Outsourced or not, demand must be managed

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 to 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 that have 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 the P dimension will be ignored, rather, it means that successful firms will have robust solutions to both dimensions.

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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.