Posts Tagged ‘Business process’

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by Oliver Schmid  – IAOP :: International Association of Outsourcing Professionals Member


1.) What is outsourcing?

For years, outsourcing has been on the mind of many business people but what one associates with the term outsourcing, might be conceived as something completely different by somebody else. The only common ground is the understanding to give a task or process that used to be performed internally to a third-party service provider for fulfillment.

2.) Types of Outsourcing:

Outsourcing can be as mundane as giving support to somebody else and might be as complex as having business core processes being performed by somebody else.

Typical tasks and/or processes that are outsourced can be:

  • Partial or Total Outsourcing: Some functions or tasks will be outsourced partially while other will be outsourced in its entire. Partial or complete outsourcing can also be seen differently and depends of the viewpoint (Customer / Provider) of the parties involved. It also depends of the overall functionality of the to-be outsourced operations and can often not be determined clearly.
  • There is outsourcing of only operational functions vs. outsourcing of functions, tools and personnel.
  • Business Process Outsourcing (BPO): Interpretation of the meaning of BPO varies and depends again on the point of view. From a customer point, it could be giving away an in-itself-closed-business-process for which the provider carries complete responsibility. From a legal aspect, it is imperative to define all roles and responsibilities in a contractual from and every party involved need to understand their individual responsibilities and the consequences for non-compliance.

3.) Goals

The possible reasons for customers to look more closely at outsourcing to are equally diverse and complex as its possibilities and approaches.

Therefore, only some of the usual motivations for outsourcing will be referred to here:

  • Focusing on core business:
    • An organization wants to concentrate its resources on its core business, and therefore functions that are not part of its core business will be outsourced.
  • Cost savings and optimization:
    • An organization wants to reduce its cost of doing business through outsourcing by creating a flexible cost structure, which is directly related to the performance of its service provider.
  • Purchasing skills:
    • An organization wants to benefit from the increased competence of the provider who considers the to-be outsourced function as its core business. Often, an organization also wants to reduce its performance risk through contractual reassignment of performance risk to its service provider.
  • Flexibility:
    • The provider can often offer the customer more flexibility in the implementation of the delegated services than it would have been possible to a customer with its limited resources and scope for action.

4.) An outsourcing project is divided generally into:

  • the preparatory and planning phase, which includes the Baseline analysis, defining goals and determining the future procedures,
  • the initiation phase with the selection of the provider. and the contract negotiations,
  • the implementation phase with the transfer and the Setup of the facility (or Transition to Operate) and finally the actual
  • the start of the actual operation

Looking at the continuous “life” of an outsourcing initiative the following phases will follow:

  • Review and optimization of relationship and implemented processes
  • At contract expiration either the transfer of all functions to a new service provider or the return of the outsourced functions to the organization (insourcing)

5.) Preparation & Planning:

At the beginning of each outsourcing, a strategic analysis is performed to determine which services or which divisions will be outsourced as well as where the interfaces between the internal and external providers will be in the future.

Following this phase the outsourcing scope will be defined, which will include the functional spectrum. It should definitely be avoided not to make any clear commitments at the beginning, because the scope is the basis for all further tests, the structuring of the outsourcing and the subsequent tender.

The next step would be the internal analysis (assessment) of all areas that are part of the scope:

  • What personnel and which assets are involved?
  • What type of data is available?
  • Current Cost?
  • Which services are currently performed internally and which are already performed externally?
  • To which extend have processes and services already been documented?
  • What is the quality of the currently performed services?
  • Is delivery of services consistent with the according service performance documentation?
  • Are there any legal aspects that need to be considered; e.g. transfer of licenses?
  • Are there any industry-specific aspects to be considered (e.g. in the financial area)?

Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, nearshore outsourcing to Canada and onshore outsourcing of matrix oriented call centers.  He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chain outsourcing initiatives.


Oliver Schmid, EzineArticles.com Basic PLUS Author


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The Structure of Outsourcing by Oliver Schmid is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.


* Enterprise Business Relationships, including ORM

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by Oliver Schmid

Over the last 15 years outsourcing has developed at a very fast pace. Unfortunately, what has not developed at the same speed is the development and implementation of Best Business Practices and the according standard processes and procedures. This in return results in uncoordinated efforts and lack of understanding of the whole process. Third party service providers will try to sell outsourcing as a win-win situation, but this is not always the case.  A majority’s outsourcing efforts are implemented through “trial and error” and there for a more costly than expected.

Sixty-nine percent of companies outsource IT services. Outsourcing of application development and maintenance ranges from 15% for CRM, ERP 25%, another 25% for business processes, and 27% for other applications.

Statistics about outsourcing provides us with a positive picture but more and more businesses are disappointed with their outsourcing efforts, according to new research.

