Six Areas to Examine When Conducting A Sourcing Strategy Health Check

Six Areas to Examine When Conducting A Sourcing Strategy Health Check

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It’s the year 2020.  Outsourcing has been around for over three decades. It’s come a long way to become an integral part of most global businesses. After three decades of experience, one would expect great improvement and strides towards mastery. Over the years, service buyers worked out the kinks and overcame the challenges that came with outsourcing, to now become masters at managing sourcing relationships and getting what they negotiated from those contracts.  Right?

But in 2019, it was reported that:

80% of frequent services buyers have switched or plan to switch suppliers in a 24-month period *

Despite the past three decades of sourcing experience, clearly buyers aren’t satisfied with their sourcing relationships. Perhaps the vast majority of buyers still aren’t getting the quality, service, or innovation they thought they had negotiated. Perhaps they are experiencing dissatisfaction as a result of the amount of time and effort they are spending managing the relationship to try to get to their desired outcomes.

Perhaps it’s the watermelon effect: when your scorecard or dashboard is green, because your supplier is meeting contractual obligations or SLAs, but the business stakeholders are not satisfied. Their desired outcomes of quality, service or innovation haven’t materialized. Green on the outside, but red on the inside.

But there is a solution to the watermelon effect that takes buyers below the surface to discover the underlying issues that are resulting in this disconnect and dissatisfaction. Buyers need to conduct a Sourcing Strategy Health Check.

What’s Involved in a Sourcing Strategy Health Check?

There are six key areas that an effective Sourcing Strategy Health Check must deep dive into, and they include:

1. People

2. Processes

3. Technology

4. Risks & Compliance

5. Operating Model

6. Governance

Each of these areas need to be studied from at least three perspectives:

– What is working well, and the organization should continue doing?

– What is working well, but needs improvement?

– What is not working well and needs to be looked at from a fresh perspective?

Here’s an overview of what the assessment of each of the above-mentioned areas should include:

1. People – This is an extremely important area to which most organizations pay attention. However, in most cases, the efforts to understand this area are piecemeal and lack the comprehensive view required to avoid big misses. For instance, leaders of individual domains/functions and their teams may be doing extremely well with regard to their own work, but there may be a large disparity when multiple domains are expected to collaborate. The gap is generally much wider when the interaction is between an onshore client team and offshore supplier team.

Similarly, often the services buyer doesn’t have visibility into the actual number of FTEs that the supplier is providing and the attrition rate of those resources. Some of the other aspects that need to be monitored include the availability of adequate key resources on both the client and supplier side to take care of the relationship governance aspect of the engagement, the number of process experts on the supplier side, the existence of strong peer-to-peer relationships between the client and the supplier teams, the client’s involvement in resource selection, the training of supplier resources, etc.

2. Processes – The study of ‘Processes’ can reveal some of the most underestimated issues in a client-supplier relationship. Imagine a 5-year engagement where the teams on both sides spent all their time and effort fixing fragmented processes with multiple hand-offs, because no one anticipated how tough a task integrating a delivery process could be. Or visualize client teams in four different geographies dealing with one offshore supplier, but each in their own way. It’s clear to see how a disagreement over ‘scope’ could pose a significant problem.

The other points that should be addressed are the possible lack of adequate process documentation (Desktop Procedures, Standard Operating Procedures, etc.) and documentation ownership, and the possible lack of sharing of best practices.

3. Technology – With the expanding technology landscape, buyers expect that suppliers will bring their best and latest technology offerings to enable process improvements that enhance the clients’ bottom line. While medium to large-sized suppliers should be leveraging their in-house centers of excellence (COEs) in order to have better technology collaboration with their clients, a health check will reveal whether a supplier is actually proactive in proposing the new technologies and innovation available in the market today.

Has the supplier successfully implemented the technologies that they promised at the start of the relationship? Has the supplier sufficiently analyzed ongoing opportunities for automation and technology improvements? If not, then the benefits of innovation, technology enhancements, and automation advancements may not be fully realized by the buyer.

4. Risks & Compliance – In a sourcing relationship, supplier compliance can be a ‘make’ or ‘break’ factor. Clients in highly regulated industries are required to adequately monitor risks and compliance and will face major repercussions, if not managed well. But obviously all organizations can benefit from an adequate risk and compliance program.

While most organizations do invest resources in monitoring their suppliers, a health check will proactively point out where their risk monitoring program is lacking and what improvements are required with respect to data security, supplier code of conduct, compliance documentation, etc. to adequately reduce business disruption risks. This check should also highlight what client systems the supplier could impact, in the case of non-compliance.

5. Operating Model – Client-supplier relationships are built on a very clear and agreed upon operating model, at least on paper. However, the reality can vary greatly from the plan. For instance, a client organization may have originally brought in an offshore supplier to take care of their transactional, repeatable activities. However, over a period of time, the client’s expectations have increased. This may result in a disconnect between what the supplier and the client view as ‘out of scope’ activities or contract deliverables. The supplier, on the other hand, may be so focused on the ‘set in stone’ scope, they overlook what’s important to the client organization such as customer experience and collaboration.

6. Governance – This is often the most complicated and also the most under-resourced area in most sourcing relationships. It is a known fact that by managing the governance process effectively, the majority of issues can be actively predicted and proactively resolved. A health check will throw light on the current state of various aspects of governance including Relationship Governance, Performance Governance, Financial Governance, Resource Governance, Contract Governance, and Risk Governance and highlight where there’s room for improvement.

Sourcing Strategy Health Check Done, What’s Next?

Once the important questions in each individual area have been raised, answered, analyzed, and compiled, a clear picture of the client-supplier relationship and the sourcing engagement health will begin to emerge. For every major finding that emerges from the assessment, at least one of the following actions is recommended:

– Preserve

– Enhance

– Change

Going through this exercise will help organizations understand and document their opportunity areas and also figure out the key enablers for value realization. Based on these results, they can decide the steps they wish to take towards achievement of their ultimate goals and objectives.

A periodic and comprehensive health check, like that outlined here, can be the best tool for organizations to not only reap financial rewards, but to also make effective advancement towards growth and improvement in the long-term performance of their supplier relationships.

Interested in learning more about how NeoGroup can help your organization conduct a comprehensive Sourcing Strategy Health Check to unlock latent value in your supplier relationships, please reach out to us at info@www.neogroup.com.

*Source: Accenture Interactive research, published November 2019.

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 info@www.neogroup.com.

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