line in this figure shows cost trends for a traditional outsourcing model. Outsourcers generally do not handle small volume business. Their economies of scale do not allow them to be competitive until large volumes are in play. Therefore, the cost of outsourcing at a low volume is very expensive. Many outsourcers will require a 500 order minimum monthly commitment before taking part in a project. However, at the same time, volumes hovering in the space of 500 to 1000 orders begin to justify the costs of bringing the work back in-house as long as other parameters are positive. This would include a strong, stable work force, documented and effective processes, state of the art systems and tools, as well as excellent focus on the business and the customer. If that situation exists, then an in-house solution becomes a smart choice over traditional outsourcing as volumes increase. At significant order volumes, 2500 plus per month, the outsourcing curve does begin to flatten out (not shown in Figure 1) faster than in-sourcing, making it a viable alternative for large volume situations. Finally, we have added in the order metrics for an On-Demand order management service, which is shown in the navy blue line in this graph. On-demand order engineering makes sense where order volumes range from 0 to 500 orders a month. In this area, On-Demand order management can bring a cost savings of up to 50% per order over the in-house approach. With its transactional cost model, On-Demand can generate significant savings while improving quality, customer satisfaction and cycle times.

8 8 ups from a dedicated partner drives faster revenue generation and cash flow, as collections activities are reduced through accurate orders and invoices. Profitability is strengthened as customers become more satisfied, paying on time and dedicating more of their telecom spend to a business partner they are satisfied with and trust. Pricing is based on a fixed fee per transaction for a certain volume of orders, enabling service providers to minimize costs through any volatile environment. As this figure shows, at a certain level of order volume, outsourcing may be the best option to choose to avoid the investment in additional staff resources and best of breed software. In general the On-Demand approach will always be the least expensive option. This is particularly true when you get to the point when you need to install and integrate a best of breed order processing system to handle a higher volume of orders. At any given time in your order cycle development there are different options for a Service Provider. If you are a green field carrier starting out today, you could start off doing your order processing in-house with a handful of reps; then you might outsource to an On-Demand order management process to take advantage of economies of scale and best of breed software and new skill sets as your order volume grows. This enables you to redeploy staff where they are most needed. If your business scales to that of a Tier 1 carrier then you may decide to fully outsource or take all order processing back in-house. It is possible also to combine these options at different times in your order cycle growth trajectory. If you are a Tier 1 carrier launching a new service, for example, you may want to outsource the order processing for a single new service until such time as it grows to the level where you want to take it back inhouse. You may want to opt for a hybrid option, keeping order processing for some product lines in-house and others outsourced. There can be a great deal of flexibility in moving back and forth between all of these options over time. If you have determined that you are not currently using the best possible option for your business, you can still make a smooth transition to a more optimal option. The following case study illustrates how this played out for one carrier who chose to alternate between different options as their business stage changed. Case Study A US domestic intrastate Tier 2 carrier was doing all of their order management in-house. They began to expand into new data and complex services that did not fit well in their current backend environment. They turned to Vertek for assistance by initially leveraging Vertek s On- Demand order management services to manage the initial volume of orders. Vertek had the talent and systems to economically satisfy their requirements and to assist in framing the processes necessary to streamline the efficiencies around these new offerings. As volume picked up, this same carrier decided to move from On- Demand Engineering to a complete outsourced model with dedicated Vertek resources to handle the significant order flow; approximately 1500 orders a month. At a later date it was determined that their order volume growth had no end in site and this was the time to vertically integrate this work back within the company. Vertek once again worked with this client to seamlessly transition the processes, data, and work back inside their company while providing a support window to ensure that the transition did not affect service delivery and had no impact the business. This same client is now a tier 1 international carrier headquartered in the US. Conclusion There is an order processing option out there for every type of carrier at every stage of their business. For the majority of the Tier 1 carriers, keeping ordering in-house will continue to

9 9 be the predominant solution, especially in regard to established and legacy services. In some instances, an On-Demand or temporary outsourcing arrangement makes sense at these carriers when, for example, introducing a new service or migrating customers to a new network. For the first time however, Tier 2 and 3 carriers now have an affordable outsourcing option that is easy for them to implement. This approach enables them to maximize their ROI for the long term. It allows them the opportunity to stick to their core business, spend more time building customer relationships, and sell additional services. It is possible for Service Providers of all sizes to move from an in-house ordering process to an outsourced one or to try a hybrid of both On-Demand and in-house, depending on their order processing needs and budgetary constraints at any given time. For those Service Providers who are willing to think out of the box, increased performance, happier customers, and cost-efficiencies await them in an On- Demand order management offering.

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