Today’s Reality: A Rise In Large-Scale Vendor Outsourcing
Ethan Healy Junior Consultant

Today’s ‘business-as-usual’ and trends towards supplier and vendor relationship management has seen a rise in assets and management of critical systems and services being passed on to external suppliers and vendors, but what does this mean to your industry?

Our world is becoming ever more enhanced and dominated by technology to such an extent that it’s easy to see why more and more organisations are placing an increased emphasis on working with suppliers and vendors to accelerate delivery, reduce risk, and maintain or increase their market share.

Any corporate strategy today speaks about how to increase the rate of innovation by either embracing direct dealings with small, agile digital disruptors building best-of-breed solutions, or by working on their supplier/vendor list. Many look to outsource this through initiatives such as a vendor consolidation programme, aimed at driving commercial simplicity across their estate. Companies rely on their carefully-selected suppliers/vendors who in turn help select the emerging products and services that will support them in the ever-changing digital age.

Whatever approach is taken, direct innovation, outsourced to a strategic supplier or a mix of the two, is a common thread in the market – there are ever more outsourced services underpinning critical business processes which is only set to increase in the future.

In parallel, business leaders are looking to optimise their operating costs, assure maximum value for money and increase revenue by enabling the entire vendor relationship. These are fine aspirations, but many opportunities are missed during the “In Contact” phase of any vendor relationship, and the longer the contract term the more this gets exaggerated. Current best practice material ensures that 99% of the attention is poured into the vendor relationship at the beginning and the end on a contract – but what about the in between?

An MIT study highlighted that 77 percent of companies surveyed stated two out of the top three major procurement risks were related to suppliers and the supply chain. Any over-dependence on a vendor, with quality issues stemming from them, can affect an organisations product quality, reputation, product efficiency and critical assets which generate a business’s growth. To avoid this and realise additional value from the supply chain, an organisation should consider implementing a robust Supplier Relationship Management (SRM) program, but how do you invest properly when resources are largely at capacity, budgets are reducing and net new headcount is so tightly controlled and often not approved?

McKinsey surveyed more than 100 large global companies on vendor collaboration practices and found that although over a third of respondents said they do collaborate with their suppliers/vendors, fewer than 10 percent could demonstrate systematic evidence on collaboration. More importantly, among those who did collaborate well, the Earning Before Interest of Taxes (EBIT) growth rate was double that of their peers. The economic benefit is real, and actually drastic.

Existing Procurement solutions focus heavily on sourcing, purchasing, and invoicing/payment lifecycles, offering broad set workflow across that whole discipline. Whereas most others focus on risk or on a specific area such as Contract Management, Asset Management (repositories, essentially).

However, as verified across many analyst studies — those technologies and workflows alone do little or nothing to drive high-quality, valuable collaboration during the long in-contract phase of the vendor relationship.

So how can this be improved? What can be done in order to improve relationships with suppliers and vendors across the negotiated contracts? We’d love to hear from you and what you think, so please get in touch via info@strataprime.com if you’d like to hear more about what we do to tackle this.

What’s next?

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In this article we’ll be looking at the question “why should I care?” and covering what good and bad values look like.

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