A Tale of Plumbers, Indoor Basement Pools and Sourcing Model Selection | Sherpas in Blue Shirts

Posted On November 9, 2010

While I do possess an engineering degree, I am not mechanically inclined. Why is that important, you ask? Allow me to explain.

I recently moved into my first house, and like most people do, have started to fiddle with its imperfections. I am currently juggling plumbing, electricity, flooring, gardening, paintwork, furniture, and, of course, a touch of delicate feminine decoration for a house that spans four floors, an unsealed attic and a secret, walled in – and thoroughly flooded – basement, which I only discovered two months after moving in. This has not been an easy affair on the best of days. Today, it has been outright hectic.

With an Iranian plumber in the basement, an Polish insulation specialist in the attic, an Irish house painter outside and a British furniture installer in the bedroom, I found myself in the same position as a manager trying to get operations running smoothly across many functions and geographies, with fragmented and disparate needs and quite a few inherited skeletons in the closet of pre-existing contractual arrangements. While my health will surely benefit from my continuous running up and down the stairs, and I have certainly enhanced my vocabulary with multilingual expletives, I am painfully aware of the fact that the situation will soon snowball out of my control, both cost and quality wise.

How did I end up here? Well, it is simple, really. Just like most established organisations, my house seemed to be running smoothly. Thus, I set a day for facade painting and a small maintenance check of the electrical installation – both planned and carefully thought through investments. The fact that the standardised wardrobe solution did not actually fit my non-standard closet was an additional nuisance, which had to be fixed with some non-planned customisation. I contracted for that too, after a brief benchmarking exercise, and though the investment was not planned, I still felt reasonably in control.

This was all before disaster struck. A small leak in the kitchen ceiling led me to discover my secret three-foot deep basement pool. In an emergency, I had to grab the first plumber to pick up the phone. There was no time for benchmarking or market research, and since the house plans did not even indicate that I had a basement, no data collection. The only reality was the leak, which needed to be immediately fixed.

Everything else piled up after that.

The water in the basement could have come from many places, so I needed to check the rain- water drainage in the garden and the attic insulation. All too aware that my emergency plumber was on the clock, my selection of the gardening and insulation professionals also needed to be split moment decisions. Suddenly, all my investments became emergencies and, little by little, I found myself in a mire of agreements made in haste, with no actual defined scope, barely defined timelines and rates to be quoted at a later date. To top everything, I don’t even have a centralised view of spending – my fiancé is paying the plumber and the painter, our live-in friend is paying for the garden and the only central thing will be the final bill.

This is exactly the same kind of situation in which many large organisations find themselves when they have a sourcing contract landscape resembling a five thousand-piece puzzle. Even in a context in which investments are centrally planned and carefully analysed before any large commitment is made, local organisations or various functional towers have non-standardised requirements, and emergencies arise everywhere. A quick response is the key to maintaining operations, yet, in the aftermath, the contractual puzzle is all but impossible to manage, while money is dripping through all of the unsealed cracks.

An uncontrolled supplier environment is both a direct and an indirect cost. Middle managers, whose time is split between day-to-day operations and governance of the supplier relationships, find themselves running up and down hypothetical stairs, too busy putting out fires to consider the larger picture, and trapped between the needs of their internal clients and the varying delivery models and geographies of a large number of vendors. And while owners of these colossal puzzles may feel assured that all five thousand pieces fit together, multi-vendor environments will rarely amount to a smooth, complete picture unless they are meticulously designed. The various suppliers’ scopes will either overlap or leave wide gaps, while inter-supplier interaction will often hopelessly blur accountability lines.

Such situations may evolve over time, or simply come into place after an acquisition. Whichever the cause – how does you go about restoring order from chaos?

The first step is choosing a future sourcing model. Depending on the scale and complexity of your organisation, assess the respective advantages and disadvantages of a single-sourced versus a multi-sourced, but greatly simplified, environment.

Single source models are faster to implement as the single supplier has a vested interest in quickly streamlining processes across the landscape. In some cases, simple standardisation and mapping of roles to processes will enable you to achieve immediate productivity gains, your governance costs will decrease and accountabilities will be clear. Furthermore, if your organisation has sufficient scale and can provide sufficient volumes, you will be able to extract a strong initial commercial advantage.

The downside of a single source model, however, is that precious few suppliers in today’s market have sufficient clout to become the sole delivery partners of very large and extremely complex organisations. This will not only limit your initial choices, but will make exiting the relationship difficult and costly. The lack of internal and external competition may also cause your commercial advantages to erode over time as you grow increasingly dependent on the single service provider.

By comparison, a simplified, multi-sourced model will take marginally longer to achieve results and your governance-related costs will decrease to an extent, but the challenge of getting vendors to function alongside each other will remain. You’ll also be challenged with dividing the scope across the providers in a manner in which each of the individual puzzle pieces represents a tempting enough commercial proposition while remaining logically sound from a business standpoint.

I recently worked on a large-scale ADM project, helping an Everest client organisation achieve just that. The 7000+ applications in scope were grouped by functionality (so that the individual grouping is relatively self-contained, and requires a specific skill), and then by geography (for ease of governance). The application groups were then rolled up into lots of a previously determined annual contract value. The resulting landscape consisted of 16 final lots, each with an annual contract value between $10 million and $30 million, taken to market as relatively independent entities.

We assisted this client in consolidating its 85+ ADM contracts, with 60+ different suppliers, into five contracts and vendors. Still a puzzle, of course, but one with far fewer edges, and one whose pieces can be lifted and shifted from supplier to supplier with relative ease. This particular scenario preserves the buyer’s commercial leverage, essentially creating an internal services market.

Choosing the right sourcing model for your organisation is but the first step, and there is no one-size-fits-all answer. The only certainty is that all choices should be considered in light of a long-term strategy, and that you should not make strategic decisions in response to emergencies. Changing your organisation’s sourcing model is difficult and costly, and while it is certainly possible to turn away, reacting hastily will simply lead to further complications.

Consider this – my basement had been flooded for months. Three days of thought and market research would not have made a significant short-term difference, but might have helped me source in a far more efficient way. This particular leak will, hopefully, be fixed. But I am stuck with five different service providers, each of which understand the inner workings of my house better than I do, and have no incentive for knowledge transfer. Given the tiny scale of my particular organisation, I am starting to wonder whether single sourcing and employing an agency would have been a wiser decision.

The bottom line is that situations that build up over months and years will take weeks and months to resolve. You must be prepared for this and always attempt to strategically consider your options. If you don’t, when your various suppliers collect their tools and leave, you’ll discover the stark realities that cleaning up after a bad choice, and the final bill are, sadly, always in-sourced.

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