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Sole sourcing: a win-win-win?

Selecting and contracting an IT or BPO service provider is usually a complex process. It takes significant time and effort from all parties involved. Service providers put in a serious investment with only a limited chance to get a return. For clients it seems to be a necessary evil to put everything on hold for a couple of months. That seems to be the time it takes to complete a tender process. Sourcing consultants will be quick to explain that this effort is fully justified to maximize commercial leverage. But can a client only create negotiation power in such a tender process? Is a competitive tender process the only way? Isn’t “sole sourcing” (engaging in exclusive negotiations by a client with one vendor) a viable alternative?

What would be the impact for clients, vendors and sourcing consultants? Can we identify a true win for all parties involved? For suppliers the added value is easy: cost of sales goes down and control goes up as a sole source negotiation is way more interactive compared to a classical selection process. This increased interaction is also a win for clients, and both parties will be less reluctant to address real issues that need resolving as mutual commitment is established upfront.

The advisor has a key role

Even bigger will be the impact for the sourcing consultants. I think consultants can still provide significant added value and may even prove essential but only if they re-invent their role. Instead of focusing on creating a level playing field and being process facilitators during the selection they will need to take responsibility, become more independent and serve both parties to create the best possible outcome. Much can be said about sole sourcing in general but my focus for now is on the changing role of the sourcing advisor.

Clients should expect from their advisors that they know the market. Thus they can suggest a preferred vendor as a candidate to invite for exclusive negotiations. During the negotiations, the sourcing consultant will need to take on a more independent role. This will require a change compared to his role in a traditional competitive process. Part of the independent role will be to provide his insight and expertise e.g. about market best practices on scoping, pricing models and benchmark information; it will be a step up from providing templates to suggesting business models. The independence may be served by a model where both parties share the bill. This ensures the advisor will not take sides when ‘the plot thickens’.

Sole sourcing enables both client and vendor to take a perspective beyond the selection process and contract signature. An independent advisor can realize these benefits by ensuring the proper focus on topics like transition, governance, incentives and innovation. Summarizing I think the sourcing advisor can provide additional value in an upgraded role during a sole sourcing process. The step up from being a process facilitator to a business partner will be challenging. I also expect it to be it’s own reward.