Introduction
Outsourcing services began in the late 80s to early 90s with a focus on reducing costs for non-core functions. Today, it also aims to enhance organizational capabilities and improve customer experience. Contracts have evolved from being single-provider to multi-supplier arrangements, involving both on-shore and off-shore providers, which adds complexity and necessitates robust governance.
Handling outsourced services without a structured approach can lead to significant project delivery issues, value leakage, and increased risk exposure.
Here are some of the areas to focus on in order to ensure proactive management.
Key Focus Areas
- Challenges of Multi-Supplier Management
A multi-supplier model increases management complexity and requires strategic planning. Essential governance includes having experienced professionals to manage relationships, mitigate value leakage, and handle risk. Issues often arise when roles and scopes within contract and commercial management are unclear, leading to a small group controlling significant spending without adequate process control, thus exposing the organization to risks.
- The Role of Supplier Governance
Effective supplier governance encompasses Contract Management, Performance Management, Financial Management, Relationship Management, and Risk Management. Poor governance can lead to unmet service expectations, inflated costs and business outcomes. Many supplier management teams spend excessive time on low-value activities, like monitoring spreadsheets, which detracts from strategic objectives.
- Addressing Value Leakage
Value leakage, such as inaccurate invoices or unmanaged consumption, can result in substantial contract value loss. Keeping contracts updated and actively managing obligations are crucial. Lack of governance can also lead to significant risks, from shadow procurement to serious compliance breaches. Strong governance frameworks protect all parties involved.
Five Steps to Good Supplier Governance
1. Ownership and Responsibilities:
Define who owns the supplier management function, their responsibilities, and performance metrics. Ensure this function is strategically placed within the organization to influence outcomes.
2. Skills Alignment:
Align the supplier management team’s skills and capacity with contract complexity and scale. Regular reassessment may be needed to match evolving contract requirements.
3. Leverage Technology:
Use technology to automate administrative tasks, freeing up team members to focus on strategic management. This reduces time spent on low-value activities.
4. Avoid Value Leakage:
Implement processes to identify and prevent value leakage. Continuous management is key to realizing contract value.
5. Embed Risk Management:
Identify, categorize, and mitigate risks across the supplier lifecycle. Ensure procurement follows structured processes and protocols with clear responsibility lines for risk management.
Conclusion
By implementing these strategies, organizations can manage supplier services effectively, reduce risks, and achieve their strategic business objectives.
What should your company be preparing for in 2024?
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