Now that we’re in Part III, the doctor is going to tell you that even if you’re in the 2/3rds of Procurement Organizations that do not think you’re understaffed, you are. Even if you have enough headcount, chances are you do not have enough skills to tackle each category and project to the maximum potential as each staff member in your department is only human, and can only master a limited number of categories in a job where you are expected to be a jack-of-all-trades. The only question is are you slightly understaffed or significantly understaffed?
If you’re significantly understaffed, you’re going to have to augment externally as there’s no way you will be able to handle a large influx of internal staff, even if they are temporary and category/service experts, as they still have to be trained on your organizational procedures and policies, guided towards optimal outcomes for your organization, and managed.
If you’re moderately understaffed, it’s often a toss-up that comes down to your particular needs and the strength of the options provided to you.
If you’re slightly understaffed, you might just need one or two more resources internally to reach your potential, but you still might want to consider outsourcing if the appropriate talent is not available to you or it’s easier to get budget approval if you outsource a project to a services provider.
So, if you think outsourcing is a reasonable option, how do you make the decision?
First of all, you make sure that outsourcing is a viable option. The best way to start is to apply a sniff test and make sure that the proposed projects don’t suffer from the 10 ailments of outsourcing, as presented in a presentation by Andrew Downard (of AD Supply Chain Group) and Karl Manrodt (of Georgia Southern University) on Delivering Better Service, Lower Costs and Increasing Innovation Through Vested Outsourcing, and make sure there are no hidden gotchas waiting to jump out and bite you in the backside.
As per the presenters, and a co-author of Vested Outsourcing, you need to make sure that the proposed project is not:
- Penny-Wise and Pound-Foolish
and being considered for outsourcing just because outsourcing is expected to be cheaper
- An Outsourcing Paradox waiting to happen
because you expect that the provider will do what you tell them to which you incorrectly assume is the best thing to do
- An Activity Trap
where the provider is getting paid by the hour or transaction
- The Next Junkyard Dog
where you will assign the project to internal experts who will micro-manage the contract
- The Result of The Honeymoon Effect
where the provider is getting the work because they just went overboard on the last project
where the provider is penalized if they don’t deliver a contracted level of effort, but not incentivized for a better than average performance, so the provider will deliver minimalist results
- a Zero-Sum Game
where you don’t accept the provider’s preferred terms of engagement, assuming that what’s good for them is bad for you
- Driving Blind
as you don’t have any formal governance processes setup to monitor the performance of the relationship
- Measurement Minutiae
where you over-measure and under-incentivize the provider
although you shouldn’t over-measure, you should measure the results of each project
If the potential Procurement project passes the sniff-test, then you can seriously consider the categories and/or projects for outsourcing, provided you have an appropriate provider with talented personnel. But is that enough to make a decision? We’ll address that in Part IV.