It’s probably the year-end cliché, but it is once again that time of the year! On everyone’s minds are thoughts of holiday preparation and hopefully some well-deserved time off to enjoy them with family and recharge, but these are also those last few weeks when organizations have a busy and demanding time planning for the new year, drawing a roadmap to attain their goals and allocating budgets for various activities. Sourcing is generally one such activity that leaders need to plan for and finalize before the start of the new financial year.
For those who are new to sourcing, the obvious dilemma presumably is where to begin. And for those who are experienced in sourcing, the relevant question is, are your suppliers/partners delivering what you want from them? In either case, a robust sourcing evaluation is a must, because not only does it help evaluate cost savings and performance, it also truly reveals how the sourcing strategy must be designed and what its key components should be.
Here are some essential ‘ingredients’ for an effective sourcing evaluation, compiled from Neo’s 20+ years of experience:
- Assessing the Business Impact of Sourcing – Start by evaluating the criticality of a business process. Would the organization be taking on too much risk by having it performed externally? Are the regulatory obligations around this process so high that it would be prudent to retain it in-house? Is the organization ready to push internal boundaries and overcome structural constraints to consider sourcing some of the core business functions?
- Understanding the Operational Aspects – Is the process stable enough to be handed over to someone an offsite team? Would the offsite team be equipped to understand the organizational environment and make decisions if and when complexities arise? Is there adequate documentation to enable a smooth transition?
- Figuring Out People & Skillsets – Does the process require very specific knowledge with regard to a particular domain or the organization? Are any rare skillsets required that may not be easily available in the market? Is the process dependent on a niche skillset or technology? Even if the right resources are available externally, how long will it take for them to become proficient? Will the training effort required be extreme?
- A Consideration of the Type of Roles Involved – What is the level of interaction involved for the role? Does the role need to collaborate with different teams? Would working in different time zones add too much complexity? Is the role business critical? Does the role involve sensitive data?
While assessing the above ‘ingredients’ and answering the associated questions, there will be some with obvious answers and some which will require a deeper inquiry. The good news is that there are no absolute answers. An effective sourcing evaluation is about finding the answer that best fits your organizational needs. In designing a well-thought-out sourcing strategy, the next layer is deciding at what level the organization should ideally place their supplier.
- Service Provider Level – Is your need only delivery, i.e., assistance running day-to-day operations?
- Partnership Level – Do you desire a strong partner, where your supplier works with you to meet your organizational goals over time?
- Extended Team, Extended Organization Level – Are you looking at creating a transformational team that will help your organization bring about radical changes, improvements and innovation?
Another ‘ingredient’ to evaluate, consider this the powdered sugar or sprinkles, is the extent to which the organization leverages digital technologies. Increasingly, enterprises are embracing digital transformation. Of course, organizations can choose to do it in-house. However, if entering into an sourcing relationship, digital needs to be built into the resourcing and contracts, especially with large, long-term contracts, where the service providers have ample opportunities to innovate and capitalize on digital capabilities.
In conclusion, these essential ‘ingredients’ of a sourcing evaluation are integral to ensuring good sourcing choices. When combined correctly, they result in successful sourced relationships.
About Neo Group
Globally recognized as a leading advisory firm since 1999, Neo Group helps enterprises build new capabilities and reduce costs significantly by leveraging analytics, digital technologies, and global talent. Neo Group helps enterprises through the sourcing lifecycle by going beyond advice to supporting outcomes. To request more information on Neo Group’s services, click here or email firstname.lastname@example.org.