Why do procurement and outsourcing practitioners fall out?

This quarter’s edition of Outsource magazine is out – a very impressive quarterly glossy journal with high quality articles and features covering a wide range of topics. And the definition of “outsourcing” is pretty broad – I would say that well over half the content is highly relevant to a general procurement audience.  It gets a little specialist in terms of IT issues at times, but there’ s a lot that is relevant to most of in the procurement world.

It includes an interview with Steve Forbes (presidential candidate and founder of Forbes magazine), and features on green supply chains, crowdsourcing, data protection, outsourcing to Brazil, cloud computing and many other topics – I particularly liked the Horses for Sources piece on innovation.

There’s also an article from me, looking at the relationship between procurement and outsourcing.  In it, I look at why we often see tension between procurement professionals and the line managers within organisations who are responsible for outsourcing deals.  Much of that tension is based on misconceptions about the respective roles; but the result can be stakeholders who try and exclude procurement from the process, while procurement executives treat stakeholders with distrust, assuming that they have inherent conflicts of interest (particularly if these stakeholders themselves are part of the outsourcing transfer).

So I suggest some ways in which the different players might work together as a team more successfully. Procurement mustn’t get obsessed with process; but stakeholders need to recognise that competition and some structure to supplier selection and contracting will help everybody.

Anyway, you can read more online here, or you can subscribe to the magazine (you may even get a freebie if you're a jolly important person)!

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Voices (4)

  1. Tony Lockwood:

    And there in lies the problem.

    Until Procurement and the Outsourcing firm gets aligned to the real outcomes, then you are right the ‘partnership’ is doomed.

    However, the outcomes should never be ‘just’ cost driven, it has to be balanced across the whole purpose for the business – service/ brand/ customer perception etc are equally important.

    The Outsourcers profit can still be achieved – bonus based on agreed objectives as well as allowing them to be innovative to take cost out of their process.

    It has to be WIN WIN or both parties LOSE

  2. Huhh?:

    @Tony Lockwood: Great theory, but how do you – in reality – balance the facts that outsourcer is aiming for maximum shareholder return and procurement team are aiming for minimum budgeted total cost of ownership? Not sure a “true” partnership can flourish in this environment.

    And from personal experience – I have never seen an outsourcing deal that isn’t ultimately compromised by this inherent tension.

  3. Tony Lockwood:

    Any issues tend to be based upon a misalignment of core objectives between the business (procurement) and the outsource partner.

    Traditionally, procurement have attempted to define the statement of work so tightly that this restricts what the outsource partner can do, creates conflict when the outsource partner declares that “this is not within scope” and leads to higher costs.

    Outsourcers have historically made most of their profits through the ‘on-costs’ associated with change requests.

    This, naturally leaves a bad taste within the business.

    The answer is to be much more open to a true partnership, with a focused upon shared objectives and clearly defined outcomes, a relationship where the outsourcer is encouraged to deliver innovation and has the freedom to ‘deliver’ these objectives how they like – obviously within any regulatory frameworks etc.

    In this way, everyone is focused on one thing – the agreed outcome and not the ‘how’. Remember, there are many ways to travel between Manchester and London – why do we (procurement) need to tell the outsourcer the specific route to take – ultimately, whichever way they take, as long as they get to London, the outcome is the same.

    Ah, I hear everyone shout, but we need them to take the most cost effective route – we don’t want any extra ‘hidden’ costs do we?

    The way to overcome this is to move to a fixed cost basis of operation, one which incentivises the outsourcer to achieve the outcomes quickly and efficiency.

    Overall, if approached with the right mindset, an outsourced agreement based upon true partnership can deliver significant value and make the live of procurement professionals more rewarding.

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