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Factors towards a Successful Sole Sourcing Approach

by: Karen Cayamanda

Monday, February 22, 2010 |

In a nutshell, sole sourcing refers to the process or practice of working with only one supplier or service provider. This is an option for buyers wishing to achieve their goals faster without having to deal with a multi-supplier process.

Factors to a successful sole-source approach

In an Everest Group Whitepaper entitled “Sole Source Outsourcing: Ensuring a Successful One”, the global research firm cites these seven factors that will lead to successful sole-source approach to outsourcing.

  1. Develop the relationship. This is important even in multi-supplier approaches. Since both parties will be investing a lot of time and money in the outsourcing deal, it is crucial to establish a healthy and effective relationship in which both the supplier and buyer know each other’s goals and are committed to making the relationship work.
  2. Engage senior leadership. A sole sourcing approach relies on the trust and goodwill of senior executives of the company. People at the highest levels of the organization should be the ones to carry out the decision-making process, specifically when it comes to service delivery and terms of the agreement.
  3. Involve the board. For many board members who are used to a multi-supplier approach, presenting a sole-source situation may raise some concerns such as whether it is the best and most cost-effective solution for the company or not. Do not leave the board of directors in the shadows. Present the sole-source approach early in the process to give the board some time to evaluate it.
  4. Don’t boil the ocean. Before signing any outsourcing deal, make sure you have an accurate and robust business case, reasonable pricing and achievable scope, and a Masters Services Agreement (MSA) that focuses negotiations on terms which are most relevant to outsourcing.
  5. Develop a robust business case. Have a well-structured business case that can be easily explained and understood. Aside from stating the base case model, the business case must be clear and comprehensive. It must also take direct cost and business impacts, as well as strategic risks into account.
  6. Compare to ensure value. To have a successful sole sourcing approach, “parties must adopt a sophisticated external comparative analysis process to ensure fairness of value sharing.” The buyer must make sure that the supplier has the capabilities to match the scope of services to be delivered.
  7. Focus the contract and negotiations on truly important factors. The buyer must set specific milestones and end goals. The contract will also include scope targets and metrics in measuring the success of the proposed solution and the outsourcing relationship.

While a sole-source approach may not be suitable for every organization, Everest notes that if it is well-designed and executed carefully, the sole-source approach can be the most cost-effective and time-saving solution for many companies.

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