Entrepreneurs and small business people are always looking for creative ways to accomplish more of their business goals at a lesser cost. Many of these firms have turned to outsourcing for manufacturing, engineering, and other functions. Companies that outsource concentrate effort on core areas of expertise or strategic importance, reduce costs, and improve services. Companies that embrace these key points are more likely to experience a boost in sales and reduced commercial operations costs.
Diagram extracted from Bret Caldwell, et.al. (2012)
Success Factor 1: Defining Success
All key stakeholders within an organization (e.g., IT, sales, and marketing management) must agree on the meaning of “success” before outsourcing their operations or services. In addition to cost savings, companies can employ an outsourcing strategy to better focus on core aspects of the business.
Outsourcing non-core activities can improve efficiency and productivity because the outsource partner performs these smaller tasks better than the company itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry and the cutting of overall operational costs.
Appropriate investment upfront that defines clear success metrics is critical to ensure success in outsourcing design and implementation. The constriction between these goals are worth examining. For example, rapid turnaround time might affect labour savings because it may require dedicated or onshore support. As a matter of choice, highly automated processes can be relatively cheaper and offer fast turnaround, but may obstruct flexibility needed for managing ad-hoc requests. As a result, companies are unlikely to achieve low-cost, rapid process turnaround, and flexibility.
After a company defines “success”, KPIs will provide business owners with an immediate overview of the overall performance of their business. In today’s competitive business environment, it becomes highly important for the owners to have real-time data concerning the health of their business. The business owners should measure and track the key performance indicators crucial to the success of their organisation. These KPIs will provide important decision-making information.
Success Factor 2: Transitioning Effectively
Transition of operations to outsourced partners could be complex, as it may disrupt operations. Therefore to ensure transition is done smoothly, current operations should not be disrupted as this may affect the quality of output.
A parallel initiative of the relocation of specific operations from the outsourcing company to the outsourced partner should be carried out seamlessly within the timeline defined in the service contract.
Another challenge that companies may face would be the attitude and morale of the employees during the transition period. Some employees may feel that they are irrelevant and might end up losing their jobs as manpower needs change along with individual responsibilities. However, it is of utmost important to keep key individuals committed and reassured during this transition.
Companies should ensure that those affected by the outsourcing are informed duly and with ample time. For those whose responsibilities change with the new work structure, encouragement and care is necessary so that they remain relevant to the new work model.
Success Factor 3: Strengthening Co-ordination
Once an outsourced partnership has taken into effect, the operations does not cease, an ongoing coordination is necessary to sustain operational excellence. Both the company and the outsourced partners must have the proper tools in place for managing the processes and be able to track and communicate the outsourced operations. There should be a Standard Operating Procedure (SOP) which clearly defines the necessary processes and respective responsibilities. This will aid when new team members are brought on board. The SOP should be clear and not ambiguous where each person interprets in a different way, allowing for parties to be in unison. Proper documentation of changes, tracking and resolution is necessary so that mistakes made can be identified accurately and solved effectively. These documentations should allow for learning so that future mistakes can be avoided.
The interface for the management tools used in these operations must be extremely effective and balanced to be in line with the users’ abilities. It must not be too detailed that it might lead to further complications nor should be too simple that the data collected would be of no value. An effective interface and system would lead to higher coordination between parties with less time wastage and lower cost.
Success Factor 4: Retaining Flexibility
Companies enjoy the flexibility of having outsourced partners adjust staffing levels as businesses needs drawing back and flow. However it is important to have flexible processes and systems. There are two approaches to accommodate flexibility.
First, adopting a system to accommodate flexibility and second, establishing an extremely thorough and careful change-control process for adapting to unexpected changes. Implementing such a system requires anticipating when an operation needs flexibility and doing so in a structured, automated way. Advancing with this level of foresight dramatically improves the ability to accommodate changes without affecting timelines or costs.
It is also important to react and adapt to unanticipated changes such as shifts in market dynamics or new regulations. Changes cause the majority of delays, errors, and cost overruns in outsourcing, and companies should carefully evaluate the business merits against the costs of implementing the change (Note: costs include not only financial costs, but also include risk of delays, quality problems, or process inefficiencies).
An evaluation should guide management on whether it should be in favour or oppose the proposal. A well-structured outsourcing contract can lay the framework for evaluating and managing changes. And though it may seem obvious, it’s important to follow a process: solicit design requirements, make changes using these requirements, complete testing, and then finally deploy any changes.
Success Factor 5: Striving for Improvement
Outsourcing success requires a procedure to ensure improvement for the long run.Analyzing Key Performance Indicator is necessary. KPIs are important in evaluating success (see table below). Meeting or missing KPIs may trigger a financial reward or penalty, as stipulated in a service level agreement (SLA).
Achieving and surpassing goal is a big achievement, and organisations should acknowledge the motivational impact of celebrating successes with the team and rallying around future opportunities for improvement.
When there are failures, such as missed deadlines, quality problems, or cost overruns, the company, outsourced partner, or both must initiate a formal tracking and resolution process. They need to document the issue, analyse the root causes of the failure and resolve the issue permanently at the source. Using KPIs, the team should also periodically evaluate the sales and marketing operations through a formal process (such as Six Sigma) to identify areas for continued improvement.
Table extracted from Bret Caldwell, et.al. (2012)
Conclusion
Companies are pressured to implement more sophisticated strategies while reducing cost due to market conditions. Several companies have initiated exploring commercial operations outsourcing to achieve these two strategies in unison. However these goals may not be achievable if lessons from other industries are not taken into consideration. Implementing a commercial outsourcing plan that incorporates the key success factors will greatly improve the likelihood of a positive economic outcome.
References
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FloritaDijamco Adan. (2018). “Techniques for Managing Central Supply Store in the Healthcare Sector”. Retrieved from SIPMM: https://sipmm.edu.sg/techniques-managing-central-supply-store-healthcare-sector, accessed on 15/09/2018.
Mickey North Rizza. (2015). “The five secrets of supplier relationship management”. Retrieved from https://www.cips.org/supply-management/opinion/2015/february/the-five-secrets-of-supplier-relationship-management, accessed on 15/09/2018.
NurazyyatiJaffar (2017). “Key Strategies to Build an Effective Supplier Relationship Management”. Retrieved from SIPMM: https://sipmm.edu.sg/key-strategies-build-effective-supplier-relationship-management, accessed 14/09/2018.
Testing, Information Age (2013). “18 secrets of successful outsourcing”. Retrieved from https://www.information-age.com/18-secrets-of-successful-outsourcing-123456826, accessed on 15/09/2018.
