The Five Elements of Single Purchasing Success

As companies seek to increase the efficiency of their outsourcing process, there are a number of reasons why sole sourcing can be a viable cost- and time-saving option.

Single sourcing is the practice of a buyer and a service provider to define, negotiate, and purchase services. Buyers have traditionally adopted single sourcing because it is simple and fast, unlike the multi-vendor sourcing process, which involves stages and individual reviews, which can be difficult. The situation is different now, where single sourcing is mostly driven by the trust that has been established between buyers and service providers.

Single sourcing offers huge potential efficiencies compared to multi-vendor sourcing in terms of sourcing costs and decision time. However, single purchases are susceptible to a number of issues that buyers must address early on to ensure eventual success.

Single Procurement or Multi-Party Procurement

Single Procurement may be selected in the following situations:

●Easy procedures are essential.

●The reputation of the service provider is critical.

●Service providers have unique capabilities; sometimes, providers can offer unique business solutions (eg, focus on efficiency while increasing revenue), or can help buyers improve procedures and add value.

●The proposed purchase agreement is complex. This is usually determined by the size of the deal, interdependencies with other programs, or strategic importance.

●There is already an "interwoven" alliance relationship with the supplier (eg, the service provider owns key software or proprietary rights).

●There is a high level of trust between the buyer and the service provider, either personally or between the two organizations; this is often based on the provider's ability to provide services in the past.

●The company culture favors the adoption of a single source of collaboration for both parties.

● Extensive alliance opportunities exist between buyers and service providers (eg: cross-selling products, managing sales channels or providing technical and research capabilities).

The buyer will choose the multi-supplier procurement method under the following circumstances:

● The scope of services provided by the market is clear and clear.

●The buyer's focus is to obtain the lowest price through a wider range of value comparisons.

●The buyer lacks the ability to conduct a rigorous analysis of the selection of procurement methods. Therefore, it is necessary to compare and evaluate various solutions provided by service providers with different strengths.

●There is no dominant relationship in the original relationship that can influence the choice of purchasing method.

●Company guidelines, government policies or cultural mandates adopt a multi-vendor procurement approach.

● Change management and implementation challenges are minimal.

●The company is extremely skeptical of any single purchase, which slows down the decision-making process and affects the credibility of the purchase process.

A survey shows that when companies consider a single purchase, existing relationships with suppliers and the need for quicker procedures are the two most influential factors. Half of all decisions to use a single purchase are made based on these two factors.

Buyers revealed that when considering a single purchase, they were least likely to choose a service provider who came to the door with an attractive proposal. Considering the high cost of changing service providers during outsourcing, developing relationships with suppliers on the original basis can increase the chance of a single purchase being successful, but this alone cannot guarantee success.

The key to success for buyers is to have a single, disciplined approach to purchasing. Some of the following practices are necessary:

Carefully identify buyer goals and services required.

Establish a framework (involving financial and other factors) to help both parties understand when a solution is acceptable.

Lay the groundwork for both parties to effectively manage the implementation and ongoing fulfillment of the solution.

By establishing such a process, the buyer exerts a certain amount of pressure on both himself and the service provider to work hard to improve the effectiveness of the work, while also strengthening the productive working relationship between the two parties.

Five Elements of a Single Sourcing

The following five factors can make a single sourcing successful. Several of these factors, while important for a multi-supplier approach, are even more important for a single sourcing approach. Top priority.

1. Develop relationships. A good relationship has many characteristics, such as mutual respect, the desire to reconcile the interests of both parties as well as possible, the commitment and ability to resolve differences, and trust in each other's will.

In conclusion, when outsourcing, suppliers do much more than just provide services. One of the goals of a single purchase is to develop the relationship as much as possible. Since buyers and suppliers can spend more time together, there are many opportunities for both parties to develop a relationship.

For example, single sourcing gives buyers the opportunity to seek insights from suppliers rather than off-the-shelf solutions. These personalized solutions require transparency and exchange of information between buyers and suppliers. Through these exchanges, the relationship between the two parties continues to develop as buyers continue to seek advice from suppliers and increase their trust in suppliers. These all create opportunities to strengthen the relationship between the two parties, which is not possible in a multi-vendor sourcing approach.

Also, the negotiation style provides an opportunity for both parties to build a lasting relationship. The two parties should build their relationship from a problem-solving point of view, rather than using a bidding process to exacerbate differences. During the negotiation process, both parties should put their interests first.

