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Minding the Gap in Outsourcing

Outsourcing as a concept is not new – it has existed for decades now. Over time, the landscape of outsourcing has changed, and the purpose of choosing this model as a business strategy has changed too. It is no longer about cost advantage alone but myriad of other value realizations that motivate organizations to outsource. …

Outsourcing as a concept is not new – it has existed for decades now. Over time, the landscape of outsourcing has changed, and the purpose of choosing this model as a business strategy has changed too. It is no longer about cost advantage alone but myriad of other value realizations that motivate organizations to outsource. The potential benefits of outsourcing may have compounded with time but they do come with their own challenges.

A successful outsourcing relationship between a buyer and its suppliers can be defined by the outcome that it generates. Nonetheless, the challenge is in sustaining a long-lasting relationship that is fruitful for both. There are organizations and there are suppliers who are able to forge this trusting alliance. To the extent that suppliers may provide services outside of a contract, which the buyer may compensate through other means. And there are buyer-supplier relationships that have passed through a maturity phase where they both contribute just enough to keep the relationship going.

Scenarios described so far about buyer-supplier relationships may look peachy at first, but they leave many gaps. Failing to address these gaps lead to leakage of value that may not manifest at first. It may be crucial to form a trusting partnership but the question arises as to what extent this trust should replace safety checkpoints and measurable performance parameters put in place to mitigate risk, boost productivity and drive innovation. And so that the relationship does not override the contract’s alignment with the company’s objectives and goals.

For example, a client A was not fully engaging a contract with a supplier B. Instead, provided leniency in the enforcement of some clauses from the contract. Conversely, the supplier B was providing services outside of the contract. For buyers and suppliers who have established relationships, this may seem like a good thing. But over a period of time, this may lead to the following challenging scenarios:

  1. When a project stakeholder on either buyer or supplier side leaves the organization, and a new person comes in to handle the contract, the relationship quotient developed so far may get thrown off balance. Without the capability to objectively assess historic and existing performance data that was being managed subjectively earlier, a gap in expected outcome versus realized value may appear which may further widen overtime, reducing efficiency and increasing risk exposure.
  2. When an enterprise reorganization takes place and new vendor management professionals take their new responsibilities, chances are that they may not be familiar with the contract, neither managed obligations nor held suppliers accountable, never tracked service levels and may lack familiarity with reporting – factors that may lead to a gap in expected performance and the actual output.
  3. Without the capability to track business transactions between a buyer and its suppliers, auditing becomes difficult, accountability is diluted and risk exposure becomes aggravated.
  4. When asked to identify which owners or business units have responsibility for the contract and certain moving contract parts; there is a lack of response from both client and suppliers. The lack of client and supplier owners for many obligations and service levels complicates efforts to maintain compliance and consistency across contracts. At this juncture, the need arises for following best practices in supplier relationship management allowing organizations to identify owners of all moving parts such as obligations and service levels and ensure alignment with the company goals and objectives.

Gaps in the form of inadequate collaboration, documentation and accountability inefficiencies, assumption-based decision making instead of data based, and unpreparedness in the time of uncertainties – all can lead to an adversarial climate in the buyer-supplier relationship leading to the loss of cost savings and innovation opportunities.

A supplier relationship management system, such as Sirion, can help put relationship and transaction parameters in an objective perspective providing a non-human face to view buyer-supplier relationship health indicators – devoid of human bias. It draws the spotlight away from the relationship shared by few individuals and puts it on the buyer and supplier forcing them to mind and address these gaps in outsourcing. Thus helping an objective evaluation of services provided by the supplier against the buyer’s contractual expectations on performance, ensuring maximum performance and value out of the business relationship.

Does the above resonate with your experience of managing outsourcing relationships? I would love to hear how you strike a balance between trust and objective measurement in your supplier relationships.

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