Frisch Findings: Out With Outsourcing
In the early 1990s, private-sector success led to the public-sector outsourcing of noncore functions. Unquestionable savings resulted in long-term contracts. Today, outsourcing has come full circle and once again sits on procurement’s door step. This time, outsourcing is seen by many as a threat, not an alternative procurement solution.
Initially, entities focused on sophisticated computer systems as candidates for outsourcing. No one was interested in contracting out decision making and end results, but rather the method or mechanics of an operation.
Today’s rising costs and restrictive budgets have driven all entities to reduce expenditures. Attractive savings accrued through outsourcing have blurred the line between the real job of government and the tools used to perform that job.
After a number of embarrassing incidents of state contracting jobs going overseas, the media filled our newspapers and living rooms with reports of jobless state workers and Indian training centers. Overseas trainees were renamed Bob and Anne and spent days watching “Friends” episodes and eating McDonald’s Happy Meals.
We can look to loss of jobs, bad press, and, of course, election-year politics to cause some lawmakers to change their tune to one of anti-outsourcing. Recent actions include state executive directives. The State of Michigan, for example, “must extend legal preferences for Michigan-produced goods and services over those of other states and countries.” The majority of states has or is working on legislation to stem outsourcing of state contracts to overseas firms and even across state lines.
That’s great, but lets face it, the media and state lawmakers are not likely to come to the rescue of public-sector procurement jobs.
The reality is that the State of Alaska has initiated an outsourcing pilot of procurement and warehouse services. Outsourcing may never be successful or even considered in many entities, but some positions are at risk.
I have more bad news. As an editor, I receive press releases from business process outsourcing (BPO) companies. Recent releases offer “sourcing-to-settlement” services, including strategic sourcing, procure-to-pay transaction processing, supplier and contract management, support, and management reporting. Sound familiar?
In the public sector, outsourcing efforts are largely driven by governing forces. The same is true in the private sector. We at Penton Media have lost employees to outsourcing, but the Circulation Department has weathered the storm. Our CEO decided years ago that Circulation was a perfect candidate for outsourcing. He was so sure that over the course of five years, he hired three separate consulting firms to prove himself right. Each exhaustive study presented similar findings. No matter how popular outsourcing was with the board of directors, the Penton Circulation Department was better, faster, and cheaper.
Procurement professionals confronted with outsourcing must be prepared to prove their worth. How will entities determine whether in-house procurement is a legitimate means to an end or a resource-devouring organization? The evaluation process itself can be valuable because it helps an entity scrutinize the costs and benefits of its procurement function. The outsource evaluation, even if the entity decides not to try outsourcing, may ultimately improve procurement processes.
The outsourcing debate is not going away anytime soon and likely will pick up steam at this year’s NIGP and NPI annual conferences. It is at these events that procurement professionals must development means of measurement to prove that outsourcing has been over estimated as “the procurement tool.”