Supplier Management – a key Imperative to your Outsourcing Strategy

Post identifying a supplier, supplier management becomes a key imperative to successful implementation of an outsourcing strategy. Many companies with limited experience in outsourcing underestimate the difficulties associated with integration of the service provider to their processes. More experienced companies have dedicated teams assigned to manage and facilitate the integration and implementation of outsourcing. Current strategies lean towards supporting outsourcing activities through the utilization of strong management techniques and processes.

Implementation phase is the time most prone to failure and should be closely monitored to ensure performance meets expectations and that the outsource strategy is executed as planned. Most companies in this phase cite issues with performance failures, service level failures, and over dependence on suppliers as some of the key stumbling blocks. Adequate measures to manage a supplier at implementation and then continue to improve performance over the life of the partnership is the largest contributor to success.

For offshore outsourcing the strategy will also need to take into account the challenges associated with global business. Besides a thorough knowledge of international trade laws, understanding of cultural differences between supplier regions in developing nations and the host company are key considerations in the outsourcing plan. Cultural differences can lead to miscommunication and misunderstanding and adds a new challenge to managers as they may now need to manage activities remotely from corporate offices. Many companies address these challenges through training both internal to managers interfacing with the outsourcing supplier and external to the supplier in order to ensure a clear understanding of requirements is communicated.

The most successful method is to effectively manage outsourcing focus on partnerships between the business management and the outsource supplier. Development of shared goals, key performance indicators to monitor progress and incentive plans for meeting those goals are some of the elements that managers utilize today in order to ensure a supplier performs to expectations. Other incentives are the scalability of the relationship; if supplier selection was conducted adequately there should be opportunities to grow the outsourcing relationship beyond the immediate need to other product areas, programs or even services. In this way companies are able to incentivize suppliers to perform and improve in order to sustain their relationship and expand their potential work share.

Contractual arrangements must also be clearly communicated and thorough in order to ensure a supplier clearly understands requirements and responds accordingly. As qualification for outsource the work must be clearly described in the contractual agreement to include rates, required milestones, delivery and performance expectations criteria as well relevant supporting data and requirements. For large contracts this can and should be a lengthy process. Contractual agreements should also be routinely reviewed for compliance and any required amendments or changes. During implementation in particular the needs and requirements may change and the contract should always include the latest requirements.

All said and done, supplier management calls for deeper partnerships and the underlying trust between the outsourcing company and the supplier.