Managing Multiple Outsourcing Relationships: Best Practices
Think managing one outsourced relationship is tough?
Try managing two or three at the same time.
It’s enough to make your head spin.
If you’re managing multiple outsourced relationships, you know what a challenge it is. It can drive even the best manager crazy.
The secret to managing multiple outsourced relationships is to limit the complexity of doing so. The benefits from doing this include:
- Higher performing and more sustainable outsourcing solutions
- Reduced confusion and wasted time
- Better mitigation of risk
To achieve these benefits you need to do two things (1) carefully govern the overall outsourcing landscape and (2) strategically shape your portfolio of suppliers.
Neither effort is easy. But both lead to sustainable success—and increased profits—when done correctly.
Two Approaches To Offset Complexity
Managers have two approaches to offset the increasing complexity of multiple outsourced relationships. One approach is to optimize the individual outsourcing deal.
The other approach is to optimize the overall outsourcing landscape. More and more SMBs are choosing to optimize the overall outsourcing landscape.
Two models exist for doing this:
- Enterprise governance
- Supplier portfolio strategy
The enterprise governance model creates a single entity whose responsibility stretches across multiple outsourcing relations. This model is a critical tool for optimizing the overall success of outsourcing efforts for many companies.
The supplier portfolio strategy recognizes that organizations can cultivate strong relationships with only a few select providers. Managers employing this model limit the number of suppliers that the company engages, but try to optimize each relationship.
Enterprise Governance Model
Creating a “deal-level” governance model (think SLA) that includes the supplier and the provider is a common best practice. But the increasing use of outsourcing is spurring many companies to adopt an enterprise governance structure.
This type of structure is designed to complement the existing, deal-level governance effort. Organizations choose this route for several reasons. They include compliance, optimization, and guidance.
Several versions of this model exist. One formalizes collaboration across traditional organizational groups (e.g. legal, accounting, procurement). Another creates a specific entity charged with managing multiple outsourcing relationships.
But the most common model lies somewhere between these two extremes. This model creates a dedicated entity to oversee the relationships but without official control of them. An outsourcing “Center of Excellence” is a typical example.
Supplier Portfolio Strategy
This model also works well for many companies. The key with this model is to use multiple suppliers in a thoughtful manner that avoids the unnecessary proliferation of additional suppliers in the future.
Controlling the number of suppliers simplifies management efforts, reduces hidden costs, and shapes the portfolio of suppliers to accommodate future needs. It also sharpens the organization’s focus and investment in cultivating a few deep but meaningful relationships.
Companies that adopt this approach need to consider three key factors:
- Minimizing the number of relationships—the fewer the number of supplier relationships the better as long as all the company’s needs are met
- Degree of redundancy—the degree to which a supplier selected for one outsourced effort can provide support in another outsourced effort should the need arise,
- Flexibility of future needs—the supplier’s ability and interest in offering additional services in the future by expanding into new areas or by customizing its offerings to meet the needs of the organization.
With this strategy, suppliers need to be carefully chosen. As the organization continues to expand its outsourcing efforts, they must also contemplate the impact adding a new supplier has on the overall supplier landscape.
While neither of these models is easy to implement and optimize, both have their advantages. The key is to adopt the model that best fits your individual situation and corporate culture.
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