Innovations in Third Party Management: Fannie Mae

Published August 16, 2019

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Written by: Future of Sourcing Awards
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Can you outline why your team embarked on this project and the problem that needed to be solved?

Fannie Mae has traditionally engaged a broad range of third-party suppliers across different channels for advice, expertise, production support, development, governance and other services. The demand for professional services has ranged from single freelance experts to hundreds of resources for development to firms with methodologies and benches to deliver significant changes to our accounting and governance systems.    
To be more successful in our mission, we responded to a clearly identified need to deliver the right resources in the right mix at the right price. We are well on the way in a transformational journey to be the very best at delivering great outcomes from the third-party professional services channels needed by Fannie Mae. 

How were things done originally and what was the inspiration to innovate the process?

When we started our journey, there was no vision, strategy, methodology or fit-for-purpose technology to deliver a billion dollars a year in professional services. We had many hundreds of suppliers and sub-contractor firms providing professional services to Fannie Mae.  
We focused purely on onboarding resources. A cross-functional effort that included human resources, procurement, and contractors managed the onboarding of resources undifferentiated beyond rudimentary roles. The segmentation between sources or capabilities of the supply channels was nonexistent.   
A decade ago, the subprime mortgage meltdown escalated into a national crisis. Fannie Mae was at the brink of bankruptcy as the real estate bubble popped, and Americans began defaulting on their home loans. Leadership was forced to take a step back and look at the business with a fresh set of eyes. That crisis required change, and the change had to be fast.  Failure to adapt quickly would mean that we would remain the problem and not become the solution.   
At Fannie Mae, we accepted that we were unable to provide the level of expertise at an acceptable cost within the required timeframe without help from third-party professional services. Using the wrong tool or using the right tool the wrong way was not going to deliver enough change soon enough. We had to change how we thought about third-party professional services. Understanding the problem while defining the exact support needed delivered significant impact with more efficient and effective use of third-party support.  

What KPIs did you use to measure success for this project? (For example: performance, customer satisfaction, revenue, sales or relevant financial gains?)

We measured success using cost reduction; supplier rationalization; sourcing, contracting, and onboarding cycle times; best-fit-for-purpose utilization; and customer and supplier satisfaction. Here are examples of how we measured success for the program:
  • Contingent Staffing: moved from hundreds of firms to a dozen firms, went to a supplier neutral environment, eliminated rogue spend, reduced rates for services by 30% and improved cycle time by a third.
  • IT Services Procurement: reduced the supply base from 150 to nine, captured 93% of IT delivery spend, provided effective Agile resource delivery and achieved over 14% in cost reduction in the first year.
  • Advisory Services Procurement: shrunk the supply base from 178 to 35, captured 89% of advisory services spend and achieved a 12% cost reduction in the first year of channel rationalization.
  • Gig Economy: adapted to tap talent within the creative and strategic advisory freelance resource pools and reduced our dependency on creative agencies, reducing creative talent costs by 50%.
  • Common Digital Experience: Instituted an MSP/VMS model that drove down business approval cycle times and provided cost transparency, which enhanced substitution between suppliers and channels.
  • Suppliers into Partners: planned collaboratively, driving increased contract duration, which enhanced resource quality, and yielded 5% in first year duration discounts.
  • Customer Satisfaction: the team “exceeded expectations” in their categories for the last two performance cycles. 

How do you plan to ensure that the new model remains relevant and adapts to the future needs of the market?

We have established a refresh cycle for each channel that allows us to test the marketplace for new capabilities and adapt to the changing needs of our customers. We will stay close to customers through category management and demand planning processes that align Procurement to customer goals and changes in their requirements. Finally, our leadership is constantly seeking to identify best practice in category management and sourcing processes that we will incorporate, whenever possible. 

What advice do you have for those who may want to implement this innovative approach in their own organizations?

Our first bit of advice is to focus on delivering enterprise strategy enablers. From the beginning of our journey, the innovations we launched, and their resulting benefits were intended to enable delivery on Fannie Mae’s vision and strategic goals. Staying close to enterprise goals and helping deliver a successful future will ensure third-party services remain an enterprise priority.   
Our second suggestion is to focus on leveraging each service delivery channel’s area of comparative advantage (best and highest use). Meeting your demand with the best fit-for-purpose channel will you allow to deliver the most cost effective and efficient third-party professional services for your enterprise’s needs.  

How did your team assess the risks/potential for your third-party management strategy?

Not changing would have been our biggest risk. Our stakeholders, including our regulator were very clear about the compliance, costs, and capabilities that needed to be improved. The old ways were not an option.   
At their core, third-party professional services are enterprise categories with a broad customer base. Throughout the arc of our transformation, the core risks were service interruption of existing third-party professional services and failure to achieve customer adoption. Therefore, as we have organized each channel in the portfolio, we managed customer adoption beginning with the end in mind. We engaged our customers at both the working and leadership levels, incorporated their business goals into our sourcing goals, and kept them engaged throughout the sourcing, and celebrated our successes together when we operationalized. 
Regarding the potential, our overall sense was that we underestimated the project’s potential. 
We did not expect the very high level of spend capture and the near elimination of rogue spend across all professional services channels that we achieved. Additionally, migration between suppliers and across channels delivered surprisingly powerful best-fit-for-purpose and substitution-driven cost reduction. We were surprised by these outcomes because we started at a point where all spend was rogue, and there was no enterprise view or transparency to professional services.  It was hard to imagine coming so far, given where we started.

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