No business is completely self-sufficient. All companies require solutions and products from other vendors to better service their own customers. Outsourcing enables businesses to focus on developing its core competencies, while still benefiting from greater efficiencies and conveniences provided by their outsourced partners. For example, a premium brand online selling business should spend more of its time developing new designs, working on promotions, or training customer service staff, while outsourcing production from China.
There are many suppliers that provide specialised solutions, and this can cause a huge headache for procurement departments. Furthermore, the range of options is getting more complex, with the availability of traditional services firms, freelancers found via word of mouth or from online platforms, purchased software with an upfront cost, cloud-based solutions on subscription basis and many more!
Unfortunately, for most companies, procurement policies are still stuck on a lowest cost bias. One might wonder why this is a problem, as lower costs are better, right? Not necessarily.
Just take a look at the recent Auditor’s General report, which revealed problems in the tendering and management of contracts. In some cases, the solutions procured were unused, possibly because when the lowest tender is chosen, it can lead to unsuitable vendors being awarded the contract and providing an incompatible solution.
It is far more important to take a holistic view and use a value-based procurement approach. Besides eliminating solutions that may simply be a waste of resources, looking at the total value add derived from each submitted quote creates an alignment with organisational goals and strategy and ensures integration with internal user needs. This enables organisations to reap more long-term benefits from their outsourced solutions that may require higher initial costs but result in much higher value add across its lifecycle.
Here are some tips on how organisations can implement a value-first thinking when it comes to outsourcing, especially from a remote area like China.
Confirm the need
Assessment of projects should be done before it even reaches the procurement stage. Preliminary questions should be asked such as: Why do I need this new solution? What is the underlying problem? What will happen if I do not procure this new solution? Do I have the capabilities to do this in-house? What are our alternatives? Based on these questions, the team will have some idea of the expected results (not solutions). This sets the initial scope and budget for the project.
For example, a company found that its sales team was unable to cope and had trouble following up with clients. This may seem like an obvious lack of manpower, fixed by hiring more salespeople. However, a deeper investigation could reveal different underlying problems, such as salespeople spending too much time filling up the paperwork. This could be solved by an enterprise solution that speeds up administrative work, which is more cost effective than additional hires.
Talk to users and experts
In some cases, you may not know what is the underlying problem. The best way to discover this is to talk to stakeholders and users.
Businesses can enhance this conversation by using in-house experts or independent consultants, who are knowledgeable about the issues. Their expertise and knowledge of technology trends can result in new solutions to reach the expected results. They can also provide feedback on feasibility of the project or budget expectations.
When it comes to the procurement and assessment, remember to include these users in the decision-making process. This ensures that the project remains focused on the needs of stakeholders and ultimately benefits the organisation.
Be clear on the purpose of your requirements
Once you know what type of solution you want, generate the requirements for the project. Where possible, tag each requirement to a specific business purpose/need, so your vendor can understand how their features will be used to meet your goals. In some instances, they may be able to suggest superior alternatives that still meet the requirements. For example, an inventor wanted to create a complete new silicone wine glass. Once their Chinese vendor understood this was to build a stronger user friendly and cool looking, they did minor tweaks to the existing design, make the bottom and corner smaller & rounder to save material cost and easy to produce. This achieved the same objective in a significantly faster, cheaper and more effective manner.
Outsourced projects often fail, not because vendors were unable to meet the requirements, but because they could not meet the actual goal of the company. This is especially true when businesses select the lowest cost vendor, who may reduce their cost by matching their offering against the stated requirements, while disregarding what the client actually needs.
When initiating a new project, it is advisable to determine if the project is to be a standalone and solely developed by the vendor or requires integration into existing systems. This makes a huge difference especially to IT projects and can make or break large automation projects.
Have an open discussion
With these requirements in hand, invite interested vendors for an open discussion. This should be done before calling for tenders or quotes, so you can tap on their knowledge and refine the scope of your project. This also prevents blindsiding them with new requirements or getting unpleasant surprises when they inform you that the project cannot be integrated into your existing system.
Multiple quotes are a must
It is essential to ask for multiple quotes, and typically at least three bids are recommended. While it may take effort to get three vendors, it could save you significant time and money later. This is where online procuring platforms or sourcing agents can help in the sourcing and matching process. These act as one-stop centres for vendors to find procurement opportunities and make their bids in a transparent and fair manner. They also provide access to a broader range of previously-unknown vendors and suppliers.
Ultimately, these steps should culminate in a value-based approach when your business purchases outsourced solutions. Done effectively, your business can better assess who is the ideal vendor to solve your problems and meet your goals.