Strategic Sourcing  Not Just Procurement Anymore

Five steps to help your company decide whether or not outsourcing is the right move


Five steps to help your company decide whether or not outsourcing is the right move

Procurement organizations, traditionally chartered with volume purchasing, are increasingly being asked to develop sourcing strategies. In the information technology (IT) realm, the number of players and their varying degrees of expertise complicate the strategy. Even masters of the competitive procurement process are challenged by the simple question, Should I outsource?

Why is it so hard to figure out? Because the number of variables that need to be addressed increase exponentially when a company transitions from buying a product or a commoditized service to a full-fledged managed offering. The roles and responsibilities between consumer and supplier change because the company is no longer the buffer between its suppliers and internal business consumers. The suppliers necessarily develop direct relationships with the suppliers — for better or worse. In addition to the standard evaluation criteria of price, technology and management, business risk is now added.

This risk can be mitigated through thorough due diligence and careful management. Even before talking to providers, it is imperative that a company should do some homework about what it has and what it needs.

Step 1: Define Services

The first step in determining whether to outsource is determining what services your company is looking to outsource — not just in name but using full-service descriptions that include expected service level agreements (SLAs). Keep the following in mind when creating services:

  • Using common service definitions
    * Business requirements
    * Functional requirements
    * Technical requirements

  • Separating commodity and highly customized services

  • Quantifying the cost of service delivery today

  • Highlighting opportunities for complimentary services

The goal is to ensure that the defined services fully support the company's requirements for scalability, reliability, security and performance. To accomplish this, it is possible that a company needs to review and synthesize internal service and cost information.

Once there is a solid description of the service under consideration, determine how well the current organization provides those services and what it would cost a third party to provide the same services. One of the biggest pitfalls of outsourcing return on investment analyses is that they compare similar services at different service levels; two areas that are often overlooked but have notable financial impact are the differences in response and repair times.

Once this Step has been concluded, it is possible to move on to Step 2 with that information in hand.

Step 2: Feasibility of Outsourcing

Before moving on to procurement, determine who the potential players are, their strengths and weaknesses, and their likely ability to meet the requirements that were crystallized in Step 1.


Many organizations jump straight into a request for proposal (RFP) without assessing whether or not it is the vehicle that best meets the company's objectives. The table below is designed to guide a company as it determines whether it needs a request for information (RFI), RFP or request for quotation (RFQ). Choosing the right vehicle drastically reduces the time required to get to the final answer. Once it has been determined what request will best provide the company with the information for which it has been looking, it is time to move on to Step 3.

Step 3: Writing the Request for X (RFX)

In this step, the following tasks need to be performed: Having already spent time defining the services and required service levels, focus on getting the information necessary to equitably compare providers — not just get information from them.

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