In the past couple of weeks, I've talked a bit about the challenges of how to best to manage Spend Management talent. You can read my first two entries in this series here and here. In this post, I'd like to switch talent tracks and talk a bit about how procurement and supply chain organizations can best manage and think about hiring external talent (e.g., consultants, contractors, and outsourcers). But I will not get into how best to negotiate pricing with service providers, at least not in detail.
To begin, in any service provider relationship, the key to getting the most out of an external resource is to gain leverage over your service providers versus letting them gain leverage over you. A good place to start is by choosing them for specific assignments versus letting them suggest opportunities. Just as it is dangerous to let a preferred supplier write an RFQ -- no doubt, in their favor -- it gives away hand and leverage to let a third party services provider write their own ticket. But at the same time it is certainly critical to incorporate their feedback and input into the specification process. I also recommend -- especially on the sourcing front -- looking for providers willing to balance fixed fee and contingency pricing. The willingness to put skin in the game is a critical indicator of their confidence in achieving the desired results.
The next piece of advice I have for managing external talent is to understand the market pricing for the level of expertise desired. For example, in some cases, it really does make sense to pay thousands of dollars per day -- in some cases, above market -- for true experts in targeted processes or even specific categories. The amount you pay them will pale in comparison to the value and savings they can generate. But in many cases such as technology integration, there is absolutely no reason to pay more than say $200/$225 per hour these days (often times, one can pay significantly less, even for onshore technology expertise). The key is to understand the playing field of available providers, benchmark pricing and understanding the expected range one should consider paying even before requesting rates.
Additionally, I often suggest to companies the benefits of becoming more familiar with boutique providers, who often can bring deeper expertise and skill sets than their larger consulting brethren. For example, many boutique consultancies I know of can bring true expertise and analytical skills -- and even top tier academic qualifications, if that matters to you -- for less than the cost of "first tier" strategy and operational firms. In addition, on the practitioner level, they often have deeper category and process expertise, and the "consultants" who will carry out the work will tend to have significantly more years of practical Spend Management experience than the generalist MBA types in bigger name firms. In today's environment, there's simply no need to go with a big name from a services perspective just to play it safe (in fact, this type of thinking can back fire!). In many cases, I've found that regardless of pricing and brand, the more original thinking and skills can come from the smaller names.
Perhaps the best piece of overall advice I can give when it comes to managing third parties is how critical it is to decide which categories are worth building internal expertise for versus those which are best suited for an outside firm to actively manage in an outsourced or managed service arrangement. Deciding what is core / non-core to the business is perhaps the most important step an organization can take as it gets smart on balancing internal and external talent. In this regard, an increasing number of companies are deciding that it is not worth managing a number of indirect categories and services. In fact, I'd wager that we see more procurement outsourcing deals inked this year than last. But that is a topic for a different blog entry altogether.