A recent report from U of T, Georgia Southern, the Cranfield School of Management, and the IACCM titled on Unpacking Oliver: Ten Lessons to Improve Collaborative Outsourcing that was based on the Nobel Prize winning work of Oliver Williamson had ten great tips for successful outsourcing. The following five are particularly relevant:
- Outsourcing is a continuum, not a destination
To Outsource or Not to Outsource is an eternal question that never has a final “yes” or “no” answer. It’s a never ending trade-off of cost, quality, risk, and value. The best answer today might not be the answer tomorrow and probably won’t be the best answer in five years. It’s a constant re-evaluation.
- Understand the transaction attributes and their impact on risk and price There’s product cost — which is a composition of raw material, labour, and overheads, transportation cost, import and export costs, storage costs, losses due to transit times, disruption costs associated with higher or lower risks, and so on. Any decision that increases or decreases one of these costs will likely increase or decrease risk.
- Use a contract as a framework – not a legal weapon
Contracts don’t have the same meaning in many countries as they have in the US or the UK. In many countries, the relationship means a lot more than the contract, which only serves to define an outline of the responsibilities of both parties.
- Your style of contracting matters; be credible
If you use “muscle” for a quick win, you’ll lose in the long term as the supplier will not be inclined to go beyond the minimum requirements of the agreement.
- Build trust; leave money on the table
Good faith will go a long way to insuring that the supplier not only adheres to the agreement, but works with you to find new ways to save cost and go beyond the mandated service levels.
For a summary of the other five tips, see this great summary over on Supply Chain Brain.