A quick guide to outsourced procurement for Startups
Procurement is core to many businesses' requirements but it's only in big corporate environments that you find people specialized in what takes a lot of soft skills and practice to be good at. Negotiation is hard, most folks don’t want to risk conflict.
So in a technology environment what are the key criteria if you need to outsource your development work. This is a common requirement. There are broadly a lot of benefits if you find a good supplier.
- Reduction of cost — do they charge hourly? or fixed per-project costs? This can really save you $$. Long-term contracts really should be reduced hourly or better daily rates.
- Reduced overheads of managed resources — you don’t want to have to hire an entire HR department or talent scouts.
- Transfer of risk — if your supplier understands this — it can be invaluable they should be prepared to share risks regarding business continuity and service delivery.
- The flexibility of resources — so many people including developers just don’t want to change and learn new skills — easier to just have project-based resources and you can change them out when you need to.
So what metrics do we look for when we consider procuring services? Well here is a little checklist a starter for ten.
- Contract-type — is it project-based or long-term? Some suppliers will not consider long-term resource-based contracts only project-based.
- Payment schedule — what is the payment schedule — is it monthly? what flexibility is built into the contract? how much resource does that buy you?
- NDA — would the supplier accept an NDA? What would that cover?
- Working hours — if they are in another country will their timezones align? what if you need urgent support?
- What are their support options and services?
- How do they account for business continuity? What if there is an outage? what service level do they guarantee and how much of that is automated?
- Code samples — can they provide code samples and examples of work? Can they talk you through similar projects they have executed? How did they approach this?
- If you are doing project-based work do they have a project manager on their side to manage the resources? How do they manage requirements gathering and scope changes? What are the costs here?
- Have they had to handle penetration testing? — you will need to consider this for the B2B market vendors or anyone in compliant environments. They should have a standard approach to this.
- How do they handle security? What standards do they have in place to handle this? What procedures?
- What quality standards have they met as a business? If you are in the finance or healthcare sector something like this can really matter.
- What stacks and underlying cloud solutions are they using? Will it be hard to move? What are the costs if you decide to change supplier? What is the process? How long will it take?
There are broadly 5 stages to negotiation.
Stage 1: Prepare
Identify potential value
Begin to understand interests
Stage 2: Information Exchange and Validation
Discovering and creating value
Build rapport and trust
Stage 3: Bargain
Create and distribute value
Make and manage concessions
Stage 4: Conclude
Confirm interests have been met
Stage 5: Execute
Addressing changing interests
It's best to start with a small project in order to ensure that your supplier will really deliver consistently. Make sure you are collaborative and prepared with any resources and requirements. It's impossible to test a relationship as a customer unless you really have your end organized. Easy to complain when it's actually your bad management that's failing. Don’t be that guy.
Agree on the test project outline and payment schedule upfront just as you would for any other contract and ensure that successful delivery of that work is dependent on a longer more binding contract.
Finally, make sure you have enough flexibility that you can change the contract down the line. Every service provider should have an annual review to check service levels and ensure that they are delivering to the KPIs outlined and that you have the option to change should you need to down the line.
I may edit this later and add another 20+ minutes of notes for your delight, I hope it was useful at least but it's not the most exciting topic… I think we can all agree on that.