Monday, July 27, 2009

Are You Ready for Strategic Sourcing?

Unless commitment is made, there are only promises and hopes..” Peter Drucker

Before you undertake a strategic sourcing initiative, make sure you do the appropriate groundwork. Ask yourself these three questions:

 Have you identified an end-to-end process as a strategic sourcing candidate?

Some companies make the mistake of carving a key process into pieces and sourcing only one small part, retaining the rest --or worse, giving it to multiple parties. Usually, this is well intentioned. The company may want to test the waters of sourcing and sees this as a reasonable approach. Or the company may be afraid to give the service provider the full set of responsibilities, believing that parts of the process are “unique” and that no one else can do it. However, this approach adds complexity, increases coordination and integration requirements and sets up a situation where no single organization is responsible for the results.

Ultimately, when a company tries to source only a small part of the process, the risk falls back on the client. Even if there is some pain in the organization initially and the organization is forced to release control of some of the details, sourcing an entire process is usually the wisest approach. When the entire process goes to a single prvoider, it is much easier to hold the provider responsible for service delivery. It is also much easier for the service provider to perform, because they have control of most of the touch points in the process.

 Have you addressed all reservations or regulatory requirements in your organization or in your client base around sourcing?

Clear the hurdles needed to get the internal team and stakeholders behind the project. Many attempts at sourcing fail because of internal politics, unions, regulatory restrictions, and the failure to take the proper steps upfront. These hurdles can take time, and warrant a careful plan that addresses each stakeholder group separately.

 Are you committed to getting a deal done?

If you are committed to getting a deal done and have clear and reasonable objectives, your team will perform better and you will be more likely to achieve your goals. Sourcing transactions are sometimes approached as “benchmarking” exercises-- to test the waters or to get market feedback on how your team is doing. In these economic times, no one has the time or resources to waste on an “exercise” -- not your team and not the service providers who will spend potentially millions of dollars in pursuit costs to win your business.

Service Providers can sniff out a “exercise” a mile away, and will not give you their best prices, won’t put their best teams on the pursuit and ultimately, you will probably come away with an unsatisfactory result.

Conversely, if you wait until you are backed into a corner and MUST get a deal done, the service providers will also soon figure that out – and use it to their advantage. Your best bet in this situation is to proceed with a strong competitive process and the aid of some experienced advisors who help reduce the risk that your team will be at a disadvantage in the negotiations.

If you answered NO to some of the above questions, you may not be ready to source. Experienced advisors can help you investigate and lay the groundwork before proceeding.

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