Price, best value and TCO – Kate Vitasek in Outsource Magazine

It’s a while since we featured Outsource magazine, so the new Winter issue gives us the excuse to recommend it again for anyone who is interested in outsourcing of any kind. The strongest focus is on the IT world, but it covers finance, HR and even procurement outsourcing too from time to time. Whilst their website is good, I still like the printed version, a quality product in all senses.

What is striking is the sheer quantity of (generally) high quality content. In this edition, I counted no less than 17 significant and serious feature articles, as well as other regular columns, shorter pieces, editor’s remarks and so on.  That demonstrates one point – advertisers know where the power and budgets are held, and that is in what we might term the ‘stakeholder’ community who are the prime targets of the magazine. It is not the procurement staff who control budgets but the CIO who is managing outsourced IT services, the Marketing or HR Director who are looking at what they might outsource and so on.

Procurement is seen very much as an optional internal service provider in many of the discussions – if it crops up at all. Yet these major strategic outsourcing decisions, projects and contracts are just the sort of thing procurement aspires to be involved with in most organisations.

Anyway, we’ve got a couple of posts looking at the contents of this edition. Let’s start with a piece from Kate Vitasek.  She’s an outsourcing academic, author and all round subject guru, and she contributes a very good article, titled “Trumping Price-Only With Best Value”.  It starts out from basics – looking at why and how best value differs from lowest cost. Experienced procurement people may want to skim this first section pretty quickly.

But she them takes the discussion into deeper waters, looking at all the different elements of total cost of ownership (TCO) and then true value that we might want to consider – her context is around outsourcing decisions, but you could apply this to any significant procurement. Her list of common items to include in a TCO analysis will prove very useful, for instance, for many  people. She also has some interesting thoughts around transparency in the context of TCO.

I like the way Vitasek works through from first principles to some really quite complex thinking.

“Best value should be about quantifying the total value created; including viewing how suppliers can help the buyer increase revenues, reduce risk, reduce working capital or fixed capital investment, or any other value-adding activity that positively impacts the company’s profitability”.

This fits well with one of our key themes for 2014 – getting procurement focused on real shareholder value rather than ‘cost savings’.  This sort of thinking is essential therefore for procurement executives who are going to position themselves as real business people rather than just functional service providers.

Coming back to Vitasek though, I can’t remember when I last saw such a thorough article in print, almost a Paper really (2,500 words plus), that combines practical advice with some decent intellectual underpinning – unfortunately, we don’t get much that is equivalent in the pure procurement media these days (except perhaps some Spend Matters papers, he said hopefully / arrogantly)?!

And all that is just one of the 17 feature articles in Outsource – and for practitioners, you should be able to get a free subscription. Well worth doing, I’d suggest.

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