Article previously published in the September edition of European Leaders in Procurement (www.europeanleaders.net)

Writing an article on supplier selection for a readership of Procurement Directors leaves one open to the sort of comments made by Abraham Lincoln during the American Civil War about articles in the press criticising his conduct of the war: "The problem" he said ironically, "is that all our best generals are writing for the papers".

Having been involved in business process outsourcing initiatives as a supplier, client and consultant for the last 15 years, and it has become clear to me that procurement outsourcing deals are very different from other procurement decisions.

This is because an outsourcing deal is all about co-developing a deal with a partner, not just about choosing a supplier and agreeing a price. 'Partnership' is an over-used term in relationships which are essentially (and contractually) customer-supplier - but, and it is a big but, complex BPO deals are almost living organisms, subject to growth and change, even death. There is no standard approach, nothing out of the box.

What is different about selecting a Procurement Outsourcing partner? Ultimately, it is that the selection process is less about choosing a specific potential partner (this is of course important, but usually there is more than one who is capable of doing the job operationally, commercially and culturally) and more about establishing the foundations of the deal and the contract, which is the articulation of the "partnership".

There are some givens which are not different, and which apply to all complex, high value procurements. You need to understand what you are trying to achieve. You must understand the supplier market. You should run a structured, rigorous selection process that allows you to compare bids on a like for like basis. You must verify supplier capabilities and develop balanced, weighted selection criteria. And you should negotiate before finalising selection.

But there are some selection principles specific to complex outsourcing, or at least more critical to the ultimate success of this kind of deal, because they help build the necessary foundations for the deal.

1. Understand your current situation

Understand what you have now, what you want to achieve, and what you could do yourself. To be able to contract for a deal which moves you forward, you need to know what your baseline is - spend, categories, headcount, cost and service levels - otherwise how will you know it has improved? And to achieve an outsourcing deal that really adds value you need to identify what you could achieve yourself - realistically, because in order to contract later for any planned improvements they will need to be substantiated - so that this can be factored into the deal.

2. Garner new ideas from the suppliers

Use the process to garner new ideas from the suppliers that can improve performance. Be open to them as those you are engaging with are supposed to be experts, so let them open your eyes to new possibilities. This has, of course, got to be balanced against the need for comparable bids. The way to do this is to define what you want to achieve and the format for the responses in the usual way.

But also encourage suppliers to separately propose different approaches if they think they would be better. Clearly this adds complexity to the analysis and comparison of proposals, but the advantages of moving your thinking forward in a field that is developing all the time should outweigh the added complexity.

3. Build a robust working relationship

Use the process to engage closely and constantly with the potential suppliers, and to build a robust working relationship. This process is about selecting a partner with whom you will be effectively living with for five to 10 years. You need to know as much as possible about how they work, what they think and who they are. An arms-length procurement process cannot achieve this.

Worse still is to engage 3rd party consultants to keep the suppliers at arms length, as sometimes happens. The problem is that when the deal is signed there will be insufficient in-depth knowledge of each other and the real requirements to deal with changing circumstances - and, in outsourcing deals, changes start from day one. Consultants certainly have a role (they know the market and the suppliers, what has worked before and what hasn't, and they can bring rigorous analysis to the process) but they must support, not replace, the principal parties.

Additionally, engaging closely with potential suppliers enables you to understand how they will deliver, not just what. Understanding the "how" can help ensure a sustainable deal - if the supplier can't or won't describe how they will deliver the promised savings, the chances are they can't or won't be able to do it.

And if they can't do it there will be a shared problem, whatever the contract says. Either the supplier will take a hit, and have a loss-making deal, which will be managed accordingly (e.g., understaffed to control costs), or they will seek to re-negotiate and get the client to take the hit. Either way, it's bad news for both sides.

4. Capture the "sales promises"

Ensure that you track and capture all the sales promises during the selection process, and be clear that you expect the promises to be contracted for. Outsourcing is often thought of, as a means of transferring risk from the client to the supplier, which indeed it can be - but only if the contract is right. It is a nice irony that the top tier suppliers whom a major corporate would want to trust with something as critical as procurement outsourcing will also be the most sophisticated to deal with, both in their sales pitches and in their ability to minimise the risk they take on when contracting for delivery.

5. Allow for proper due diligence

Finally, allow time during the selection process for due diligence to be carried out by the supplier, so that promises can be contracted for on the basis of fact. This is also a risk transfer issue. Risk can never be transferred as clearly on the basis of assumptions only, and post-contract - when the supplier will have taken on the function - they will have the knowledge, the people, and the focused resources to radically shift the balance of power. You need to specify what is included and what isn't at the outset.

Procurement outsourcing can be a compelling proposition. When done right the value generation can far exceed that delivered by other BPO initiatives. But the key to the success of the deal is in the contract, and the foundations of the contract are in the selection process.