Sourcing and Supplier Management – Significance and Objectives
Sourcing and Supplier Management ensures that a company has the services that best fit its business purposes. The marketplace, however, is constantly evolving, and suppliers have to adopt technical innovations and create new services that must be provided with higher quality and lower prices.
By actively seeking out new opportunities and following market trends, a company can ensure that the quality and price level of the services provided by suppliers stay competitive. The other option is to acquire services and solutions via a tendering process.
Digitalization has also set in motion new trends that affect the marketplace, such as:
- consumerism, which pushes for better user experience and easiness of use for business solutions, because the end users use the same devices (laptops, tablets and phones) and applications for both business and consumer purposes.
- virtualization, which enables sharing the same computing and data storage capacity between a very large number of users which, in turn, leads to greater storage capacity at lower costs provided by large data and computing centres called clouds.
In order to keep up with market trend requirements and to ensure the business purpose fit and cost-efficiency of services, companies often prefer to source services instead of providing them in-house.
Figure 4.1.1 The relationship between development and sourcing.
Sourcing strategy is defined based on the company’s business requirements. Companies may choose to outsource their IT services partially or in full, or in rare cases, decide to run IT as an in-house function. In all these cases, Sourcing and Supplier Management should have clear goals and a long-term perspective, and operate in a close relationship with the supplier ecosystem. Well-managed sourcing benefits both the buyer and the supplier. A healthy balance of supply and demand leads to a more sustainable and productive collaboration, in which Sourcing is the strategic coordinator.
Sourcing has two principal roles: the sourcing role refers to acquiring suppliers, solutions and services as specified by Service Portfolio Steering. The development role refers to finding and evaluating the emerging technology opportunities and solutions introduced by suppliers that may evolve into new business concepts. Adequate involvement of Sourcing in supporting or development roles ensures that no opportunities will be missed, and that serious flaws that could be challenging and costly to correct at later phases in Project or Service Management are avoided.
On the operational level of supplier management, Sourcing interacts with Service Integration within the Service Management function. The contribution from Service Integration to Sourcing can include, for example, the following:
- providing reports on operational performance levels to Service Managers and Sourcing
- assisting suppliers in optimizing their service delivery and improving their quality
- monitoring the service contract and performance management, especially in multi-sourcing environments
When deciding on the sourcing of IT, the following points need to be considered: the company’s general sourcing principles with respect to service and quality requirements; the scope of operations; enterprise architecture; service scalability and flexibility regarding future plans; continuity; and total costs.
Active cost and performance control is mandatory, not only at the sourcing stage, but throughout the life cycle of the service.