Reading: Osborne Clarke reports on gainshare

Research into the sourcing strategies of UK business by law firm Osborne Clarke shows greater market pressures and the increasing focus on internal costs are together, driving fundamental change in the sourcing strategies of 59% of businesses.

With an end to the focus on doing battle over cost very much apparent, two thirds of businesses now take a more collaborative 'open-book' approach to working with their suppliers and 59% actually share the spoils of cost-savings identified. Of those businesses who adopted these approaches to supplier relationships - known in the industry respectively as 'partnering' and 'gainshare', nearly 100% reported a positive impact on the business.

Added to the move for greater collaboration with suppliers, nearly half of businesses also expect to consolidate the number of suppliers they use alongside 84% reporting that they expect to shorten the length of contracts from the traditional ten to seven years. Russell Bowyer, partner, Osborne Clarke commented:

"It looks like businesses' traditional combative relationship with suppliers is changing as market pressures increasingly force many businesses to focus on their internal cost base. Traditionally conducted at arms length with the prime objective often just to hammer down price, businesses are now changing their tactics and are working closely with their suppliers to get more from the relationship.

"Arguably, the US automotive industry led the way after car manufacturers were adversely hit when the aggressive pricing adopted by many played a part in some suppliers going bust. Today, manufacturers are more likely to commit to, for example, minimum volumes of purchases and guaranteed volumes of business in return for greater efficiencies in the supply chain and maintenance of supply.

"However, this doesn't mean an easy ride for suppliers. With many businesses looking to consolidate the number of suppliers they use and shorten the traditional contract length, the fight for business will continue, but focused more on quality, relationships and commercial know-how rather than purely cost".

These pressures are also responsible for the continued and increasing popularity in outsourcing and the sourcing of goods from low cost countries. Around 60% of businesses are currently using these methods as part of their sourcing strategy. The research also shows that these are likely to be the most common approach in the future with 59% expected to source from low cost countries and 39% expecting to outsource. 50% of respondents also expect levels of outsourcing spend to increase in the next year, with the majority expecting spend to increase by between 6 - 20% over the next year.

Catering (53%), security/reception (61%) and IT support (51%) are the most popular functions to outsource with over half of all respondents reporting that these were already outsourced. A large percentage of businesses have also outsourced their facilities management (43%) and their logistics/supply chain management (41%).

Lower down the scale was HR and call centres with 21% and 15% respectively, reporting that they had outsourced these services. However, HR looks likely to be the biggest growth area in the future with 32% pinpointing it as an area they might consider outsourcing in the future.

Bowyer commented: "Businesses are no longer just dipping their toe in the outsourcing water, they have now dived in. With greater confidence in overseas markets and providers, and a better understanding of how to 'do it' gained in areas such as security and catering, this trend looks set to continue."

However, the 33% of businesses reporting that they had insourced previously outsourced functions highlights the potential pitfalls.

"Agreements around outsourcing the catering function are relatively tried and tested. However, outsourcing agreements for IT or HR functions are by the nature of work involved, far more complex. Businesses must avoid using outsourcing as a means to mend internal problems or just to reduce cost. Outsourcing a complex function needs a clear set of aims and objectives and sensible agreements behind them to avoid problems in the future."