This week’s featured webinar was hosted by Sourcing Interests Group and presented by Neo Group, a services firm focused on gaining efficiencies through low-cost country providers and outsourcing in general. The focus of the event was global sourcing governance, and how, when leveraged appropriately, it can help companies go ‘from good to great’.

Alan Hansen, a Senior Vice President at Neo Group, offered up the following quote early in the webinar to emphasize the need to make plans with the expectation that they will need to be revised frequently.

“Everybody has a plan until they get punched in the face.”
― Mike Tyson

As important as metrics and regular business reviews are to a buyer/supplier relationship, they cannot be the only focus. It is possible to meet service level agreements while falling short of performance expectations. Market dynamics, such the availability or stability of the labor pool, are incredibly important and outside the control of either party. Finding leading indicators of instability, such as inflation, and being prepared to handle them, requires a collaborative relationship between companies.

There are numerous challenges when looking to source globally, but according to the team at Neo Group, many organizations may fall into the trap of putting too much emphasis on financial risk. The other types of risk that need to be evaluated and accommodated include scalability, infrastructure, cyber risk, and geo-political. Where stability is the goal, companies and suppliers need to work together through aligned metrics to maintain quality.

Inflationary pressures provide a good example – if inflation exceeds the salary adjustments that a supplier is able to make, worker attrition may become a serious problem, quickly affecting delivery or quality. Addressing retention together in advance of such conditions provides the best opportunity for prevention.

A well-managed global governance program is a focused, hands-on effort. Each location requires a unique risk profile that must be kept current. Compounding the effort is the fact that oversaturation in one geography increases exposure to risk as well. If the risk is significant enough, it may even justify the decision to pay a couple of basis points more to relocate to a lower risk location.

The decision to globalize must be made with great care, weighing the potential cost benefits against the inherent operational and reputational risks. Even after the decision is made, companies should expect to dedicate resources to managing those relationships on an ongoing basis, potentially engaging with an advisor when they need experienced assistance with a specific industry or geography.