Can you outline why your team embarked on this project and the problem that needed to be solved?
The existing contracts for BMO’s two armored car carriers (ACC suppliers) and Canadian cash processor were expiring. Our Sourcing team was originally engaged to support business-as-usual standard renewals, but we saw a greater opportunity to simplify, standardize and integrate our cash management process by moving to a sole source provider for turnkey cash management.
How were things done originally and what was the inspiration to innovate the process?
The initial driver for change came from the imminent expiration of our existing contracts, but not every great project starts with a need. In this case, we saw an opportunity to transform far beyond current state to simultaneously find a better way to manage cash and to reduce the administrative burden required by BMO. At first, our goal was simply to secure a competitive ACC deal, along with any other value-add opportunities that we could uncover or create. As we started work on the project, our goals expanded to include a transformation of BMO’s cash ecosystem that would ultimately deliver an integrated end-to-end cash management solution and additional capacity for our branch teams to enhance the customer experience.
What KPIs did you use to measure success for this project? (For example: performance, customer satisfaction, revenue, sales or relevant financial gains?)
This project allowed us to transition work that had traditionally been performed by branch personnel (around-the-clock customer deposit drop processing, branch ATM servicing) to our selected sole source provider. This transformation saved an average of 18 hours of administration per branch per month, translating to 57 Full Time Employee (FTE) worth of work reduction and 43 FTE worth in capacity creation. The net outcome is $56MM CAD savings over the five-year contract term and a shift to more value-added activity focused on identifying and meeting customer needs and enhancing the employee experience.
Supplier savings were secured through supplier economies of scale, resulting in incentives and cost reductions. Capacity creation was confirmed via time studies, and all savings were formalized as part of our approval process. The entire project was a departure from our expectations, as we were initially engaged to renegotiate existing contracts and maintain the status quo with our ACC suppliers. All the work reduction and capacity creation achieved were net new, and not even in scope of our initial expectations.
This initiative has been extremely transformative to BMO’s cash ecosystem, as it shifted work and accountability for cash management to a sole source provider while enabling a better connection between cash inventory and customer demand through the simplification, standardization and integration of our cash management process. Cash is now managed holistically as a turnkey process.
How do you plan to ensure that the new model remains relevant and adapts to the future needs of the market?
The contract has an initial base term of five years, with two 2-year renewal options that allow for assessment of performance and confirmation of expected benefits. This will allow BMO to continue to benefit from this project for years to come. Joint Steering Committee meetings and working sessions between BMO and our sole source provider to ensure process governance, issue resolution and benefit realization are ongoing.
We also planned for implementation of a new cash forecasting system from our sole source provider that will use AI to develop algorithms that better align our cash inventories to customer cash needs. This system will only improve over time, providing us with better data and efficiencies in the future. It also complements a move from a long-time incumbent supplier to our sole source provider for Canadian cash processing to unlock route efficiencies and further reduce cost.
In addition, tightly defined Service Level Agreements (SLAs) were established to formalize supplier performance requirements in clear detail and to establish remedies and penalties for non-performance. Supplier performance reviews include discussion of continuous improvement initiatives and opportunities for mutual benefit and gain sharing. Incentives were established to ensure timely, effective transition from a multi-supplier model by BMO and our sole source provider.
What advice do you have for those who may want to implement this innovative approach in their own organizations?
The banking landscape in North America is occupied by institutions that succeed or fail based on tiny advantages or disadvantages over their peers. Every cost reduction or efficiency gain feeds into our overall Efficiency Ratio (expense divided by net revenue), and banks with lower ratios are generally more successful in the long term than their competitors.
The 57 FTE worth of work reduction and 43 FTE worth in capacity creation that resulted from this project will improve BMO’s Efficiency Ratio while allowing our branch staff more time to focus on meeting customer needs, translating into a definite competitive advantage. The case for embarking on Sourcing projects with a holistic end-to-end view makes itself and translates beyond banking or cash management to any industry or process.
How did your team assess the risks/potential for your third party management strategy?
To assess any potential risks, we first gathered data from external market research organizations, internal experts and the greater Procurement network. We also engaged our incumbent and potential suppliers to ascertain what they would do in our position. The composite of this information was used to develop a category strategy which pointed us to launching a competitive event.
Ultimately a sole source solution was chosen to mitigate risk and optimize the end-to-end cash management process. This allowed us to streamline supplier management and drive efficiency in our cash ecosystem. The result is improved service scheduling including the elimination of services no longer required. And all services were negotiated with price protection to manage cost over the potential nine-year term of the contract.
In addition, we worked with the awarded sole source provider to re-establish their diverse spend reporting to support BMO’s Supplier Diversity program.