Category Archives: Outsourcing

Charge into Contract Manufacturing!

A few months ago, Geraint John penned a great article over on Supply Management where he urged CPOs to take the lead in contract manufacturing and understand the differences between contract manufacturing and other types of supplier relationships.

According to the article, contract operations have unique characteristics and differ from other types of strategic sourcing in several ways. First of all, products are typically shipped straight from a contract manufacturer to your end customer. Secondly, the supply market for contract operations tends to be very fragmented and many of the firms are small or medium sized with only a local, rather than global, presence.

Success factors include a good legal agreement, performance metrics, regular senior-level joint management reviews, the use of only appropriate tools and processes, and “externship” where your company’s employees work side-by-side with those of your partner to ensure you don’t lose vital knowledge as a result of outsourcing.

Furthermore, these relationships, which often require creativity, need to be managed by highly skilled individuals, but finding and developing the right people can be a major challenge with the current talent crunch.

So what’s a CPO to do? Take Charge and lead the way – it’s the only way to guarantee success. But remember CapGemini and CFO Research Services’ nine best practices for successful outsourcing relationships (as summarized in the Outsourcing Journal).

  • Visit the supplier’s site.Consider visiting supplier’s customers to assess the supplier’s true capabilities.
  • Define and document all performance metrics; then capture and report them.Deciding what factors you’ll measure helps both you and your outsourcer understand what’s important in your relationship.
  • Capture and report qualitative reaction to supplier performance.Stay in touch with the users and make sure they are being satisfied.
  • Conduct formal audits of the supplier’s processes and performance.Remember that section 404 of the Sarbanes-Oxley Act requires companies to document the effectiveness of their internal controls. When they outsource, they must do this themselves or obtain a Statement on Standards No. 70 report.
  • Allow or encourage company managers to join the supplier’s team.The closer your personnel are to the supplier, the better their outsourcing experience.
  • Include incentives for excellent performance and impose penalties for poor performance.
    Suppliers given incentive to provide excellent service are more likely to provide it.
  • Be willing to revise performance objectives during the contract term.Companies willing to adapt to change are generally happier with their outsourced activities than those who lack such flexibility.
  • Consolidate work with a few strategic suppliers.It’s easier to manage a few relationships than many.
  • Use a formal governance process for outsourcing.It’s the only way to ensure all the pieces are being addressed.

The Sorcerers of Sorcity

Another stop on my whirlwind tour of North Dallas was
Sorcity. My goal was to find out if they were an on-line auction platform, an e-marketplace, a combination of both, or something entirely different … since their site left me asking as many questions as it answered.

Founded in early 1999, it is possibly the oldest surviving stand-alone on-line reverse auction platform in the sourcing space (as most of the early major players have been acquired). [As a side note, Procuri (acquired by Ariba, acquired by SAP) is probably number two as it was founded in 1999 as well, and Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) is probably number three, as it was founded in early 2000]. In addition, it also serves as a marketplace with over 620,000 registered suppliers where you can potentially find hundreds of suppliers that could meet your needs. However, the real differentiator between the other online and on-demand SaaS reverse auction providers and other e-marketplaces is its managed services offering.

When you get right down to it, even with the best tools available, with finite resources, you can only conduct so many sourcing events on your own. The only way to conduct more events is to augment your team, either by hiring consultants or outsourcing part of the process – that’s where managed services comes in. With Sorcity’s platform, you can use Sorcity to assist with as much of the executable sourcing cycle (Preparation / RFX / Auction / Negotiation / Award) as you like … anywhere from just automating all of the time-consuming administration, negotiation, and analysis to having Sorcity conduct the entire event for you end-to-end.

With their tool alone, they claim you can save 1-12 days on the auction component alone, an additional 3-66% on price paid, and get anything you need with their very large supplier network. So they are definitely competitive with the service offerings of the on-demand providers like Iasta and Procuri. But as I just said, the real power is their managed services where you can outsource entire categories and events. Under this model, provided your bid is for 100K or more, you can successfully complete an event with just 1-2 hours over 1-2 weeks! Furthermore, it does not cost you anything – the fees are paid by the vendor who is awarded the business! (I believe they also have a consulting model, where they will help you for fixed fee, but, unlike most vendors, you only have to pay if they save you money. How can they do it? Years of experience has taught them where considerable savings are, and where they aren’t. So if they don’t think you can save enough money on a category / event to make it worth your while, they’ll help you find one where you can save enough to make it worth your while.)

So although I would hesitate to recommend their solution for in-house purchases (and I still believe all high-value and strategic purchases should be managed by a core team in one center of excellence under a center-led purchasing model) as I believe those should be executed under a platform that covers the entire sourcing cycle (and not just the executable sourcing cycle), I would certainly not hesitate to recommend that you consider them for those categories that are not critical to your business (and when you get down to it, the vast majority of your purchases are not, despite what you might think – if ten suppliers can make a part, it’s not strategic – only those components that can only be provided by a handful (< 5) of vendors or those components that can be, and often are, in short supply are critical, and therefore need to be classified as strategic). After all, the best way to do strategic sourcing is to strategically outsource everything you do not have a core competency for and everything you just do not have time to strategic source in house.

So check out Sorcity and check back to see if I am successfully able to convince their white-paper writer to guest author a post on why a managed services platform may also be appropriate for certain high-spend or strategic purchases.

Procurement Outsourcing V: Provade

In the first post in this series on e-Sourcing Forum, I asked the question “Is procurement outsourcing right for you?”. In the second post in this series on e-Sourcing Forum, I provided some pointers on selecting a Procurement Service Provider, or PSP. In the third post on e-Sourcing Forum I provided some hints on getting the most out of your PSP and in my fourth post I tackled the question I poised in my first post.

In this post, I’m going to introduce you to Provade (acquired by Smart ERP Solutions) a leading provider of managed procurement services for the Global 2000. I’m not going to overload you with details of their services at this time, as you can find lots of information on your own on their site, but simply focus on three distinct advantages they can provide you.

First of all, they focus on Technology Enabled Outsourcing. They use eTools that they have custom developed in house to generate significant savings for their customers in a variety of indirect goods and MRO categories, including labour and legal services – tough nuts to crack for your average BPO.

They built their solution offering using a custom developed off shoot of PeopleTools on top of Oracle – for which they maintain valid licenses on behalf of their clients. Therefore, you do not have to worry about their long-term viability or what happens if you decide that you want to migrate control back in house down the road due to organizational restructurings because you could always migrate the technology they are using in-house, and we know Oracle isn’t going anywhere.

They have acquired significant expertise and experience in the managed procurement space and can apply that experience and expertise on your behalf to give you significant savings on the categories you do not have the volume or expertise to manage in house. Moreover, with the expected growth in the industry, and their standing as a major player, as their current customers entrust more of their spend to them and they acquire more customers, their leverage is only going to increase. I know I’m assuming they are going to continue to grow, but after talking to them last month, I feel that they have what it takes and when you combine the explosive growth that is being predicted with the lack of procurement focused business process outsourcers out there, I see no reason why they should not continue to grow. I’ll be talking to them again in the new year and you can be sure I’ll have more to report at a later date.