Supply Excellence — Why Outsourcing Fails

Why Outsourcing Fails

February 5th, 2007 · by Tim Minahan · No Comments · outsourcing, supply management

Last week, I raised some concerns about Hackett Group’s recent report promoting outsourcing procurement activities to emerging markets. One of my chief concerns was that enterprises too often rush to outsource without adequately assessing their own procurement competencies and defining source-to-pay processes and governance so that they can effectively be transferred to a third party.

My rant caught the attention of IACCM President and CEO Tim Cummins. His organization has been researching the benefits and pitfalls of outsourcing. Early findings from this study suggest my concerns weren’t misguided. Here’s what Tim had to say:

IACCM has been studying the question of procurement outsourcing (and also the counter-side, sales contracts outsourcing) for almost a year. Heather Rodgers, an IACCM Board member and head of sourcing and supplier management at Centrica, has led a cross-industry, international team investigating the procurement outsourcing issue.

The results of their research will be published next month. Without getting into the details, it is very clear that major benefits can flow from moving transactional and commodity activities to third parties or to offfshore centers. It is also clear that many of today’s Procurement executives are reluctant to take the necessary steps. This reluctance is placing both the leadership and their functions at significnat risk - not to mention the broader impact son compnay performance and competitiveness.

At its core, we have several dynamics at play. They include:

- processes are often insufficiently defined to allow easy transfer
- executive power is still measured by many in terms of the numbers of people they control, not the influence they have
- today’s workload stands in the path of developing and implementing strategies for the future

The IACCM ’service delivery model’ for best practice procurement highlights the fundamental role of outsourcing and offshoring in execution of a high-performance ‘center of excellence’. Of course, it also highlights the need for automation - but the right automation, not the limited capabiility applications that many have implemented to date.

There are real opportunities out there that, if grasped, will raise the value and profile of the procurement organization. Sadly, they are mostly constrained by limited vision and an inability to accept the need for ’self-surgery’.

Great insight, Tim. I can’t wait to read the full report next month.

Your early findings validate what supply management executives have been telling me: don’t even think about outsourcing before you have well-defined processes and governance structures in place for the process you are considering moving to a third-party.

Those that have made the transition should always be sure to have clear procedures for both knowledge and process transfer should the outsourcing arrangement not work out.

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