Companies express frustration with the quality of work being provided, according to a survey, but most businesses still said they chose the cheapest outsourcing option instead of the best quality.

The question is why are companies frustrated with quality of work provided. What are the reasons behind that frustration? There can be many reasons. Reasons can be:

  • Language issues
  • Geographical problems
  • Cultural problems
  • Infrastructure and Operational problems
  • Lack of procedures and controls
  • No or poorly defined Service Level Agreements (SLA)
  • Lack of or poorly defined Key Performance Indicators (KPI)
  • Lack of guidance and follow-up
  • Failure to understand the business model, processes and expectations

Some of these listed issues may have a bigger issue on your business than others depending on the type of service that has been outsourced.

In my 12+ years of outsourcing experience the lack of guidance and follow-up by the Outsourcing Organization led to a failure of understanding the business model, the processes and expectations by the Outsourcing Partner. Yes, you read right – The Outsourcing Partner. It is important to see the organization/provider you outsourcing to as a partner rather than just a service provider.

Service Providers are organizations that provide services that do not directly have an impact on your business and its day-to-day operations. Service providers are banking services, payroll services, cleaning services, mail and package delivery services and other business services that have are not part of your core business model. Even certain outsourced IT services fall into these categories.  Again, some of the above services may be critical to the success of your business and at that time they must shift from Service Provider to Outsourcing Partnerships.

Outsourcing Partnerships must be established with any organization that provides services, which are part of your core business model and have a direct impact on the overall success and profitability of a business. These can be services like Customer Service, Supply Chain Management, Warehousing, Logistics (3PL Services), Software Development and more.

It is not that a “regular service provider” is less important to a business than a outsourcing partner that provides core business services. The difference is that a Service Provider will need less controls and less of an understanding of the core business processes. Some of these services have standard service levels they provide and not necessarily have exactly specified KPI’s and the according control mechanisms in place.

There for let us concentrate on a typical outsourcing partnership and the requirements to make it a success.

First we need to evaluate why so many business fail in outsourcing. Over the years, I have managed many outsourcing initiatives. At some I participated from the get-go and some either after they had failed or were about to fail. The number one reason has always been that the business, which was outsourcing services, did not communicate their expectations well enough or did not manage the third party provider. At the same time the organization, which became the provider of the outsourced services did not understand what was expected from them completely. The reasons have been multitude, but eventually always boiled down to lack of communication. The majority of organizations see outsourcing just as a personnel cost cutting measure and hand off all responsibilities to their third party service provider. Outsourcing initiatives, which are handled in such manner are for sure doomed to fail and will leave at the same time the impression that outsourcing does not work. This is why outsourcing has left such a negative impression with many people and organizations.

Often outsourcing projects will fail from the get-go, because an outsourcing relationship is established at the wrong level. Management is negotiating not only terms but also requirements with a sales department whose focus is to make the sale, without understanding 100% what is expected. Terms, SLA and KPI are negotiated and agreed upon before processes have been defined, communicated and put in place. It is imperative to have from day 1 all the people in the boat that are affected by the outsourcing measure. These folks really do understand their business.

I can attest that outsourcing can work and will work if done for the right reasons and if done the right way. I have successfully managed and participated in various outsourcing initiatives, like:

  • Outsourcing of customer-service-call-centers to offshore third party service providers, as well to onshore and nearshore providers.
  • Outsourcing of data center monitoring and support.
  • Outsourcing of data center replication and backup for data center redundancy and disaster recovery. At the same time improving the sustainability of not only the IT organization within the business but also the sustainability of the business itself in case of natural disasters or other unforeseen catastrophic  events.
  • Outsourcing of Warehousing, Logistics and Supply Chain Management to Third Party Logistics (3PL) providers.
  • Outsourcing of certain Accounts Payable and Receivable functions.

In many cases, outsourcing may not save you money but may improve your service levels without investing in more resources. This in return, over time, will improve company performance, reputation or brand awareness and hopefully <if done right> profitability.

It is highly recommended to engage not only reputable third party organizations that provide the to be outsourced services, but also to hire a person that has experience in managing and handling outsourcing projects. The person to be hired should not only know the does and don’ts of outsourcing but also be aware of the Structure of Outsourcing. It is also imperative to assure that your business model and the business processes that are to be outsourced make sense to be outsourced. A skilled person that has vast experience in outsourcing will be able to help to make this determination.


Call Center Agents (funny)

Being a call center agent can be a very tough business, especially if you have Multiple Personality Disorder Syndrome(MPDS). At times call center agents may be so confused that they have a tough time to keep their different personalities apart and distinguish whether they are calling, are being called or even what client they are representing at a specific call.

