Daily Archives: December 8, 2009

Is AstraZeneca Building the Center of Excellence Model for Emerging Country Sourcing?

A recent article on the Shared Services & Outsourcing Network on What Drives a Best Practice Sourcing Strategy contained an interview with Karen Mansell, the Head of Corporate Procurement and Business Process Outsourcing at AstraZeneca. While most articles of this sort don’t get my attention, as I already know what should drive a best practice sourcing strategy (just like you, as a regular reader of leading supply chain blogs), there was one paragraph that did get my attention as I was skimming through it.

Six questions in, the SSON asked about changes in sourcing behaviour as a result of AstraZeneca’s new outsourcing strategy, and related deployment methodologies, which puts everything on the table as an outsourcing candidate, including R&D. The response referenced AstraZeneca’s low cost country strategy and their presence in China and India. A low cost country sourcing strategy to India and China normally wouldn’t get my attention, as just about everyone is still jumping on that bandwagon whether it’s the right choice or not, but the article noted that AstraZeneca is looking at growing capability in all their emerging markets, especially from an original delivery centre point of view.

As a result, AstraZeneca is re-evaluating what supplier management looks like coming out of those areas and trying to put some supplier management on the ground, alongside the preferred supplier relationship. They’re trying to get closer to the supplier base, understand what innovation and insights look like, marry them up to business requirements, and drive aggressive supplier development programs.

This is the foundation for emerging markets done right! Get on the ground, get close to your supply base and improve their capabilities so you can manufacture for, and sell into, the local market. Then it’s not just outsourcing, it’s emerging market development, and that will be much more profitable in the long run. Logistics costs are only going to run-up again and labor costs are going to keep rising as the “emerging” markets of India and China take their place as the second and third largest global economies as the century progresses.

Share This on Linked In

Kate Vitasek on Game Changing Rules for Outsourcing (Vested Outsourcing)

Today’s guest post is from Kate Vitasek, a lead researcher and faculty member of the University of Tennessee’s Center for Executive Education and the founder of boutique consulting firm Supply Chain Visions. (E-mail Kate.)

For the past two years, I have had the opportunity to participate in a University of Tennessee research program, funded by the Air Force, to formally study companies that were employing performance-based approaches for outsourcing. The research has uncovered that there is a set of unwritten rules companies can apply to develop mutual symbiotic performance partnerships where both parties in the outsourcing relationship unlock win-win solutions to achieve much higher levels of performance and cost savings.

We have distilled our lessens and approach into what we call Vested Outsourcing — because it is typified by an outsourcing relationship where both parties have a stake in maintaining the arrangement and where both parties work together to create a performance partnership which takes both the company outsourcing and the service provider to new levels of cost, service and profitability not realized by traditional outsourcing models.

While no two Vested Outsourcing partnerships are alike, all good ones achieve a performance partnership based on optimizing for innovation and improved service, reduced cost to the company outsourcing, and improved profits to the outsource provider. This is what we call the performance pyramid. This trend towards performance partnerships has evolved to where outsourcing companies and service providers work together to develop a performance-based solution where both parties’ interests are aligned — and both parties receive tangible benefits (either through tangible or intangible incentives).

The heart of a Vested Outsourcing contract is an agreement on desired outcomes that explicitly states the results on which both companies will base their outsourcing agreement. A Vested Outsourcing agreement clearly defines financial penalties, or rewards, for not meeting, or exceeding, agreed upon desired outcomes. In the agreement, regardless of what is being outsourced, the outsourcing partner has the ability to earn additional financial value (e.g., more profit) by contractually committing to achieve the desired outcomes. Simply stated: if the outsource provider achieves the desired outcomes, they receive a bonus.

While many organizations tout they have “partnerships” — our experience and research found that most organizations have an internal desire to optimize their own self interests. This is often known as a WIIFMe approach (What’s in it for Me). How could they not when we are ingrained with “winning” from early childhood and most business schools and law schools focus on “winning”.

The very word partner implies that there are two sides. The progression towards a Vested Outsourcing agreement must focus on creating a culture where both parties are working together to ensure the ultimate success of each other. The mentality should shift from an “us vs. them” to a “we” philosophy, or what we call a What’s in it For We (WIIFWe) philosophy. For many companies, a win-win approach is a learned behavior — and they have to unlearn their conventional approaches and ways of thinking. In a Vested Outsourcing relationship, the organizations must work together upon a foundation of trust where there is mutual accountability for achieving the destined outcomes.

Five key rules set the stage of a sound outsourcing partnership.

  1. The business model is established based on outcomes versus defining transactions.
  2. The company outsourcing needs to feel comfortable describing the “what” and delegating the “how” to the outsource provider — and the outsource provider must be comfortable signing up to take the risk to deliver the “how”. Both organizations must constantly seek to overcome roadblocks in the processes, infrastructure, technology and people that prevent mutual success.
  3. Carefully aligned, clear and measurable performance objectives are used to monitor the desired outcomes.
  4. A balanced pricing model that includes mutual incentives and rewards, optimized for cost versus service trade off.
  5. The relationship is based on insight, versus oversight governance, that empowers both parties to pursue improvements that will deliver better performance, higher profits, and lower total cost of ownership.

The five key rules of a sound outsourcing partnership set the stage for companies to take their outsourcing relationships to the next level — a true vested performance partnership.

In Vested Outsourcing, the organizations work together upon a foundation of trust where there is mutual accountability for achieving the outcomes. Through the careful alignment of performance objectives, accountability, and control, the service provider, while absorbing additional risk, is empowered to pursue improvements that will deliver improved performance, higher profits, and lower total cost of ownership.

Vested Outsourcing uses the power of free market innovation to improve the outsourcing relationship. This can be challenging to achieve, but the Vested Outsourcing journey should always strive to arrive at this idealized end state to achieve the performance pyramid — where both the company outsourcing and the outsource provider are consistently applying a WIIFWe foundation and applying all five of the Vested Outsourcing rules.

Companies with a desire to explore Vested Outsourcing further, can visit the Vested Outsourcing website, hosted by the University of Tennessee, and download an excerpt of the upcoming book being published by Palgrave Macmillan titled Vested Outsourcing: Five Rules that will Transform Outsourcing.

Thanks, Kate.

Share This on Linked In