Most Outsourcing arrangements are often multiple vendor set up for very obvious reasons – allow them to compete on all fronts and gain pricing advantage. However there are cases where single vendor is an approach, this happens more from the vendor side that often tend to negotiate to be sole provider for a discounted price. The clients falls for it not knowing how this will impact in the long run. This is not an uncommon practice starting in early 70s, then 80 when large corporations in developed economies mostly in US and Europe outsourced their IT departments to concentrate on their core business.

It works well initially till the outsourced vendor entrenches itself, gains the confidence and then begins the downwards spiral. At times it has been quick within five to ten years, and some that slightly lasted more than that. In every relationship the initial years though it begins with struggle, you get the best top to bottom and once the investment phase is over the outsourced vendor starts looking at their bottom lines to see how they can squeeze more out of the deal. Hobnobbing for couple of years it is easy to get cozy at all levels and see the service levels drop unless there is a good way to measure and improve on the performance benchmarks. The initial bar set low should be gradually scaled so the contractual performance improves not stagnates.

The influence of senior management on single vendor situations are not uncommon. The appreciation and understanding at that top-level is not commensurate with what is happening at the ground. The need to support single vendor solution keeping in view the economies it provides to the clients bottom line tops all judgment. The message always to the lower cadres is to fall in line and keep the relationship going at all costs. It is only when the worst nightmares surface that management take notice and take remedial action, by that time the damage is done. Stories about of clients that lost all of its competitiveness, time to market, lost a ton of money, their brain power before they decided enough is enough and threw the vendor out and move on to other strategies from finding a new partner or totally bringing everything in house. It takes years depending on the size of the contract to get back in shape.

Single vendor relationships tend to look like a financial boon initially given the pricing advantage, however it tapers off very quick. It is always good to have atleast two if not more vendors compete for your outsourcing dollars. Every benchmark you care comes into play and competition plays it out driving the advantages and improving overall efficiencies

I am sure many of you that are involved in outsourcing have been part of the billing war in some form or fashion. Guess who wins every time, it is the outsourced provider. Most of the time the clients just give up or think they have bigger fish to fry so they move on. Like drops of water make an ocean, this adds up.

Most of the IT outsourcing contracts are geared towards ensuring providers have some leeway into protection of their billing. The era of fixed price bids is not a norm anymore solely due to the fact that it doesn’t work well for the providers, many have lost face and money in these type of deals which is again due to a host of factors that I will cover another time. The other billing types lime T&M, Staff augmentation, sole contracts etc. are fodder for billing leakages.

it is advisable to have a robust process to check billing and make sure the outsourcing dollars are spent wisely. Processing of invoices as they come in needs discipline and verification against time sheet data. The source being time sheets, it pays to have people signing off those to do their due diligence. At times there is no connection between those that approve time sheets and those that process invoices which is best avoided. You want both of these folks to be in sync to do what it takes to be accurate in processing bills.

Given the downturn almost all IT outsourced providers have tightened the belt on what they call “Billing Leakage”. Not just that they actively look for measures to see where they can tap out more billing often going for smaller lines. it helps since the clients really don’t look at smaller lines with that close eye it deserves.

Many providers have lost face or lost credibility due to this factor, at time the middle manager at these firms tend to be aggressive to exceed their targets with unscrupulous means. Most of the senior leadership at the providers are not about these smaller moneys coming at the cost of credibility and actually discourage such practices. It is not uncommon to have broken process that benefits providers, they simply refuse to make improvements for obvious reasons

Given the economic situation and the need to account for every dollar spent on outsourcing it is imperative to relook at the billing practices and processing workflow end to end from receipt of the bills to payments and take remedial action. Many firms will benefit from doing a wing to wing mapping using Lean Sigma. There is lot of money to be made here for clients in terms of savings and arrest the billing leakage from their ends.