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"Underpinning all this work is the need to keep sight of the long term intention of any sourcing arrangement and, at each stage, check that the organisation’s approach is not undermining this."


Cost cutting – fine-tune your sourcing arrangements

Simon Tennant
15 December 2010


In this second article Simon Tennant, finance transformation specialist at PA Consulting Group, outlines how immediate benefits can be gained from small adjustments and reviews of current sourcing strategies.

In addition to reducing false demand, revisiting and reassessing the strategic changes that have gone before and understanding where the current sourcing arrangements can be expanded in scope, there are four further areas where a sourcing health-check can immediately deliver valuable, ongoing benefits.

  • Extend reach – organisations need to ensure that services are taken up across all their operations. Standardising operating models across all territories and divisions provides a much greater return on a shared service investment.

  • Simplify and standardise – organisations need to simplify sourcing arrangements. For example, many financial services organisations have historically allowed sourcing to be managed at an individual business level, resulting in multiple arrangements with multiple providers. By rationalising the provider base, organisations can remove service overlaps between different providers and deliver further economies of scale. Equally, reducing the number of providers that have to be managed may provide a further cost saving as interactions with those providers are simplified and standardised.

  • Review your governance processes – organisations need to check their governance arrangements are delivering the expected value and benefits. They need to explore whether controls can be tightened to prevent value leaking from the arrangements and whether further savings can be made, especially if the service is stable and mature. A recent PA sourcing survey found that only 16% of companies assessed themselves as having a mature governance model.

  • Ask for a discount – organisations need to explore the option of reducing the costs with their suppliers. Many of PA’s larger clients are actively reviewing their contracts, applying focused programmes to improve their return on existing sourcing relationships. This is often accompanied by a request to the provider for a discount or a change in the phasing of payments. Such a request is rarely welcomed but, if approached in the right way (by understanding the balance of risk on both sides), it can be successful. Organisations do need to remember that their service provider is operating in the same climate of austerity, so there will be limits to what they can feasibly offer. That makes it important to consider whether there is anything that can be offered in exchange, such as references, assets or additional scope. There may also be opportunities to get the provider to pay for changes which help both them and their client. There is a clearly a mutual benefit from helping both parties cut costs while maintaining service delivery. So it is vital to challenge providers to act as partners and for all sides to support each other through the difficult times.

Underpinning all this work is the need to keep sight of the long term intention of any sourcing arrangement and, at each stage, check that the organisation’s approach is not undermining this. That means understanding that there is a prime opportunity to put in place changes which will better support the organisation as it moves into a period of higher growth and that change presents an opportunity.

These articles are extracts from PA Consulting Group’s book, ‘Surviving and thriving in the economic crisis: The sourcing opportunity’, and is available free of charge. To request a copy of the book, please visit http://www.paconsulting.com/sourcingopportunity.

To see the online version, please click here

To visit PA's pages on sourcing, please click here.

To read a recent article quoting Simon Tennant, please click here.  


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