The Face of Supply Chain Outsourcing!

Supply Chain outsourcing has changed significantly over the last decade.


Supply Chain Outsourcing to a Third Party Logistics Provider or 3PL started out as having a product stored at an outside warehousing facility and then have the 3PL move the product from one facility to another based on instructions provided with each transaction order.

Today’s 3PL providers offer a range of additional services that range from

  • Physical logistics operations, like shipping and receiving.
  • Provide warehousing.
  • Manage complex operational handling, that may include repackaging, product maintenance, product consolidation
  • Administration.
  • Information Management Systems that integrate into and from a client’s backend ERP System, and automate the flow of transaction data, therefore minimizing human intervention and reducing data errors.
  • Providing customer broker services.
  • International freight forwarding, which may include the creation of all required customs forms and complying with all customs regulations (import & export) as well as providing so-called “Free-Trade-Zones”.

The type and number of services provided by the 3PL are defined during the engagement and contract phase, which also includes Service Level Agreements. These add-on services can quickly multiply and must be considered carefully.

Most important in any new 3PL relationship is not to go overboard and assigning to many services to the 3PL or not enough. Both scenarios can have not only a negative impact on your business but also on the business relationship between a 3PL and its client and, “Very Bad”, the client’s customer.

Why wouldn’t you give away as many business processes as possible right away to the new 3PL? Can it not just be in my interest to reduce my internal processes and labor in order to justify the outsourcing cost?

The danger here is, since it is a new partnership the 3PL is not to familiar with the clients operational processes, its customers and its products. Giving to much control and decision making to a new 3PL will cause friction in the day-to-day business operations between the 3PL and its client due to misunderstandings, lack of familiarity of business processes, and other requirements that were communicated either insufficiently or not at all.
At the same time will the 3PL client’s staff not be familiar with the 3PL’s operations and its issues and challenges. For this reason the client needs to monitor the 3PL’s operations and be able to assist and intervene right away until both sides are satisfied with the final outcome of the processes assigned and its expected results.

Keeping to much control inhouse at the client will have similar effects.
To much back-and-forth communication is required which can lead to misunderstandings and untimely business process fulfillment.
It can lead to friction between both parties due to misunderstood instructions and can be seen easily by the 3PL as being micro-managed.
It can lead to delays in any physical operations as it may pertain to shipping and receiving products into and from the 3PL location or processing and submitting the required paperwork or electronic equivalent transactions.
It is imperative to define responsibilities clearly. It is to nobodies favor to have contract and service level agreements that leaves the agreement up to interpretation by either party.

Any relationship with a new 3PL should be setup in stages with clearly defined time-lines in order for all parties to understand the expectations and responsibilities now and in the future.
Not doing so may lead to increased cost and delay in business processes implementation as well as it can put unnecessary strain on the business partnership.

Having a clearly defined Supply Chain Outsourcing Plan, will be a win-win situation for all parties involved, starting at the manufacturing operation, over warehousing and distribution to the final customers. It can lead for all parties to a reduction in cost and increase profits, since each party can concentrate on their core business processes.


Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, onshore outsourcing to Canada and domestic Outsourcing of matrix oriented call centers.  He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chain outsourcing initiatives.


Should I outsource?


All about, if outsourcing in general makes sense and what to consider and how to approach outsourcing for it not to become a failure.

Who has not heard horror stories about failed outsourcing initiatives. Many organizations that attempt outsourcing often forget that the key to any successful outsourcing initiative is shared goals and good management.

Often outsourcing is only seen as a way to save money quickly and there for implementations are rushed into without the proper planning and without any detailed documentation of the business processes to be outsourced. As a matter of fact, documenting all relevant business processes as they exist today and the way they should exist in the future with the new outsourcing service provider will allow for a much smoother and painless implementation. Only developing the proper documentation will allow all parties involved to clearly understand all the needs, requirements and challenges of these processes.


Use your in-house know how

It is also important to take responsibility for requirements. Incomplete or misunderstood requirements can make an outsourcing project more expensive as budgeted or even may fail a project completely. Nobody knows your business better than you and the outsourcer probably ever will. It is up to you to gather requirements from your business perspective and explain them to the outsourcer. Only this will assure that your needs and requirements are understood and documented accordingly. The next important step is providing training. Very often training is ignored, but good training is an important key aspect.


Do not blindly rely on your outsourcing partner

In order to show quick saving, poor documentation is often thrown at the outsourcing partner, with the expectation that they would be able to deal with it, and then the partner will be abandoned. Such outsourcing deals will fail for sure. It is important to maintain control. Outsourcing does not mean abandoning and/or losing control. It is wrong to assume that the outsourcing partner knows it all and maybe even more and there for will be able to perform better, faster and cheaper. It is important to have key people that control and maintain relationships with outsourcing partners. These key people will maintain control and guide and govern the outsourcer.


