In part I of this series on SupplyExcellence Sourcing Innovation style, we laid the foundations for cost reduction in tough times by pointing out that, regardless of whether you are sourcing products or services, you start with:

1. Spend Analysis
2. Should Cost Modeling
3. e-Sourcing

Then, in part II, we laid out some general techniques for saving money on your direct sourcing categories that are widely applicable.

Now, in part III, we are going to address some ways that you can get your services spend under control…

1. Understand What You Need - Before you outsource anything, you need to start by sitting down and outlining precisely how you’re doing it now, how you should be doing it, what you want to outsource, and what you plan to keep in house. This holds true whether it is a contract for one time legal services, a new advertising campaign, or a full-fledged outsourcing of your invoice processing and accounts payable. Without a firm understanding of precisely what you are contracting for, you might buy too much, and leave money on the table, or too little, and then have to negotiate a costly change provision to the contract at a later date. And it’s never as simple as it might seen. For instance, if you’re outsourcing a technology negotiation for a new ERP system, does it start when you’ve identified the vendors you’ll work with, or is that the job of the third party. Does it end when a contract is drafted, or when it is signed? Little things can not only lead to a difference in cost, but they can lead to a big difference in value delivered. In our example, sometimes it is best to let the expert take over at the beginning and decide who to invite to the table. It might cost more up front, but you’ll end up with a better result in the long run.
2. Overhaul Your Processes - Outsourcing an inefficient and broken process isn’t going to fix the problem. In fact, it will just make matters worse and increase your cost as you’ll have to constantly fix problems made by your provider. Before signing any service agreement, make sure you have clear processes and well defined results so that you can select the right service provider who truly can do it better, faster, and cheaper.
3. Insist on a cost breakdown AND detailed billing - Does it really cost 50K for that PR campaign? What does that get you? How many hours of support and / or guaranteed contacts? How many releases? How many resources? How many print materials? What are you paying for each resource? For each media packet? Maybe the resource rates are competitive but the print rates are extreme.
4. Listen to Your Service Provider - Ask them how you can do it better, faster, cheaper and truly listen to what they say. If you’ve done your homework, you’ve selected the true experts and their help will be invaluable if you are to get the most from your agreement.
5. No Sacred Cows - Every service-based function that is not your one core strength should not only be a candidate for sourcing, but one that is sourced by procurement, with the support of a cross-functional team. Legal, Marketing, HR … all of these functions can be effectively sourced if you understand what you need, overhaul your processes, do your homework, understand the cost breakdowns, and dialogue with potential suppliers before cutting a new contract. These days, most legal functions, marketing functions, and HR functions are cookie-cutter processes that can probably be done a lot cheaper than Dewey, Screwum, and Howe have been billing you for over the past 20 years.

Michael Lamoureux, aka the doctor, is the editor of the Sourcing Innovation blog.