2. Involve senior leadership. Single procurement relies more on trust between the top levels of the two agencies.

This is important for several reasons. A specific solution is often tailored to the buyer's needs, including the actual service provided and the commercial terms in the agreement. Therefore, these decisions require not only the consent of the highest levels of both suppliers and buyers, but also their understanding and participation in the specifics of the agreement. Senior managers typically delegate responsibility for the procurement process to subordinates, a habit that often leads to trouble.

And, without top management setting clear direction and being accountable for decisions, subordinate managers tend to evolve a single procurement process into an endless benchmark of "see if we're getting a fair deal." This approach often leads to vague conclusions and can lead to a breakdown of the trust sought by both parties.

3. With the consent of the board of directors. As the procurement approach in question has significant economic implications, it must also be accepted by the Board of Directors.

Single purchases are prone to criticism because buyers have no choice in terms of service provider, service range, solution, or price. Single-sourcing also draws criticism from within the company for its lack of objectivity.

What this conclusion overlooks, however, is that buyers and suppliers spend a lot of time working together to design solutions for their specific needs.

When this type of procurement is first introduced to a board with little or no knowledge of it, the usual reaction of the board is to question its justification. The board is concerned with whether management has considered all options, whether the solution adopted is the most cost-effective for the buy-side institution, and so on. To this end, buyers have to collect relevant information again, and it is possible to redesign the procurement process to obtain proposals from other suppliers.

The inevitable result is that buyers have to spend additional time, effort and resources on the outsourcing process. When the board finally comes to a conclusion that is consistent with what was initially presented to them (i.e. a single sourcing is a viable approach for the company's specific circumstances), buyers tend to spend more time and money than adopting a multi-vendor sourcing approach More flowers.

To avoid this consequence, the Board's approval should be obtained from the beginning of a single procurement process, or before the process begins, and the Board should be given the opportunity to influence the design of the procurement process, or at least make the Board feel that they are participation is essential.

4. Make a comparison to ensure the value. Buyers must employ a sophisticated external comparative analysis process to ensure fairness of procurement. Buyers need to be closely involved in the development and continuous improvement of the range of services, as well as know what services to seek from suppliers and how much they need to achieve their goals. Buyers and suppliers must work together to set specific goals for suppliers, which requires buyers to perform some analysis that could have been omitted if buyers had several solutions to compare .

By comparing each part of the possible solution, the supplier can continue to effectively "compete" for the deal. The potential for buyers to take some or all of the services out of the agreement puts pressure on the supplier to ensure that the supplier can provide the best possible solution at a reasonable price. The buyer must make it clear to the supplier from the outset that if the target is not met, the buyer may at any time resort to multi-supplier sourcing instead.

5. Be specific—the more specific the better. The buyer must clearly define the procedures used to solve the problem, analyze the problem and evaluate the solution. This requires buyers to control the entire process, with specific milestones and end goals. This gives buyers control over decisions and issues in the transaction process. The purpose of clarifying this process is to establish a framework under which both parties have a clear understanding of the stated milestones and end goals, and ultimately know when an arm's length deal has been reached.

In addition to setting time frames and goals for the program, buyers should set a level of detail for the scope of services and service standards that can be used to measure the success of the relationship.

It must be clear which programs are covered by the service. This should be up to the buyer, although the supplier can propose some other options. In addition, the buyer must specify the level of precision of the various roles and responsibilities of the supplier. For example, ask suppliers to develop accountability matrices for their solutions to help buyers and suppliers quickly delineate some key responsibilities, so that buyers understand which activities to keep and which to drop in the program, and the financial impact of each activity how.

In addition, buyers must adhere to the vendor's proposal that clearly defines the criteria for measuring the success of the solution. Forcing both parties to agree on specific standards makes it clear to both parties.

Single sourcing is not the best option for every company. However, it can be a viable approach if the situation is right. Buyers must weigh a number of factors: the supplier's ability to meet specific needs—off-the-shelf services or tailor-made solutions for customers; the strength of the relationship today; the scope of services required; the supplier's future The ability to offer new services; and the acceptance of single purchases in the company.

Originally reprinted with permission from the October, November and December 2003 issues of Outsourcing Journal (http://www.outsourcing-journal.com). Translated by Nina.

Author Peter Bendor-Samuel is the CEO of Everest Group. Todd Furniss is the Chief Operating Officer of Everest Group. Eric Simonson is a consultant with the Everest Group (www.everestgrp.com).