Introduction
With total revenues reaching $320 billion in 2022, the global consulting industry is one of the largest and most mature markets within the professional services industry. Broadly speaking, the consulting industry can be further categorized into strategy, operations, process/implementation, IT and other niche consulting services. Interestingly, one of the top consumers of all consulting services across the globe is the banking, financial services and insurance (BFSI) industry which collectively accounts for as much as 25% of the total consulting market.
Why Banks, Financial Services & Insurance Companies Hire Consultants
The emergence of fintech and insurtech companies have challenged BFSI’s traditional operating models and put profitability under pressure. Margins have decreased and customer retention is becoming difficult, leading to the need of external consultants to help guide company strategy. Business growth, cost reduction, new product innovation are key areas for consulting engagements.
The increasingly stringent and complex regulatory environment faced by the BFSI industry requires them to hire external experts to remain compliant and avoid steep penalties.
The BFSI industry is one of the most technology sensitive markets, where timely technological advancement is a necessity. Digital technologies are bringing innovative solutions to overcome complex challenges faced by the industry. But digital transformation requires a multi-skilled effort and significant capital commitments. Hiring experienced consultants is the most effective solution to ensure success. This is the reason why digital business transformation remains one of the top reasons why the industry hires consultants.
The financial services industry requires a multi-faceted workforce which is skilled in all areas of business. Due to a shortage of talent, extended training timelines to upskill existing employees and relatively shorter assignments, companies prefer hiring consultants to complement their internal skill set.
For a typical company in the financial services sector, consulting spend can amount to anywhere between 8%-22% of the total third party spend. Often, this spend is spread across multiple business units. Business units may hire the same or different consulting firms for different projects and commercial arrangements, with minimal or no coordination at all, leading to severe inefficiencies.
Procurement Inefficiencies in a Siloed Approach
Given that consulting projects are typically critical, high spend engagements with a lot of emphasis on relationship management, a siloed approach to procurement is far from ideal. It can often lead to a distributed supply base with multiple suppliers having similar capabilities and impact solution success or effectiveness.
A proven approach to systematically overcome these challenges is to centralize consulting purchases through procurement. Through implementing best-in-class procedures, procurement can introduce cost as well as non-cost related efficiencies. A formal procurement function can ensure a market bidding exercise followed by extensive negotiations to drive cost savings. Moreover, through specific initiatives like a preferred vendor program (PVP) and supplier relationship management (SRM), procurement can help strengthen supplier relationships, consolidate spend with high performing vendors and maintain an aggregate view of all professional services spend
The Preferred Vendor Program ( PVP )
In a PVP, supplier services are identified and on-boarded via contractual relationships with agreed-upon rate cards to support the company’s requirements and establish long-term symbiotic relationships with major suppliers. A preferred supplier methodology enables expedited project timelines due to having pre-determined contracts and rate cards. Moreover, it allows suppliers to hit the ground running as they have established relationships with stakeholders and are familiar with critical aspects about the company like organizational structure, processes, and/or technology architecture.
Setting up a Consulting Preferred Supplier Program
We recommend a three phased approach to implement a consulting PVP at any organization
Change management is an essential component of setting up a successful PVP for vendor consulting suppliers. We recommend that the messaging should come from senior leadership across BUs to ensure compliance. In the new process, any consulting purchase request is first routed through procurement. Based on predefined sourcing rules, procurement works with the business to finalize a supplier from the preferred supplier base. Based on past relationship, specific project expertise and the expected value of the engagement, the business may directly be awarded to a preferred vendor or procurement may decide to do a quick RFP with preferred suppliers before awarding it to any one of them. Suppliers outside the preferred pool can be considered only for niche services that are not provided by established preferred vendors.
Consulting Before & After implementing PVP
Conclusion
Over the years, procurement consulting services have proven to be a key success factor for companies in any industry. It enables companies to leapfrog their growth journey by introducing the latest technologies and best-in-class processes to support business goals. However, consulting is a premium service and forms one of the biggest portions of a company’s third-party spend. The high spend, high criticality nature of consulting demands special attention. A preferred supplier program can help companies reduce costs and optimize relationships to maximize value from consulting services engagements. The key benefits of implementing a PVP for procurement consulting services have been summarized below.
Benefits of implementing Consulting PVP
- PVP (Preferred Vendor Program) leads to consolidation within the supply-base, which helps create a more streamlined and efficient vendor pool
- Based on spend levels, stakeholders may not be required to solicit other bids when leveraging a preferred vendor. This reduces administration costs and drives operational efficiencies
- Increased spend channeled towards preferred suppliers could drive product innovations (e.g. co-development efforts, proof of concepts (POCs)
- Consolidation of vendor base leads to greater volumes for preferred suppliers, which can drive additional discounts of up to 15% and volume rebates
- Creation of rate cards helps protect against cost volatility and the creation of more accurate budgets
- Enables cost transparency, including an understanding of the various components of a particular supplier’s price
- Becoming a part of the preferred vendor program incentivizes suppliers to provide the best overall value in terms of price, delivery capability, quality, training, financial stability and ease of ordering
- Reduction in product lead time as suppliers have a better understanding of existing and future requirements
- Suppliers are better aligned to the company’s vision, goals and objectives, and hence can drive corporate strategy
- Preferred suppliers have established terms and conditions, hence channeling additional spend through them helps minimize third-party associated risk
- Service levels are higher due to the existence of performance metrics, Service Level Agreements (SLAs) and Service Level Objectives (SLOs) in revised contracts
- Allows BU stakeholders to better focus on their core responsibilities, which can help protect the business against risk
