Many organizations rely on IT and BPO vendors to deliver essential services and support their business objectives. However, over time, the alignment between the vendor and the client may erode, leading to suboptimal performance, dissatisfaction, and missed opportunities. To avoid these pitfalls, it is important to periodically conduct a sourcing health check, which is a comprehensive assessment of the current state of the vendor relationship and the contract terms. A sourcing health check can help identify gaps, risks, and areas for improvement, as well as provide actionable recommendations to maximize the value of the sourcing agreement.
What is a Sourcing Health Check?
A sourcing health check is a systematic and holistic evaluation of the key aspects of a sourcing relationship, such as pricing, service levels, scope of services, customer satisfaction, master agreement, and relationship management and governance. A sourcing health check can be performed by an internal team or an external consultant, depending on the availability of resources, expertise, and objectivity. A sourcing health check typically follows a four-phase methodology, as described below:
Phase 1: Initiation
In this phase, the sourcing health check team defines the scope, objectives, and timeline of the sourcing health check and secures the buy-in of key stakeholders from both the client and the vendor. The team also establishes the roles and responsibilities, the communication plan, and the data request list for the sourcing health check.
Phase 2: Data Collection and Analysis
In this phase, the sourcing health check team gathers relevant information and documents from the client and the vendor, such as contract terms, service level reports, invoices, customer satisfaction surveys, and governance meeting minutes. The team also conducts interviews with key stakeholders from both sides to understand their perspectives, expectations, and challenges. The team then analyzes the data and identifies the current performance, issues, and risks of the sourcing relationship and the contract terms.
Phase 3: Benchmarking and Best Practices
In this phase, the sourcing health check team compares the current state of the sourcing relationship and the contract terms with the industry benchmarks and best practices, using proprietary tools, databases, and frameworks. The team also considers the evolving business requirements and strategic considerations of the client and the vendor. The team then identifies the gaps, opportunities, and potential areas for improvement and innovation in the sourcing relationship and the contract terms.
Phase 4: Findings and Recommendations
In this phase, the sourcing health check team summarizes the findings, ratings, and recommendations for each aspect of the sourcing relationship and the contract terms, highlighting the strengths, weaknesses, opportunities, and threats. The team also prioritizes the recommendations based on their impact, urgency, and feasibility. They prepare a report and a presentation that communicates the results of the sourcing health check, the rationale behind the recommendations, and the proposed action plan. The team also solicits feedback from the client and the vendor and incorporates any revisions as needed.
The Advantages of a Sourcing Health Check
A sourcing health check can provide several benefits to both the client and the vendor, such as:
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- Provides a rapid and objective assessment of the current state of the sourcing relationship and the contract terms, identifying any gaps, risks, or issues that need to be addressed.
- Identifies opportunities for cost savings, service improvement, relationship enhancement, and innovation, leveraging the industry benchmarks, best practices, and market trends.
- Establishes a strategy and an action plan to maximize the value of the sourcing agreement, aligning the goals, expectations, and incentives of both parties.
- Strengthens the trust, collaboration, and communication between the client and the vendor, fostering a long-term and mutually beneficial partnership.
Best Practices for a Sourcing Health Check
To conduct a successful sourcing health check, the following tips and best practices can be followed:
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- Select a qualified and experienced sourcing health check team, preferably with a mix of internal and external resources, to ensure a balanced and unbiased perspective.
- Collaborate and communicate effectively with the client and the vendor throughout the sourcing health check process, ensuring transparency, clarity, and feedback.
- Focus on the most critical and relevant aspects of the sourcing relationship and the contract terms, and avoid getting bogged down by minor or trivial details.
- Use a structured and standardized methodology, framework, and toolset to conduct the sourcing health check, ensuring consistency, accuracy, and comparability.
- Provide clear, concise, and actionable recommendations, supported by data, analysis, and rationale, and prioritize them based on their impact, urgency, and feasibility.
- Follow up and monitor the implementation of the recommendations, and measure the outcomes and benefits of the sourcing health check.
Conclusion
A sourcing health check is a valuable tool to evaluate and improve the performance and value of IT and BPO vendor relationships. By conducting a sourcing health check periodically, organizations can ensure that their sourcing agreements are aligned with their business objectives, industry standards, and market conditions, and that they are getting the best possible service, quality, and price from their vendors. A sourcing health check can also help foster a strong and lasting partnership between the client and the vendor, based on trust, collaboration, and innovation.
By Amarabati Sen, Senior Consultant