Let’s look at some ideas on how to measure and generate return on investment (ROI) on any esourcing strategies. While calculating ROI seems like easy math, quantifying the returns generated by an outsourcing deal is challenging.
All procurement outsourcing esourcing strategies to a third party company have two sources of return – cutting costs on transaction processing, and savings through strategic sourcing and category management.
To measure the short-term return, start by defining all activities that will be outsourced and measuring the time being expended by the current team performing those activities. The result should be a monetized value of time.
With a calculation mechanism in place, the next step is to ensure the esourcing strategies start producing results. This can be achieved using a combination of steps.
Measure the right things frequently
Reports are necessary for any outsourcing program. They help measure the program’s health, and helps program managers point out risks and negative trends early on.
The first report all program managers should use is the OTIF – On Time In Full – service report. By definition, it measures percentage activities completed within agreed time and meeting specified service expectations. The tricky part here is to define what ‘On Time’ means.
For a transaction outsourcing program, the team’s efficiency can be measured on number of transactions processed. It is made possible because of transactions being fairly standard.
However, utilization is not a good measure by itself when measuring anything apart from a transaction support process. For programs that support category management, contract management or sourcing support, not every contract renewal or strategic sourcing initiative is similar to another one.
Know the support team
Outsourcing teams can be difficult at times, with a small helpdesk team doing all the interaction with the clients. While a helpdesk team is needed for a variety of reasons, one to one relationship between smaller teams will be beneficial. This helps with fostering a healthy working relationship.
Utilization is to a good extent directly proportional to the strength of the pairing. This has multiple benefits to both parties involved. For clients, they are working with the same set of members, so they never feel isolated. Because they have worked together in the past, support team does not have any learning curve about the client’s work style and requirements. From the service provider’s perspective, it will let their team specialize in a certain aspect rather than be a jack of all activities. In the end this will help to increase the ROI on your esourcing strategies.
In summary, an evergreen change management and communication program, frequent and proper reporting and good pairing of teams can bring about early adoption and ROI realization. Program managers from both the client and service provider should focus on measuring and communicating the effectiveness of the outsourcing program.