Benchmarking...

"Financial benefits for both users and suppliers"

Simply join the EVUA and use the EVUA Services Benchmarking Process. Membership can provide great financial benefits.

Benchmarking - a Win-Win for Customers and Suppliers

Competition is biting in a big way now, with new operators coming on the scene and undercutting the old guard, and the bigger operators buying into one another in an attempt to consolidate market shares. The upside is a reduction trend in unit costs; the downside is market changeability. This all leads to a natural tendency for customers to sign only short-term contracts and wait for better deals later. This is not only bad news for selected vendors faced with limited contract values and probable churn, but also for customers faced with repetitive tender and contract activities.

The EVUA has solved this problem with its Benchmarking Process. Originally set up to satisfy member demands for general trend information, the software and management process have been developed and adapted for use by both customers and vendors, in order to compare market prices and control charges during the contract term. This "value for money" assurance fixes the problems associated with short-termism – it gives the customer the ability to take on a longer-term deal, and provides the supplier with greater contract revenues and better opportunities for account development and churn elimination.

This all sounds fine, but how does it deliver in practice? How does a customer actually get to save a million bucks, and how can a supplier also benefit financially? This case is typical of deals the EVUA has recently secured on behalf of it’s members. A well-known manufacturing multinational wants to tender for a global managed network service (voice and data). The company’s big and can use it’s size to get good prices, and has an annual budget of about $4M. The EVUA develops a clause within the contract to employ the Benchmarking Process on an annual basis, where the percentage change in selected comparative market rates is assessed and implemented.

With this assurance, the customer is no longer concerned about having a one or two year deal and is prepared to sign a four or five year contract. The supplier is happy to envisage a longer contract with improved TCV (Total Contract Value) – and in recognition of this better opportunity, also offers the EVUA customer an enhanced volume discount package. The cost benefit equations for both customer and supplier are simple. The EVUA customer secures a further cost reduction of 5% - which on a $20M deal provides a saving of $1M in addition to actual tariff reductions. The supplier, originally faced with a 2-year contract worth a limited $8M, now gets a churn-free 5-year deal worth $19M – much better news for the salesman, the company and the shareholder.

The EVUA Benchmarking Service

The EVUA provides its members and partners with two network benchmarking services. 

The objectives are to provide competitive updates, assure value for money to members and support partners’ pricing strategies.

A bi-annual study of international data, voice and mobile services costs is performed, reports from which are issued in April and October. A service quality assessment of operators and their services is undertaken based on membership surveys.

Three different company profiles are used with varying geographic spreads and traffic volumes. Although the emphasis is intra-European, some global coverage is included.

Results are represented using an index method, and percentage change trends are measured. These can be used either as general indicators or included in contractual commitments.

The generic process is adapted to suit individual members’ requirements. Specific geographic coverage, actual traffic volumes and agreed competitive services are factored into the software to provide bespoke results.

Using similar indexing principles, the results are then be applied within contract and prices adjusted accordingly. This is termed Value for Money Assurance (VMA).

The net effect is that members and suppliers enjoy longer term contracts in the knowledge that service costs will always remain competitive. The need for service provider change, and repetitive RFPs and churn, is minimised or eliminated.

A VMA clause in the network service contract covers the benchmarking method to be followed (ie generic or bespoke), intervals between reviews and processes for pricing adjustment and contract cessation.

Bespoke benchmarking parameters, such as comparative vendors, traffic levels and locations, are agreed one month prior to the study. An initial index is established at the start of the contract.

EVUA Value for Money Assurance (VMA)

Summary

The EVUA provides independent bespoke pricing assessments for member contracts based on the generic benchmarking studies undertaken in April and October each year. The results are normally indexed and take into account any contract price changes. Parameters such as geographic coverage and comparative suppliers are agreed for each benchmark.

Activities

The EVUA provides support at both the contract negotiation and the contract benchmarking phases.

The EVUA will normally be invited by the customer to participate in the contract negotiation phase, and will facilitate agreement of the appropriate clause. This typically would take 4 days EVUA support.

A first review is carried out to highlight the initial price differential, to provide the basis of the first comparison and to determine the bespoke level required. This typically requires 5 days EVUA support.

The EVUA supports the first and subsequent benchmark points depending on the bespoke level required. Typically 2 days EVUA support are required if the indexed results of the EVUA generic studies are to be implemented. More bespoke implementations require typically 5+ days EVUA support.

Costs

EVUA support costs are borne by the customer and/or supplier depending on the contract agreed.

Rates at 1st January 2004 are :-

• Generic benchmark support (one annual review) - £15K (plus expENS/Outsourcinges), inclusive of 2 days consultancy
• Bespoke benchmark support (one annual review) - £20K (plus expENS/Outsourcinges), inclusive of 5 days consultancy
• Additional generic review - £5K (plus expENS/Outsourcinges), inclusive of 2 days consultancy
• Additional bespoke review - £10K (plus expENS/Outsourcinges), inclusive of 5 days consultancy
• Additional support per day - £1000 (plus expENS/Outsourcinges).

Support examples:

For further information contact John Sale at EVUA Services

Note that the EVUA Benchmarking Service is available to EVUA Members only.