Beware the Pitfalls of Outsourcing
Today’s eSourcing Wiki-Wednesday topic is Managed Services is not Tradtional Outsourcing.
Managed Services works with the client on strategic areas that the client can not do for themselves either from an expertise or resource perspective. There are also areas that are high volume and transactional in nature which is another strong candidate for Managed Services.
I came across this article from a few years ago but it does still hold true today. ISM has published a short article, When Procurement Outsourcing Fails: How to Sidestep Easily Avoidable Blunders.
Authored by J. V. Kelly, he spends some time looking at the evolution of the procurement role and how that has played into the outsourcing trend. In most organizations, purchasing is no longer just a transactional function but takes a more strategic approach to the process and the results. Like any other relationship, setting the appropriate expectations is key. Here are some unrealistic ones that Kelly mentions:
- 50% cost savings in the first year? Highly unlikely.
- Reduction in cycle time to 1 month on all sourcing engagements? Not realistic.
- Expertise in every category of spend? Many outsourcing firms do not offer this.
- Complete demand management with no maverick spend? Mandates don’t work, buy-in is more effective.
They article warns against outsourcing all procurement functions. They recommend keeping the strategic areas internal.
What has your organization done in this area? What expectations were set and how much of your sourcing is done internally versus externally?