Expert Augmentation: Denali's New Spin on Sourcing Services (Part 2)

In part 1 of this post looking at Denali's Sourcing Services offering, which represents a unique blend of sourcing consulting, staff augmentation and non-process ownership elements of procurement BPO around sourcing and supplier management, I provided an overview of Denali's capabilities. In this second installment, I'll touch on the economics of engagements. One of the smaller drivers of price is technology -- nearly all of the variability in Denali Sourcing Services pricing comes down to the number and complexity of specific assignments and projects. Denali can either leverage technology that clients have already licensed (e.g., Ariba, SAP, Iasta) or deliver services on top of their own partner platforms, creating a new customer instance, at an additional fee on a per project or enterprise basis.

Since technology is only a small contributor to overall program costs, it's important to dig into the economics to see how Denali delivers what amounts to a very reasonably priced solution, at least by our estimates. To this end, pricing is determined by a number of factors, including whether or not Denali provides a program management resource as well as the overall complexity level of projects. Denali divides its projects into "simple, intermediate and complex" working models that are priced between $2,500 to $18,000 per project. To give a perspective here, small projects can still have a number of suppliers involved and a number of customized requirements, but complex projects can involve up to 100 suppliers with 3,200 requirements (as well as two possible phases -- e.g., multi-round sealed bid negotiation).

Small sourcing projects typically take between 4-5 days to complete and publish an initial RFQ within 24 hours. Intermediate projects take between 7-10 days with initial RFQ publication within two days. Complex projects typically have significant customization (and often lack well-defined requirements and require "heavy" back-end analysis) and can take materially longer to complete. What enables Denali resources to turn around small and intermediate projects at this rapid clip is the shared knowledge within the broader firm, including category playbooks which provide specific processes, documentation, approved supplier lists, RFX templates, structured pricing sheets based on bid type, etc.

Customers nearly always engage Denali Sourcing Services over a number of projects. The bare minimum is 15-20, but the number can run into the hundreds or even the thousands. Typically, customers fall into the 50-100 range on an annual basis. How does this translate back to the economics for a customer? On an FTE basis, it works out to between $400-$650 per day, which is roughly 30-50% of the cost of a typical skilled sourcing staff augmentation resource and less than 20% the cost of most sourcing consultancies. At this price point, it can also be less expensive than hiring an experienced sourcing resource -- or a team of resources -- full-time on a fully burdened basis. In fact, some Denali customers have made the decision to hire Denali Sourcing Services as a replacement for full-time hires to build their overall programs more quickly than they could with organic hires.

Denali Sourcing Services may be the best of both worlds for certain potential customers. The offering brings the ability to scale up and scale down quickly without the burden and overhead of hiring full-time resources or the high expense of hiring traditional consultants for the spend areas Sourcing Services covers. The economics make sense to me, but the proof will always be in the quality control and consistency. For this reason, potential Denali Sourcing Services customers -- especially those who have never pursued any type of staff augmentation or third-party engagement model such as this -- should ask for a number of references to understand the consistency of service levels and overall program results as well as how others customers have fit into an overall procurement talent portfolio. I personally look forward to sharing more about the Denali Sourcing Services customer experience after I speak with references in the coming weeks.

Jason Busch

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