How Else Can I Help my Providers Help Me?

Spend Matters would like to welcome a guest post from Vantage Partners. See previous posts in this series here: Part 1 and Part 2

Buyers can enable providers to help them reach their goals in a number of ways. In this third part, we explore two additional outsourcing goals -- allowing the buyer to focus on core capabilities and moving more items from fixed to variable costs -- and how the buyer can help the provider enable them to achieve these goals.

Focusing on Core Capabilities
We often hear buyers say that they have outsourced certain "non-core" functions so that they can focus their attention and efforts on more important or strategic activities. When you charge functional experts with managing the service provider relationship, the result is often micromanagement. Rather than focusing on core activities, retained managers end up putting even more time and energy into the very work they said they outsourced.

If you want to free up valuable resource and management time and attention, you need to be willing to let go of certain aspects of the function and actually shift resources to other activities. To help your providers help you, get clear on critical requirements, communicate those effectively to your provider, and let them handle the details of service delivery.

Moving to More Variable Cost
Many companies outsource processes to move some of their fixed costs to variable costs so that they can "dial service up or down" as their needs change. When you turn to your provider for flexible capacity, you are, in effect, expecting them to be able to manage rising and falling demands for service on your behalf. To do so effectively, however, your provider must be able to plan and forecast, rather than simply have peak resources standing by idly for each customer in case a need arises. Most providers offering this kind of val¬ue proposition aim to balance the changes across their customers, thus being able to offer all of them more capacity than they could individually afford. Moving to variable cost, therefore, requires that providers be able to do some effective capacity planning. Providers might offer you shared or dedicated resources, but in either case, they'll need to be able to forecast your needs accurately in order to meet them.

You might be reluctant to share your forecasts with your provider, especially when you expect the data to change. Rather than be blamed for providing an inaccurate fore¬cast, some buyers hold off on sharing data until they're reasonably sure it's accurate. But as anyone who has created forecasts knows, once you're sure your forecast is ac¬curate, it's too late to be very useful.

Using outsourcing to move fixed cost to variable requires good communication about forecasting needs and limitations. Be sure that your provider understands how you approach forecasting, and discuss with them what they need in terms of a forecast and by when. When sharing a forecast, have a detailed conversation with your provider to help them understand the information provided in the forecast and the likelihood the information could change. Rather than holding off on sharing data until it's accurate, together with your provider, you can apply standard risk management techniques for dealing with the uncertainty of the forecast, giving providers a better ability to plan their capacity to meet your needs.

Next time, we will cover a few more rationales for outsourcing and identify how buyers inhibit success, as well as several steps you can take to remove these inhibitors.

- Danny Ertel, Partner, and Sara Enlow, Principal, at Vantage Partners

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