- Access to superior technology, skills and processes
- Reducing or transforming costs (eg: fixed to variable), avoiding capital investment, etc.
- Minimizing the total cost of ownership (TCO)
- Protecting intellectual property
- Maintaining control over core competencies
- Enabling joint product development
- Improving customer service
- Creating a "win/win" through mutually beneficial deal structures
- Negotiating highly complex service agreements
- Managing internal demand for goods and services
- Designing effective exit strategies
An effective CSO will also ensure the company complies with relevant regulatory requirements and that business leaders have the tools to manage supplier performance.
CSOs are responsible for formulating strategies that best align a global supplier network with current and emerging business strategies. This C-level executive directs cross-functional teams through structured Sourcing processes, methodologies and demand management activities. At the heart of a successful Sourcing event is a collaborative approach to fact-based decisions that involve all key stakeholders. Separating needs from wants, relying on solid financial principles and completing comprehensive due diligence usually means that the supplier selection decision is both obvious and unanimous.
The Power of the CSO
There are four major areas within an organization that a CSO can influence business performance:
Sourcing demand management is the systematic analysis of costs and processes associated with the acquisition and use of third-party goods and services. This includes reviewing product specifications, benchmarking, supplier market analysis, understanding and analyzing volume and usage, buying patterns and behaviors, contract terms, and inventory control. The CSO's team of professionals identifies, assesses and influences factors that drive quantity, frequency, price, and use and specifications in order to reduce demand or costs. They also ensure that supplier performance meets or exceeds terms and controls within the contract and continuously improve financial benefits and customer satisfaction through continual optimization of the arrangement. They may also be called on to trouble-shoot complex issues and supplier performance problems.
An effective corporate Sourcing governance program focuses on regulatory compliance for third-party relationships. Governance programs protect the company by assessing, managing and monitoring the risks associated with third-party service providers. Governance embraces the goals and directives of the organization and ensures that the organization remains compliant with all applicable regulations. "Our research indicates governance creates most of the value in multi-year outsourcing agreements," says Peter Bendor-Samuel, CEO of the Everest Group, a leading outsourcing advisor firm. "We've found structuring and negotiating the deal only creates 20 percent of the value. Governance produces the other 80 percent."
Offshore sourcing focuses on developing strategies and programs that enable an organization to access and manage global third-party services and relationships. Offshore relationships must meet multi-jurisdictional regulatory requirements while optimizing financial and non-financial benefits.
David Jensen, senior vice president with Genpact, a leading global business process services and technology solutions company, says, "Many of our most successful relationships come as the result of strong leadership from the CSO. The seasoned sourcing professional has a fiduciary responsibility in the selection process that cannot be discounted. The CSO provides advice to organizational leaders and designs executable programs that minimize effort and risk for offshore sourcing events."
Genpact, which is 40 percent owned by the diversified technology, media and financial services company GE, appreciates the importance of metrics in all third-party relationships, however according to Jensen, "this does not take the place of the need for both parties to be strategically aligned. The CSO can assist an organization in striking a balance between "analysis paralysis" and the innovation and creativity needed to meet the strategic goals and objectives of both organizations." Jensen concludes, "The biggest risk at CSO faces is being viewed as slowing the process down. A speedy, yet complete, process is one of the greatest compliments a CSO brings to the team."