Posts Tagged ‘Supply chain’

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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.


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Image via Wikipedia

Even the article ”

“Top 10 Risks of Offshore Outsourcing”

by ZDNET.COM is already 7 years old, it still contains valuable advice about offshore outsourcing. Many business are doing any of it and are wondering why their offshore outsourcing projects are failing or do not show the expected result or success.

Today while companies are struggling to reinvent themselves it is even more critical to have a structured outsourcing plan in place. A plan that everybody from the top down agrees upon and is able to follow. Not all organizations have the resources and/or skills and experience to do it right the first time around. In today’s economy it is critical that all aspects are considered and only a person with the respective experience can help to make an outsourcing task or project successful. Talk to somebody who has the experience and has this done already  multiple times successfully.


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.

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.


Disclaimers:

This post was originally posted on the LinkedIn Group “Outsourcing to Ukraine” by Alena Shechkova at the Ainstainer Group and has been republished on this Blog with her consent.

This article is a shortened article of Jérôme Barthélemy “The seven deadly sins of outsourcing

The Seven Deadly Sins of Outsourcing

While outsourcing is a powerful tool to cut costs, improve performance, and refocus on the core business, outsourcing initiatives often fall short of management’s expectations. Outsourcing failures are rarely reported because firms are reluctant to publicize them. However, contrasting them with more successful outsourcing efforts can yield useful “best practices”. Through a survey of nearly a hundred outsourcing efforts in Europe and the United States Jérôme Barthélemy in his article “The seven deadly sins of outsourcing” underlined most failed outsourcing efforts. Here they are:

  1. OUTSOURCING ACTIVITIES THAT SHOULD NOT BE OUTSOURCED. Determining which activities can be best performed by outside vendors requires a good understanding of where the firm’s competitive advantage comes from. Resources and capabilities that are valuable, rare, difficult to imitate, and difficult to substitute for lead to superior performance. Activities that are based on such resources and capabilities (i.e., core activities) should not be outsourced because firms risk losing competitive advantage and becoming “hollow corporations”.
  2. SELECTING THE WRONG VENDOR. Selecting a good vendor is crucial for successful outsourcing. The literature has identified numerous criteria for successful provider choice. A useful distinction can be made between hard and soft qualifications. The first are tangible and can be easily verified by due diligence. Hard qualifications refer to the ability of vendors to provide low-cost and state-of the-art solutions. Important criteria also include business experience and financial strength. Soft qualifications are attitudinal. They may be non-verifiable and may change depending on circumstances. Important soft criteria also include a good cultural fit, a commitment to continuous improvement, flexibility, and a commitment to develop long-term relationships.
  3. WRITING A POOR CONTRACT. Since the 1980s, vendor partnerships have emerged as a model of purchasing excellence. Partnerships replace market competition by close and trust-based relationships with a few selected vendors. The notion that outsourcing vendors are partners and that contracts play a minor role was popularized by a landmark IT outsourcing deal. However, there are pitfalls in partnership management. A good contract is essential to outsourcing success because the contract helps establish a balance of power between the client and the vendor. Spending too little time negotiating the contract and pretending that the partnership relationship with the vendor will take care of everything is a mistake. Drafting a good contract is always important because it allows partners to set expectations and to commit themselves to short-term goals
  4. OVERLOOKING PERSONNEL ISSUES. The efficient management of personnel issues is crucial because employees generally view outsourcing as an underestimation of their skills. This may result in a massive exodus even before an actual outsourcing decision has been made. Firms that contemplate outsourcing must face two interrelated personnel issues. First, key employees must be retained and motivated. A second personnel issue is that the commitment of employees transferred to the vendor must also be secured.
  5. LOSING CONTROL OVER THE OUTSOURCED ACTIVITY. When the performance quality of an activity is low, managers are often tempted to outsource it. If poor performance is attributable to factors such as insufficient scale economies or a lack of expertise, outsourcing makes sense. If poor performance is attributable to poor management, outsourcing is not necessarily the right solution. When an activity is outsourced, it is crucial to retain a small group of managers to handle the vendor. These managers must be able to develop the strategy of the outsourced activity and keep it in alignment with the overall corporate strategy. While vendor management skills are very important, they must also be complemented with technical skills. If no one in the company is able to assess technological developments, outsourcing is bound to fail.
  6. OVERLOOKING THE HIDDEN COSTS OF OUTSOURCING. Outsourcing clients are generally confident that they can assess whether or not outsourcing results in cost savings. However. They are often overlook costs that can seriously threaten the viability of outsourcing efforts. Transaction cost economics (TCE) suggests two main types of outsourcing hidden costs. First, outsourcing vendor search and contracting costs. Search costs are the costs of gathering information to identify and assess suitable vendors. Contracting costs are the costs of negotiating and writing the outsourced contract. Second, outsourcing management costs: monitoring the agreement to ensure that vendors fulfill their contractual obligations, bargaining with vendors and sanctioning them when they do not perform according to the contract when unforeseen circumstances arise.
  7. FAILING TO PLAN AN EXIT STRATEGY. Many managers are reluctant to anticipate the end of an outsourcing contract. Therefore, they often fail to plan an exit strategy (i.e., vendor switch or reintegration of an outsourced activity. Actually, outsourcing relationships can be viewed on a continuum. At one end are large-term relationships where investments specific to the relationships have been made by one or both partners. At the other end are market relationships where the client has a choice of many vendors and the ability to switch vendors with little cost and inconveniences. In this case, there is no real advantage in recontracting with the same vendor.

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.


Are you aware of the fact that offshore IT development outsourcing puts your software rights and confidentiality at considerable risk?

Why is this, you ask? Offshore developers are not bound by the laws of your business location. If your rights are not adequately protected these offshore developers may come back one day and demand royalties for their programs, even if you have paid in full for the software development. Usually in the US it is customary that such contracted work belongs to the end-client.

Under offshore outsourcing has no longer legal validity. Remember offhore developers are not bound by US laws and they may also sell the development at ay time to other organizations without your consent.

It is imperative to protect your intellectual property.

Similiar is valid to off-shore outsourcing of IT Infrastructure. It means somebody on the other side of the world has access to your systems and your data.

The loyalty of any employee within the outsourced provider is naturally not with your organization but to their own, if there is any loyalty at all. If outsourcing to countries like India there may be even some employees that hate you for your beliefs or the country you live or work in.

Due to geographical distance, difference and time and cultural differences there are many things you may not be aware of and don’t know. And what you don’t know can hurt you. I have heard stories of service providers taking whole systems hostage because a client did not want to renew or renegotiate a outsourced contract. You may be completely at the outsourcers mercy, if you are not able to retain some inhouse control.

And here again, remember: US Laws are of no help at this time.

You may say that there maybe laws in the country you have outsourced to that will protect you.

Do you know how enforceable these laws are?
Which actions do you have to take to have these laws enforced?
What is the cost involved?
Judicial systems in other countries and cultures work in different ways than in the US or in your country of business.
All this does not mean that you should not outsource and many companies have done so successfully. It simple means beware of the dangers and risks you are facing. Make sure that you have the necessary means to protect yourself and your business.

Outsourcing, whether onshore, near-shore or offshore done right can provide a huge operational and financial benefit to your organization. Before considering outsourcing, talk to an experienced consultant and also to a lawyer who has the expertise in regards to the laws and regulations in the outsourcing country of your choice.

Always remember to protect your 3 intellectual property rights:

Physical
Electronic
Legal
Don’t make the same mistakes other companies have made during their attempts to outsource and have failed.


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.