The 3C sourcing framework

As many of us have noticed, the labor arbitrage era as it relates to sourcing is rapidly coming to an end.

This period when productivity mattered less than the ability to throw cheap labor at transactional work is winding down. In the overall history of sourcing, the period of effort-based contracting will be strikingly short, yet it will serve as a distinct demarcation between industry eras.

But don't be fooled, we haven't moved to the new era yet. The slowing of commercial outsourcing contract awards in 2007 and the acceleration of captive offshore service centers foreshadows a major shift.

The slowdown, maybe even a recession, in the United States is a major force, coupled with currency re-balancing, taxation pressures, and the race for talent. All of this will add up to a redefinition of outsourcing value and a new equilibrium.

The recent past saw a relentless focus on reducing unit costs, specifically labor costs, and will continue as achieving favorable unit cost profiles is a persistent truth.

But with business uncertainty driven demand for variable capacity, the ability to flex the resource base in response to business needs becomes vital for a broader range of industries than in the past. Capacity comes in various forms and its absolute value depends on responsiveness to a fluctuating economic climate.

The final piece of the new puzzle is capability: The forgotten piece of the outsourcing industry starts with the promise that expert service providers will yield meaningful benefits.

So, there you have it. The move beyond the labor arbitrage paradigm will see the 3C sourcing model emerge.

Cost + Capacity + Capability = the future of sourcing

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Michael Rehkopf

Michael has more than 20 years of experience in operations, strategy and sourcing covering all major parts of the globe. He has also worked for Australian, Canadian, German and Japanese companies in both business process outsourcing and IT outsourcing.
Michael's industry experience includes the financial services, manufacturing, telecommunications and travel sectors. He leverages this diverse industry experience and his university background in accounting, IT and his Master of Dispute Resolution, to assist clients in the development of business strategies and the implementation of sourcing strategies. These include the associated evaluation, negotiation and organizational change.
Michael is currently a partner at TPI, the world's oldest and largest sourcing advisory firm. Prior to joining TPI, Michael held leadership positions with Siemens Business Services, OpenPlus International, Mitsubishi Electric and Netron.