The bottom line here is that if the sourcing deal does not stack up financially it does not matter what other benefits are perceived the relationship will not survive. A sourcing relationship must have a clear and transparent financial benefit. This is the first law of sourcing which was articulated by Coase.
Coase’s Law
Coase's Law states that a company will purchase goods and services from suppliers (that is, outsource work) if the suppliers' costs, plus the costs of completing such transactions, are less than the costs of getting identical work produced by a company's own employees.
This aphorism must be tempered by the common law of business balance.
The Common Law of Business Balance from John Ruskin.
It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money -- that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot -- it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.
This is a classic quote on the possible folly of automatically choosing low cost as the best way to make a purchase decision. It appeals to those who believe, or who want to persuade others to believe, that price is a possible indicator of quality.
This aphorism is linked to ‘R’.
No comments:
Post a Comment