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Michael Rehkopf
Sourcing Insight
Thursday, October 8, 2009
We all want to improve the economics of our cost centers, whether we insource or outsource them.
Most of these cost centers follow a price times quantity model ("P x Q"). While the "fun" can be in the "P" dimension, most of the money to be saved lies in the "Q" dimension. Unless your price points are way out of line, P improvement in most engagements I've seen is in the 10-20 percent or slightly higher range. Greater cost reductions will potentially come from the Q end of the equation.
How do these two dimensions relate to outsourcing?
The historical focus has typically been on "doing a deal" which has a strong focus on the P dimension, namely getting better pricing.
However, a more recent focus has been on the ongoing management of already completed deals which has a strong focus on the Q dimension, namely driving down unnecessary consumption. A good guide to ways to do this can be found at TPI under Mind Your P's and Q's to Control Outsourced Costs.
If we look forward into the future, whether it is the "green" agenda or economic pressures driving reduced consumption the Q dimension is likely to be the area of continued focus for years to come. That doesn't mean that the P dimension will be ignored, rather it means that successful firms will have robust solutions to both dimensions.
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