Saturday, September 10, 2011

Relationship Spectrum in Outsourcing and their Relations

Outsourcing is going to be the order of the day especially with the growth of modern day Operations. How is the world of today vastly different from the world of yester-years ? Products and services will largely come from operations as against conventional manufacturing and it is in this context that Out-sourcing gains significance.

Somewhere customer is looking for value and the value exists in higher quality with lesser price and Operations are a better option than manufacturing to ensure lesser price.

In my view any activity of outsourcing goes through a relationship spectrum. Having observed and worked with sourcing situations during my tenure with BPL some of my observations will be worthwhile.

One Time Buyer
One time Buyer is a person who just happened or chanced to buy some product without any pre-disposition or planning. This is a crucial event as it dictates if the buyer would continue with his act of repeated purchases.

Ad-Hoc Buyer 
A one time buyer gradually evolves into a ad-hoc buyer where he purchases off and on and on specific demands. The buyer knows the supplier but is yet to make a full time relationship.

Contract Buyer

The relation progresses into its next phase with an increaseds risk taking through contracts. Here the supplier is given specific contracts to act upon with or without legal supervision.


Vendor is a term largely accustomed to many. Here the relationship emerges from short term contracts to a longer term of engagement and the relation becoming sturdier with largrscale supply and largely frequent supplies and is a bench-mark in the graduation process and is a mile stone in the graduation process.

Relationship Buyer
In relationship buying the vendor and his principal are largely moved by an impetus to develop and compliment each other and in this form of buying symbols and symptoms of partnership exist. For example a cheme of larger credit or deferred payments or financial partnership.

Vendor Managed Inventory (VMI)
A more advanced form of Partnering where the vendor on a routine basis using 4th party systems manages requirements of a principal by acting on his behalf and making operations proceed without bottle-necks.

Contract Manufacturing

In such a system which can be classified as vendor development the entire plant ,machinery technology and training is provided by the principal and the execution has to be carried out by the vendor.

Job Work
In job work the materials are supplied by the principal and only the routine work is managed and carried out by the vendor and supplies ensured and job-work is largely governed by governmental laws and regulations.

Bifurcated Strategic Sourcing
In such a system large supply contracts are given to not more than two to three vendors ho handle all the supply requirements.

Dedicated Strategic Sourcing
The ultimo in sourcing relations where all the requirements are sourced for a long period of time from only one vendor.