Recommendations of our friends, family, and salesperson often influence our decision when we purchase a car. As we focus on procuring it, we often tend to overlook the cost and care that will go into maintaining a particular model post purchase. Failing to address these factors will eventually lead to more spending on the car to keep it running. Moreover, the reliability and comfort of the car take a backseat.
The situation with outsourcing contracts is somewhat similar to what we have described above. Companies tend to spend approximately 1-2% of an outsourcing deal value in pre-signature efforts but spending only about 0.25-0.5% in the post-signature phase despite the latter representing almost 98% of total contract spend.
Enterprises frequently fail to contain value leakage, which arises due to lack of valuable and timely insights on vendors. Governing them becomes essential, which is why supplier governance is a must for engagements post signature. Supplier Governance is the concept of managing outsourcing contracts once they are signed, so that the goals are clearly translated into outcomes predictably and reliably.
No two engines are the same
Even if you own two identical cars, it is likely that their fuel efficiency and performance will widely differ. Similarly, value leakage in outsourcing engagements will vary with each contract to the magnitude of 10-25% depending on which study you refer. To minimize this leakage, continuous monitoring of outsourcing contracts is the way forward.
Perfectly worded contracts are like test conditions
Every car comes with a mileage claim per gallon, or 0-60 mph performance figure that manufacturers may advertise. But then, these are figures that are obtained only under conditions that are most optimal. In outsourcing engagements, outsourcing partners (vendors) commit such service claims purely on assumptions drafted in the RFP or contract clauses. Just like a car, to get anywhere close to extracting maximum value from outsourcing relationships, an organization should ideally work in the direction of creating those test conditions. Supplier Governance helps in identifying those parameters that will help you derive maximum value.
The dashboard shows it all
If you were driving a car in the 1950s, all that you would see on your dashboard is a speedometer, thermometer (for engine heat), and fuel indicator. And you would be expected to only monitor them. But as technology and automotive industry matured, the features in cars also increased, and became complex. But then your car’s dashboard is smart enough to display information on the engine, brake, oil, tire pressure, climate control and so on – real time. It lets you keep an eye on your car’s vitals and warns you of any impending problem before it gets worse.
Similarly, procurement of goods (against services) meant knowing and managing the good’s specification, quality, and timeline of delivery – comparatively a simpler task. In today’s outsourcing age with complex contracts and multiple vendors across the multitude of geographies, Supplier Governance provides that insight for managing complex sourcing transactions in any industry from a single point.
No two cars are same but their general care can
Most modern households will have two or more cars. Their servicing and maintenance requirements will differ. Referring to different manuals all the time is a complex affair. What one needs to learn is how to maintain them with minimal effort and at optimal cost.
In the multi-sourcing world, Supplier Governance helps organizations standardize processes to manage different vendors effectively. An enterprise at all time should know what to expect from a specific vendor at any given time rather than running back to refer deeply buried terms and conditions in contracts. A well-defined process helps in proactively manage engagements instead of passively reacting to requests and issues unproductively.
Shifting gears, the right way, every day
For car manufacturers, Annual Maintenance Contract (AMC) is one of the ways to establish a long-term relationship with customers. But then getting an AMC alone does not automatically mean it will be successful and impactful. The car owners will still have to spend time on the proper day-to-day operation and care for the vehicle. Likewise, Supplier Governance is the day-to-day activities that ensure a greater emphasis on planning and strategic decision making for continued daily operations instead of finding faults with vendors.
There are no shortcuts…
There are no shortcuts to maintaining a car well. Good practices will ensure that every dollar and minute spent on the upkeep of the car pays off. A well-maintained car will eventually serve better in the long run. A healthier car is a safer car too. You will retain it longer and save significantly. Supplier Governance is an ongoing effort that has the potential to offer tremendous return-on-investment.