It's Christmas! Santa is filling his sleigh with presents to deliver on Christmas Eve. In reality, that sleigh is The Burlington Northern and Santa Fe Railway Company. From Thanksgiving until Christmas Eve, the Fort Worth, Texas, company hauls loaded trailers to 28 states and two Canadian provinces for United Parcel Service and other customers. The railroad completes major track work before this busy time so the trains can roar by. Throughout the holiday peak season, the company also hauls lumber - enough to build more than half a million homes - as well as coal, grain, and other products.
The railroad executives are good at making the trains run on time. But auditing its telecommunications invoices was relegated to the back of the train. "You really need someone trained to approve them because they are so complex," says John Hicks, director of the unified messaging, technology service department for Burlington Northern. The accounts payable clerks were "blindly stamping 'paid' on the bills," he reports.
The telecom companies try to, well, railroad the bills through. "Unfortunately, telecom billing is not very accurate. We have to check to make sure we're getting what we're paying for and not being billed for something we didn't get," Hicks continues.
This is not a small job. Hicks says the railroad spends millions annually on its telecom expenses. "There's a lot out there to find," he notes.
Hicks reports the railroad spent months negotiating discounts from its telecom suppliers in return for a minimum annual volume commitment. Every month someone had to audit the bills to ensure the rates the company negotiated actually showed up on the bill. "You may have spent all that time at the negotiating table for nothing. In many cases, we had to call the carrier to correct the bill to reflect the proper discounts," he sighs.
Mistakes Can Multiply For Years
Audits are also a necessity because the telecom providers can't seem to delete a circuit from the bill after the circuit has been removed from the building. "We've gone years paying for a disconnected circuit," Hicks explains.
To get the billing on track, the railroad knew it couldn't do the telecom audits itself. First, it explored buying a computer system to evaluate the bills. But management vetoed the idea because it didn't want the headache of maintaining the application. "That's not the business we're in," says Hicks.
So the railroad hired a contingency auditor who received a percentage of any money recovered. However, arguments soon ensued about who uncovered an error. This solution did not solve the problem satisfactorily.
Outsourcing turned out to be the engine for change. The railroad outsourced its telecom auditing to TENET International, a division of MSS Group, Inc. Over the past five years the Castle Rock, Colorado supplier has generated more than $60 million in hard savings alone for its clients. This is possible in large part, according to Vice President Roger Oustecky, because 80 percent of the nation's monthly phone bills have mistakes!
The average time to pay a phone bill is less than 15 days. TENET International has discovered late fees are more than 60 percent of a company's outstanding balance on an annual basis. The BPO supplier's system ensures the bills are paid on time, removing this unnecessary expense.
These savings are in addition to any staff cost reduction. The TENET International executive says it typically costs an organization $25 to process a telecom check. Outsourcing eliminates this expense.
The railroad redirected all its telecom invoices to TENET International giving the supplier a letter of agency to act on its behalf. "It's a big deal to redirect your telecom billing. But TENET International made it easy. I didn't have to tie up my resources redirecting our invoices. This was a big plus for outsourcing," says Hicks.
TENET International's proprietary software audits every invoice by tracking, analyzing and verifying expenses for local and long distance, Internet, data, network, wireless and paging services. After auditing the bills, the software sends an electronic data interchange (EDI) report to the railroad's accounts payable department, instructing the system to cut a (hopefully a more accurate) check to the telecom provider.
The Buyer Keeps 100% Of The Savings
Hicks says these services have returned "substantial savings in our telecom spend." One hundred percent of the savings TENET International finds flow back to the railroad since the BPO supplier charges on a fee basis. The railroad executive is happy the company doesn't have to share that sum with the supplier.
The supplier's price is right. Hicks reports TENET International has returned savings 75 percent over its fee. However, he expects that number "to taper off as we clean up our billing." Oustecky reports the typical TENET International customer saves $70,000 for every $1 million of telecom expenses.
TENET International's proprietary software also generates detailed Web reports so its buyers can analyze their usage, prepare for the next negotiating session with their telephony carriers and conduct better long term and financial planning.
Oustecky says the company's founders worked for a large insurance company during the 1980s. The CEO noticed that telecom expenses, then totaling $80 million, had climbed into the top five expense categories. "He asked us, 'Are you just paying the bills or managing them?'" Oustecky remembers. "We knew we had negotiated good contracts. But we discovered no one ever looked at the bills."
Oustecky's group wrote a program to identify the problems. This team believed they "could make a business out of this," and they did with the insurance company's permission. TENET International now has 75 customers and manages over $600 million in annual telecom expenses. "Looking at the telephone bill is the lowest priority on everyone's else's list," he says. "But that's all we do."
Lessons from the Outsourcing Journal:
- Eighty percent of telephone bills have mistakes on them. Outsourcing to a process specialist saves money by catching the myriad of mistakes.
- Since the supplier only charges a fee and returns 100 percent of the savings to the buyer, TENET International clients can enjoy a return of up to 400 percent.
- Web based reports help buyers plan for future expenditures and prepare for telecom negotiations.