$116M Network Sourcing Initiative Provides Client 30% Savings and Improved Network Service

Problem

network-sourcingA Fortune 50 retailer had favorable contracts for its long distance, WAN data services, MAN voice and data services, local dial tone and interconnect services, and network managed services, but wanted to leverage changes in the competitive landscape and newer technologies to improve both its cost structure and network resiliency. The retailer was already enjoying competitive pricing for several of these services but was challenged by management to identify additional savings opportunities. The retailer asked Pace Harmon to help it achieve further savings through a $116 million procurement initiative while also improving the ongoing performance of the network services provided.

Approach

Pace Harmon was engaged to provide network sourcing advisory services to assist the client's technology and technology sourcing groups in completing the transaction. The following approach was executed:

  • Pace Harmon assisted the client in a preliminary benchmarking analysis and developed the business case for strategically sourcing the network services in scope. We also aided the client in evaluating new technologies, assessing the supplier landscape, and determining the associated procurement options. For data services, a migration from a Frame Relay hub-and-spoke network to a fully-meshed network utilizing MPLS technology was recommended. Since the client also wished to upgrade its MAN services, which were a hybrid of SONET and DWDM ring technologies, to a private DWDM solution, we gathered and analyzed the client's business requirements, identified the options, and recommended appropriate technologies to client executives
  • We worked with client staff to draft the RFPs to be released to potential bidders. To ensure alignment among the various stakeholders, we facilitated stakeholder reviews of all dimensions of the RFPs, including technical, operational, and transition requirements, service level agreements (SLAs), pricing, and terms and conditions
  • We employed our RFP Evaluation Tool to facilitate the client's quantitative evaluation of RFP responses. The tool was deployed to all members of the evaluation team and significantly accelerated the evaluation of each procurement. We also developed the detailed financial model used to determine the total cost of ownership of each supplier's solution in order to compare pricing at both an aggregate and unit level
  • Finally, we supported the client in obtaining best and final offers, driving the face-to-face negotiations, and ensuring that the suppliers were aligned with the criteria necessary to realize ongoing value and meet savings targets. We assisted the client in focusing on critical terms such as obtaining access to new technologies, the provision of substitute services for delayed installations and prolonged outages, rigorous SLAs, and annual network optimization reviews, as well as key financial terms such as rate stabilization, annual rate reviews, flexible termination rights, and low minimum revenue commitments

Outcome

The resulting network services fully met the client's requirements for enhanced service at lower overall cost, while the agreements also provided superior terms to those previously in place, including:

  • Low minimum revenue commitments to be applied across the contract term rather than on an annual basis. Contract term commitments representing, on average, 40% of expected spend could be met as early as the second year, giving the client leverage in its current contract and expanded flexibility to source services at more competitive rates in the future
  • Not-to-exceed rates that were capped for the duration of the agreement, ensuring that the client would not be exposed to any rate increases due to upward adjustments to tariff or standard pricing
  • Market leading annual rate benchmarking clause that results in a minimum 3% reduction per year during each year of the term - irrespective of market trends
  • Aggressive service level agreements that committed suppliers to stringent fault diagnosis and remediation process, as well as placing up to 20% of their fees at risk, should key service levels not be met
  • Waiver of installation charges, including system transition and implementation for selected network services
  • Flexible terms relating to access to evolving technologies and the ability to use substitute services in the event of service outages

In total, Pace Harmon assisted the client with five separate procurements over a period of nine months, resulting in savings in excess of $40 million on the baseline spend of $116 million (i.e., >34%).