The outsourcing market today presents a fragmented landscape. We’ve come a long way from the single, billion-dollar sourcing deals of 20 years ago. Today, organizations of all sizes are choosing to work with greater numbers of smaller suppliers, taking advantage of niche players with specialist expertise either for operational benefits or to access better value for money.
This approach brings with it a new set of issues. Managing multiple suppliers can be a serious headache. Tracking the potential for risk, ensuring compliance and staying on top of the financial and contractual details for dozens, hundreds or even thousands of suppliers takes serious organizational skills and teams of people.
Most organizations are naturally more comfortable outsourcing work that’s closer to their core business. They have a deeper understanding of their requirements and are more confident in their abilities to evaluate the supplier. But delve into more niche areas, and it becomes harder to understand the health of your suppliers, or the potential risk they pose to the business. Can you be confident that you have the information and skills you need to effectively manage the relationship – and related risk?
Now, more than ever, organizations must understand what their total sourcing landscape looks like, how healthy relationships are with each supplier and the potential risk they bring to the enterprise. What parts of your business might be put at risk by a third-party supplier, and what issues pose the greatest risk? How important are these areas to your business function? What is an acceptable level of risk when compared to the benefit the supplier brings and how do you routinely re-assess that risk-benefit analysis? Organizations need a way to answer these questions to confidently manage third-party risk.
Organizations also must consider the cost efficiency of their supplier management processes. What do you need to know to reduce the cost of each contract? Is there value leakage or duplication across contracts?