The article examining the deciding factors in an outsourcing decision (Features, 5 August) missed a key part of the debate - a consideration of the supplier market.
Before making a sourcing decision, it is important to examine the capability and capacity of the market to actually deliver a requirement. This is particularly critical if the requirement is highly unusual, the scope crosses boundaries of established industries, or the scale is large. If there are any such concerns, an examination should properly include detailed discussions about the requirement with the market to establish the degree of interest and understand how best any contracting might be packaged for mutual benefit.
If research reveals low interest, capability is limited or there may be issues of capacity, it is worth reconsidering whether outsourcing is the right approach. The smaller the market, and therefore potential competition, the higher the risk of outsourcing. For a supplier, such an opportunity may be highly attractive because it will be easy to establish a long-term dependence and a reliable revenue stream. For the buyer, there is a significant risk of being locked in to a supplier that could charge a premium price.
The mechanics of achieving outsourcing must be directed towards maintaining competition through to signing a deal, ensuring that there is sufficient leverage through the life of a contract to keep the supplier keen, and that arrangements to exit and replace the supplier are viable. This does not make it impossible to create a close relationship with a supplier, only that you must keep your eyes open.
Ed Savage, Principal Consultant, PA Consulting Group
