IntroductionA well-managed outsourcing arrangement can deliver sustained savings or added value of between 30% and 50%. But achieving this level of benefit requires not only a sound sourcing strategy and a comprehensive sourcing implementation approach but alsoand perhaps most importantlyan effective sourcing management framework in place throughout the life of the relationship.Scope*The aim of this report is to answer key questions about the final phase of the sourcing journeynamely ongoing sourcing management.*This report provides best practice and "lessons learnt" for sourcing management, basid on experience from over 700 Orbys sourcing engagements.HighlightsIndustry leaders recognize that the short-term costs of implementing effective sourcing management structures are more than outweighed by the potential costs of termination and re-competition should these relationships fail.Reasons to Purchase*In Orbys' experience, a well-managed outsourcing arrangement can deliver sustained savings or added value of between 30% and 50%.*A self-assessment scorecard is provided for an initial assessment of the effectiveness of your current sourcing management framework.

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The Orbys Guide to Sourcing Management
Published on March 2010
Report Summary
Introduction
A well-managed outsourcing arrangement can deliver sustained savings or added value of between 30% and 50%. But achieving this
level of benefit requires not only a sound sourcing strategy and a comprehensive sourcing implementation approach but alsoand
perhaps most importantlyan effective sourcing management framework in place throughout the life of the relationship.
Scope
*The aim of this report is to answer key questions about the final phase of the sourcing journeynamely ongoing sourcing
management.
*This report provides best practice and "lessons learnt" for sourcing management, basid on experience from over 700 Orbys sourcing
engagements.
Highlights
Industry leaders recognize that the short-term costs of implementing effective sourcing management structures are more than
outweighed by the potential costs of termination and re-competition should these relationships fail.
Reasons to Purchase
*In Orbys' experience, a well-managed outsourcing arrangement can deliver sustained savings or added value of between 30% and
50%.
*A self-assessment scorecard is provided for an initial assessment of the effectiveness of your current sourcing management
framework.
Table of Content
OVERVIEW 2
Catalyst 2
Summary 2
Methodology 2
EXECUTIVE SUMMARY 3
Sourcing management starts with a strategy review 3
Understand the difference between a benchmark and a health check 3
Transformation of relationships is a specialist project 4
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The importance of the retained organization 4
Table of Contents 5
Table of figures 5
Table of tables 5
Introduction 6
The benefits of sourcing management 6
Framework for effective sourcing management 7
SOURCING STRATEGY 9
Start with a sourcing strategy review 9
Recommendations arising from a sourcing strategy review 10
Reviewing the sourcing strategy regularly 10
Self-scoring assessment scorecard 11
The value of using a sourcing advisor to support sourcing management 12
DEAL PRINCIPLES 13
Revisiting deal principles regularly 13
SOURCING TRANSFORMATION 14
Drivers for sourcing transformation projects 14
Managing a sourcing transformation project 14
Case study: ITO sourcing transformation for major public sector organization delivers £2 billion in savings 14
Obtaining executive support 15
Structuring the requirements 15
Renegotiating existing contracts 16
Managing the department's implementation responsibilities 16
SERVICE MANAGEMENT 17
Improving current service management 17
Service management with multiple suppliers 17
Supporting service contract managers 17
PERFORMANCE MANAGEMENT 18
The need for active management of suppliers 18
Balanced scorecard for outsourcing performance 18
Regular performance review meetings 19
RELATIONSHIP MANAGEMENT 21
Improving relationships with suppliers 21
Dealing with a breakdown of relationship 22
BENCHMARKING AND HEALTH CHECKS 23
The difference between a benchmark and a health check 23
The limits of benchmarking as a negotiation tool 24
Approaching a benchmarking exercise correctly 25
Use benchmarking sparingly, with regular health checks 25
VALUE ASSESSMENT 26
The value of value assessments 26
Understanding the sources of value in existing relationships 26
Quantifying outsourcing value in cash terms 27
VALUE REALISATION 29
Driving suppliers to deliver additional value 29
Does value realization really work in practice' 29
INDIVIDUAL SUPPLIER STRATEGIES 31
A strategy for each supplier 31
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Using developed supplier strategies 31
RETAINED ORGANIZATION 32
The importance of the retained organization 32
Keeping the RO up to scratch 33
RENEGOTIATION AND RE-COMPETITION 35
Regular renegotiation prevents deal drift 35
Planning a proper renegotiation 35
What happens if the supplier refuses to renegotiate' 37
TERMINATION AND EXIT 38
Considering contract termination 38
Questions to answer before planning a termination 38
IN SUMMARY: KEY FACTORS FOR SUCCESSFUL OUTSOURCING MANAGEMENT 40
Top tips for achieving maximum potential from existing sourcing arrangements 40
CASE STUDIES 42
Value assessment for existing ADAM relationships: global agrochemicals company 42
Pricing and contractual health check prior to contract extension: financial services group 43
Health check: pricing 43
Health check: contract 44
APPENDIX 45
Sourcing Management Scorecard 45
Orbys Consulting 47
Disclaimer 47
List of Tables
Table 1: Sourcing management effectiveness scale 45
Table 2: Sourcing management scorecard 46
List of Figures
Figure 1: Orbys sourcing management framework 7
Figure 2: Sourcing strategy: the overall approach 10
Figure 3: A balanced scorecard for outsourcing performance 19
Figure 4: Orbys relationship management model 21
Figure 5: Orbys approach to health checks and benchmarking 23
Figure 6: Typical output of an Orbys outsourcing value assessment 28
Figure 7: Value realization 30
Figure 8: Model RO 34
Figure 9: Phased approach to renegotiation and re-competition 36
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