Supply Excellence — Services Outsourcing: Let’s NOT Make a Deal

Services Outsourcing: Let’s NOT Make a Deal

June 26th, 2007 · by Tim Minahan · No Comments · best practices, outsourcing, sourcing

Supply Excellence is pleased to welcome back Sarah Pfaff. A long-time consultant to the world’s leading companies, Sarah now heads Ariant Consulting Group (www.ariant.com), which specializes in strategic sourcing, procurement transformation, and outsourcing strategy.

Last week, Sarah advised readers to get their internal processes and protocols in place before outsourcing. This week, Sarah cautions supply managers to assess and justify their business case for outsourcing — before sourcing these services.

The game show Let’s Make a Deal debuted in 1963 and you can still watch it on many cable TV networks around the world. In 1963, businesses were still attacking purchases the same way – “three bids and a buy.”

Fast forward to today. Services Outsourcing is one of the most important and complex activities a business must manage. Why do companies and even some of their advisors get in the “Let’s Make a Deal” mindset? Doesn’t this simply degrade the strategic sourcing discussion? In my opinion, I think that’s one of the causes of so many eventual Outsourcing failures.

Not too long ago one of our clients approached us after they had issued their RFP for outsourcing a customer-facing call center and received the responses. However, based on those responses and on some internal pressure, they were re-thinking their original scope and trying to figure out what to do. They recognized that the potential savings looked good, but there were other issues they now wanted to consider.

These issues were MAMMOTH. Since they believed the risk of upsetting the customer could be high, they wanted to consider alternatives such as:

sourcing a different, less visible function; or
using a new slower transition approach, or
simply using more automation and not outsourcing at all.

As you can tell, all of these alternatives impact the sourcing process and what to do with the RFP responses. Because they had already begun the sourcing process and committed to an end-of-year project completion, they were having trouble figuring out what to do.
What were clearly missing were the goals for the outsourcing in the first place and whether they could actually implement the changes the outsourcing suppliers needed in order to be able to achieve the cost savings.

Here’s my real pet peeve. Not only was our new client still in the “Let’s Make a Deal” mindset - even with these huge issues now on the table – the suppliers were aggressively pushing forward too. Everyone just wanted to get the deal done – by the end of the year no less! They had all smelled the potential savings and no matter how the project was re-scoped, they still expected us to hit that same general savings level. Ridiculous.

All the strategic re-thinking was getting answered by the short-listed suppliers (whether they were the best qualified or not). If an issue was too big to handle, it was either tabled for later, maybe it could be handled as an SLA, or as part of implementation planning, or post-implementation, or simply never to be resolved.

So what happened in the end? A deal was made – but it wasn’t what everyone originally envisioned, we did get them to go back and address some of the strategic issues and they ultimately did change their savings target.

Even though the potential savings from Offshoring key internal functions can be huge, Services Outsourcing really is too complex to behave like Monty Hall.

Thanks, Sarah. Your insights into the reality of services sourcing are tough medicine. But you offer the right prognosis.

Email Forward & Bookmarks