Milestones and KPI

It is also important to implement metrics or key performance indicators (KPI) that are important to your business. Assign people that understand these metrics and are able to perform benchmarking of your outsourcing partner against these KPIís and present them in a readable and understandable format that will allow to draw conclusions and take the necessary steps if required. Last but not least, review your relationship regularly, as you would do with an internal department or internal staff. Make sure to review KPIís, technical infrastructure and operational infrastructure. Combine reviews with clear measures to indicate problems or progress.


Pros + Cons from the employees’ point of view

Horror stories as mentioned above, will often emerge from the employees of the affected companies. Indeed, it may be challenging to work with somebody else from a third party outsourcing company, especially if one has just experienced colleagues getting laid off. But if you look closer, discharging experienced personnel may sometimes results from prior mismanagement, and it is possible that a well-performed outsourcing concept may be the only way to keep things rolling.


Remember if managed correctly, an outsourcing deal will be a win-win situation for both sides.


Oliver Schmid, EzineArticles.com Basic Author
Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, onshore outsourcing to Canada and domestic Outsourcing of matrix oriented call centers.  He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chainoutsourcing initiatives.


A Definition of Outsourcing


Outsourcing is all around us and has always been. It just has become more apparent in today’s difficult economic times.

 

Unfortunately, outsourcing today is mostly associated with “Offshore Outsourcing”; meaning sending a certain function, business process or job to an oversea third party service provider, who has the ability to perform the same for less money.

We have to get away from this mindset that OutSourcing is equal to sending work overseas. Think about it, outsourcing has always been a part of our daily lives; as well in business as at home.

Some examples of business outsourcing are:

  • Hiring of cleaning crews to clean offices
  • Having trucking companies or the post office deliver your products and your mail … and YES this is outsourcing in its most basic form
  • Hire external service companies to maintain office equipment, like copiers, faxes, computers, etc.

Some examples for outsourcing in everybody’s private life:

  • Hiring a student to tutor your children
  • Hiring a cleaning person to clean your home (occasionally)
  • Taking a bus or train to work … and yes this is outsourcing, since you give somebody else the responsibility to get you from point A to point B and you don’t drive yourself.
  • Visiting a doctor… again, this is outsourcing. Who can afford to have their own doctor or nurse on staff?
  • The list goes on …
  • … and also here the list could go on and on.

Anybody may come up with their own examples about what they do not do themselves anymore in their daily life. Next, I want you to think about why you “Outsource” this functions or tasks and I bet that in 99.9% the answer is either money or lack of experience.

 

The same is valid for businesses. Outsourcing today is done because it just makes sense. Rather then investing in resources and additional education to do something that is not really a part of the core business function does not make sense anymore. It is cheaper and more effective to hire somebody who specializes in this area and has the skills, knowledge and the tools to perform the same function often even better and for less money or to say the least at the same cost to you.

Outsourcing does not make sense if one pays more for a service than if it would be performed inhouse. There for any outsourcing initiative must be evaluated carefully and a cost benefit analysis must be performed at all times

Again, Outsourcing does not mean a function is send overseas. There is onshore outsourcing, meaning outsourcing is performed by an entity in a neighboring or close by country or domestic outsourcing, which means the function is performed by somebody local or at least the same country.


Oliver Schmid, EzineArticles.com Basic Author
Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, onshore outsourcing to Canada and domestic Outsourcing of matrix oriented call centers.  He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chainoutsourcing initiatives.


Outsourcing, Insourcing and Saving MoneyOutsourcing means retaining the services from somebody outside of an organization to perform a task that would normally be done by somebody within an organization.  Saving money has always been one of the drivers for considering outsourcing. If saving money is used as the only driver, any outsourcing project will fail badly. There has to be a strategic motivation behind outsourcing in addition to save money, such as …

  • … increasing efficiencies. For example: Outsourcing customer support can provide the opportunity to increase customer service performance by offering extended support hours, adding a potential for increasing revenue streams through up-selling and/or cross selling.
  • … freeing up internal staff to concentrate more on the core competencies of an organization

For any outsourcing project it is imperative that all parties communicate their needs and requirements at all times. Outsourcing does not mean handing of a task, process or business function to a third party and then let leave them with it for all eternity without any follow up interaction. Outsourcing means interaction and communication between all parties at all times, whether it is during the planning and setup stage or whether it is an ongoing interaction after going-live.

Some great resources I recommend in regards to Outsourcing and how it can save you money and improve your overall business processes are: