The Era of Blending: Sourcing is Increasingly a Mix of On and Offshore

Veeck: Business case for going offshore is declining.
Veeck: Business case for going offshore is declining.

By Dan Berthiaume

Managed sourcing services are increasingly being delivered onshore and as part of larger collaborative outsourcing partnerships that handle the entire procurement process from source to pay to source to contract. Alan Veeck, VP of procurement services provider Denali Sourcing Services, recently discussed these and other sourcing trends with Nearshore Americas.

Particularly when it comes to the “source to contract portion” of the procurement process, Veeck said more work is being performed as a blend of onshore and offshore services, rather than predominantly using the offshore model as is the case in many other areas of outsourcing.

“Tactical elements of source to contract can be performed offshore, but higher-level elements of customer management and stakeholder management need to be performed onshore,” said Veeck.

In some cases, Veeck said regulations may require certain portions of the source to contract process be performed onshore. However, while performing onshore sourcing can “calm political winds,” he said that current political rhetoric against offshore outsourcing is not having a major effect on the decision to locate some sourcing activities onshore.

What does have a major effect, according to Veeck, is the need for strong communication between the sourcing team and project stakeholders. “Accents, culture, time zone all really matter,” said Veeck.

In addition, Veeck used the recent decision by Apple to move manufacturing of certain high-end laptop products to the US as an example of going onshore to “obtain a skillset that is much higher than that needed for tactical processes.” Especially as offshore labor rates have risen and in some cases onshore labor rates have stagnated or even declined, Veeck said “there is less business case for moving offshore. For higher-end, complex processes, you need to look at the marketplace.”

As far as nearshore delivery of procurement services, Veeck said nearshore markets are not acquiring a significant portion of these contracts. “You want resources on the ground in the places where people are buying procurement services,” he stated. “You don’t necessarily need people in Latin America, but might need people who can speak Spanish on your team. It’s different than transactional B2B outsourcing in that respect.”

Sign up for our Nearshore Americas newsletter:

Typically, Veeck said a modern source to contract outsourcing program will be around 50% onshore and 50% offshore, although in some cases the mix can reach as high as 75% onshore.

Howdy, Partner

In general, the outsourcing of the sourcing portion of the procurement process is a “relatively nascent” area of BPO, according to Veeck. “We’re seeing more RFPs and market interest,” he said. “There is interest, but not a lot of first movers. Sourcing is harder to do, whether it’s due to the economy or the maturity of the market.”

However, Veeck said he has seen an increase in collaborative partnership deals that assign the source to pay portion of a procurement outsourcing contract to one provider and then “bolt on” the source to contract portion from another provider. “More companies are taking on a procurement partnership rather than going to a big provider like Accenture and saying, ‘We want you to manage our procurement end to end,” said Veeck.