By Guest Editor
By Anisha Khushlani, Senior Consultant, GEP
Today, outsourcing is no longer a buyer-vendor relationship but a long-term partnership that is more than just cost-cutting. It helps bring about better business outcomes by leveraging high-end technology and other expert capabilities from the vendor. Thus, there’s been a shift from Business Process Outsourcing to Business Process Management. This shift has brought about a change in attitude where the end goal is to not negotiate the lowest prices, but create a win-win situation for the partners.
Some key trends in outsourcing include:
Reasons of Outsourcing and Types of Services Outsourced
Companies are outsourcing, on average, more than 50% of their products/services for several reasons, including:
The major services that are largely outsourced include Information Technology services (software design, computer services, etc.), Logistics and Distribution services and Business Process Outsourcing (back office activities, contract functions, HR departments, etc.)
Risks of Outsourcing
There are several risks associated with outsourcing, ranging from strategic risks such as determining whether to outsource, selection risks in evaluating the right set of potential suppliers and implementation and management risks.
Some of the more crucial risks that pose a threat to outsourcing are:
Role of Procurement in Risk Management
With numerous benefits to outsourcing, companies are dependent on suppliers more than ever before, thus exposing the company to a number of risks. Today, procurement’s role is not just ensuring best prices for the products and services sourced, but also managing supplier risk for the organization. Procurement can manage this risk in a number of ways:
Rigorous supplier selection processes. This ensures the right supplier is selected based on the needs of the organization process. It is always a good practice to solicit bids from different suppliers and go through a tight selection process involving RFX, reference calls, onsite presentations/demos, etc.
Financial analysis. Reviewing the supplier’s financial statements to ensure the supplier’s business is profitable and the supplier is not at risk of insolvency. The larger the spend with the supplier, the more critical it is to assess the supplier’s financial health.
Data security. Safeguarding the company from data breaches by putting non-disclosure and master agreements in place. The master agreement should have clauses around:
These are some of the ways in which procurement can manage the risk of outsourcing to an external party and ensure smooth running of the company.
As a Senior Consultant at GEP, Anisha Khushlani is leading and delivering projects across procurement, specializing in the areas of supply market analysis and benchmarking, RFP development and execution, supplier evaluations, negotiations strategy and spend analytics. She has worked with Fortune 500 Auto, CPG and Biotech clients and has been involved in leading and executing sourcing projects across the IT category. She also has experience working on direct categories such as wire and cable harnesses.
Prior to joining GEP, Khushlani worked at Kraft Foods (Mondelez International). Her responsibilities included benchmarking contract manufacturing working models, identifying opportunity levers and recommending prospective locations for contract manufacturing in India. She holds a Masters of Management degree from IIT Bombay, and a Bachelors Degree in Electronics and Communications Engineering from BITS – Pilani, Dubai.
Throughout my consulting career, I have heard endless statements about management systems from directors and presidents, from organizations of different sizes, from all Read More
According to a recent Hackett Group research study, a $10 billion in revenue company, capable of attaining world-class performance in procurement, can drive as much as Read More
Purchasing professionals have two core issues when looking to refine a supply strategy for their commodity: understanding the market and determining their best approach. Read More
Staples Advantage is the one supplier that offers all the business solutions you need, all with the expertise of a specialty vendor. Read More
It started in 1972 with an idea, a new concept in distribution. Today, Digi-Key Corporation is one of the fastest-growing electronic component distributors in the World. The stimulus for this growth is Digi-Key's customer-centered business philosophy… Read More
Procurement and supply management leaders have a seat at the table, and management’s expectations are high. But what do CEOs really want, and is purchasing delivering on these expectations? This webcast looks at how procurement and supply management … Read More
At world-class companies, purchasing’s influence touches just about every area of spending. But, how exactly do procurement teams get to the point where other departments approach them for help with sourcing such indirect categories as human resource… Read More