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Go offshore but do your homework

01 April 2008

It's possible for telecoms companies to use so-called offshore suppliers of technology and services with a clear conscience, but first they should ensure their procurement is responsible and sustainable, writes Meryl Bushell

Read more: procurement BT offshore investment Brazil Russia India China Goldman Sachs

 

Meryl Bushell: operating in global markets is something to be embraced, not avoided

It is nearly five years since the investment bank Goldman Sachs published a ground-breaking report which forecast that the BRIC countries — Brazil, Russia, India and China — would overtake the world's established G6 economic powers by the year 2050.
In recent years, Indonesia and South Africa have been added to this list of powerful emerging economies.
In the five years since the Goldman Sachs report, there has been a huge boom in the offshoring of both manufacturing and services, with every major telecoms manufacturer sourcing at least part of its research and development, software development and component manufacturing from emerging markets.
Despite the prevalence of sourcing from the "BRICs", there is still a strong nervousness, fuelled by newspaper headline horror stories, of the pitfalls of such practices.
If you believed everything you read in the papers you would be convinced that buying from South America, Eastern Europe or Asia equates to poor quality, child labour, environmental damage and stock shortages.


Minimising the risks

There are of course risks in any supply-chain activity — and understanding and minimising those risks are the bread and butter of any good procurement department. Responsible and sustainable procurement is the only kind of good procurement.
Set out just to buy "cheap" from any economy, and "cheap" (and not so cheerful) is probably what you will get.
The first step in any offshoring activity is to do your homework. Researching the political and economic factors of the countries in question, and the strength and track record of potential vendors is vital.
Benchmarking activities of other organisations and asking them for details of their experiences can help narrow the field.
While at first this can be desk-based research, nothing beats on-the-ground, face-to-face visits.
Most "bad" buying occurs when not enough time and effort has been expended on specifying and documenting minimum standards and requirements. As well as the specification for the product and service being acquired, the success criteria and performance measures must be fully bottomed out.
I am convinced that the bad press attracted by some offshore call-centre activities results from the wrong performance measures being specified. Anything that impacts customers must have customer-centric success criteria, not measures based solely on increasing speed and lowering costs.
Policies on quality standards, security, human rights and environmental risks all need to be fully specified and documented, and a full risk assessment of potential suppliers undertaken.
It is not good enough to just worry about the immediate first-tier supplier, as a slip further down the supply chain can cause havoc to both companies and consumers. If alarm bells ring on a desk-based risk assessment, then an on-the-ground physical risk assessment or audit is imperative — as are follow-up and ongoing assessments against action plans to mitigate any future risks.
Preparation needs to include a robust transition plan and ongoing contract management. Work can not be thrown to the supplier; depending on the complexity of the deal, it may be worth locating some of your key procurement and contract people in the supplier's country, if only on a temporary basis.
Sourcing from a distant economy — whether for products or services — is not a short term game, and the more strategic the items being acquired, the more time needs to be invested in the preparatory stages of the sourcing activity.
Sometimes a promising supplier may need a couple of years to resolve some fundamental issues before they meet the required standards. This is not an activity for the faint-hearted.


Wealth of resources

Global sourcing done well can really be worth the effort. It opens up a wealth of resources that previously were not available — research and development engineers in Russia and Malaysia, software development resources in India and Brazil, software and manufacturing in China: the list goes on and is increasing.
Harnessing these resources fuels innovation, improves time-to-market and gives competitive advantage. Quality standards and security, with the right specifications and the right suppliers, are just as high as in conventional markets.
Indeed, some organisations could probably do with enhancing their security standards slightly closer to home, given some of the recent breeches in the UK.
Finally, there is a cost advantage from global sourcing, though I see this as the added bonus, rather than the raison d'être of sourcing from emerging markets. Operating in global markets is the way of today's world, and something to be embraced, not avoided. GTB

Meryl Bushell was chief procurement officer of BT until September 2007 and now runs her own procurement consultancy, www.merylbushell.com






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