Create Visibility Into N-Tier Upstream Cost Structures and Risks – 10 Services Procurement Secrets (No. 8)

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When procurement and finance organizations conduct supply chain risk analyses in a manufacturing context, they are concerned about the weakest link in a supply chain – not merely the biggest one. It is often the case that lower-tier suppliers – some of which an organization might not even be aware of – pose the greatest risk to the organization, bringing high potential to disrupt production and put revenue at risk. Moreover, understanding multi-tier cost structures beyond risk factors of potential or production supply chains can often yield savings and generate additional forms of value.

Contingent workforce and services procurement can learn valuable lessons from direct supply chains in this context. Spend Matters research suggests that organizations claim they need to reduce needless mark-ups and gain visibility into tier-2 suppliers and actual workers. Yet many are not willing to invest the efforts required to do so.

As an example, procurement and HR need fast market intelligence and background checks – the technology exists for this – but our research suggests they do not want to pay too much for it. Consulting firms and Business Process Outsourcing firms (BPOs) are constantly subcontracting this type of work.

Direct material supply chains use Original Design Manufacturers (ODMs) and Contract Manufacturers (CMs) and must conduct diligence across the extended supply chain. Services supply chains should work in a similar fashion. Yet few do today.

Such efforts require either working directly with tier-1 vendors and/or having an MSP capable of managing an expanded set of visibility and collaboration requirements. The good news: MSPs such as ZeroChaos are broadening their offerings and making them more flexible – just like traditional BPOs like Accenture have.

Spend Matters research suggests that BPOs and MSPs are going to increasingly compete against one other in the services area. While this makes sense, procurement organizations themselves need to drive a common governance approach, regardless of how they leverage outsourced third parties to help with their efforts – not to mention multi-tier visibility into human capital supply chains.

This analysis is based on the Spend Matters research study, Applying Supply Chain Rigor to Contingent Workforce Management, which is available for limited period of time for free download in the Spend Matters research library.

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