Category Archives: Outsourcing

Want to Kill Quality, Outsource!

It’s probably getting cliche by now, but it’s often true. And I enjoyed this recent article on how “companies find outsourcing can backfire as quality, customer service suffer” in the Journal Sentinel Online, especially when it said that outsourcing isn’t always the best solution and, in some cases, it’s laden with problems and disappointments.

According to the article, a new business survey from the ASQ (American Society for Quality), found that 55% of companies surveyed were substantially dissatisfied with their outsource provider in the areas of innovation and making process improvements. A mere 34% said outsourcing provided a good value and only 41% said outsourcing met performance metrics.

While outsourcing can be a quick fix to lower costs, in the long run it can backfire — sometimes badly. Communication problems, poor customer service, slow delivery times, and quality control are just some of the pitfalls. And the reality is that when quality, the cost of freight, delivery times and other factors are considered, sometimes it’s cost-neutral or cheaper to make products yourself, in U.S. factories, rather than outsource them overseas.

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There’s No Such Thing As Low-Cost Country Outsourcing

The Business Continuity Institute (BCI) recently released the main results of its study across 35 countries that found that 70% of organizations recorded at least one supply chain disruption in 2010. While this is not news, as the statistic has been this high for a few years now, what is news, as highlighted in a “Procurement Leaders summary” is that where businesses have shifted production to low cost countries they are significantly more likely to experience supply chain disruptions, with 83% experiencing disruption. In other words, your chances of a disruption are greater than 4 in 5 if you use low-cost countries! With an average disruption cost exceeding $700,000 ten percent of the time and an average impact on stock price of 9% (source: PWC), there’s nothing low-cost about low-cost country outsourcing once you factor in the losses from the inevitable disruptions!

Then, when you add the fact that 1 in 5 disruptions result in (serious) damage to your brand, you need to ask yourself why so many of you still believe in this fairy-tale. It’s equivalent to looking for the pot of gold at the end of the rainbow. You’re not going to find it.

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Will CLM, SoW, and VMS Stem the Outsourcing Tide, or Will they Just Accelerate it?

One of the major areas of focus today in services management is the area of Contingent Labour Management (CLM) / Statement of Work (SoW) management, and Vendor Management Solutions (VMS). Big companies with big workforces, and especially big companies that use a lot of temporary labors, contractors, and service providers, not only spend a lot on people, but spend a lot on people who do nothing but manage the workforce — recruiting, hiring, support, project/contract management, layoffs / end-of-contract transitions / firings — as this has traditionally been a very time-consuming and cumbersome process (with all the rules, regulations, and firings, you can literally suffocate under the mound of paperwork you produce).

As a result, many large companies, in an effort to keep the process, and their spend, under control have elected to either outsource entire functions or hand over their management to a Managed Services Provider (MSP) [like Manpower or Kelly Services] that specializes in workforce management processes and can bring best practices and best-of-breed technology to its management. In some cases, it was the company’s only option as their area of expertise did not include staffing and their costs were spiralling out of control.

However, the state of affairs today is not like it was in years past. Modern CLM / SoW / VMS systems are streamlining the process by leaps and bounds, taming the beast, and allowing today’s HR personnel to focus on the people, and not the process. As a result, a task that may have been insurmountable for a small HR team ten years ago can now be easily managed today by that same team with the right technology and training. An organization that once had no choice but to outsource workforce management can now pull it back in house. But will they?

Or will they take advantage of the fact that your average MSP already has this technology employed, and in some cases, has a VMS solution that allows them to manage your workforce while keeping track of their performance. They’re used to it, they’ve trained on it, and they’ve already mastered the current best practices. They can be locked, loaded, and ready to go in a matter of days — as long as you’re willing to give up control.

So will the average organization take back control and bring their workforce management back in house with modern CLM / SoW / VMS systems, or will these systems just accellerate the outsourcing craze and the dominance of the MSPs? What do you think?

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Outsourcing? Two Years to Turnaround!

While short and sweet and filled with a number of (now) obvious pieces of advice, a recent article over on CIO Insight on “Nine Things No One Ever Told You” [about offshoring] made two great points that many articles miss:

  1. Process Matters and
  2. It Takes Time to Get a Stable, Productive Processoften 18 to 24 months if you and your partner are new to outsourcing!

In other words, if this is your first time, expect that it will take two years to get the full extent of the payback which might not be as much as you expect after infrastructure investments, change management costs, travel, and rework are factored in (which will often be [much] more than you expect).

And process matters. Without sound processes and standards in place to keep the business running smoothly, it is more work to manage multiple relationships, each of which will function poorly without a strong foundation. So, if you still haven’t realized that the outsourcing craze has finally stopped and decide you want to chase after the runaway train long after it has left the station, remember this: Two years to turnaround. Ouch!

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Question: Is There a Place for ESO in Your Supply Chain?

A recent article over in Global Services on “bridging the divide” indicated that there is a rising demand for ESO, Engineering Services Outsources, but a shortage of talent. In fact, they claim this is a 60 Billion market. I’m not sure I agree.

While outsourcing has been continuing to move up the value chain, from back-office functions to customer support and service to system implementation and configuration, for your average manufacturing or consumer goods company, engineering services are not only at the top of the value chain, but represent the core of the company’s IP and operations. (And while some would argue marketing is equally as valuable, since there’s no value produced if the product doesn’t sell, that is typically augmented by, or outsourced to, specialist agencies, who don’t have anything without the unique product or service, built by the engineers, to back them up.) As a result, I’m not sure that most companies are ready to even consider Engineering Outsourcing as a possibility.

Furthermore, if your company is built around the manufacture or production of goods, moving to ESO isn’t as easy as simply augmenting or replacing an internal team with an external team. If you’ve been doing engineering internally, then you have a considerable amount of money invested in assets to support engineers — equipment, hardware, software, and specially designed or outfitted locations. What do you do with all that? The software is licensed to you. The hardware and equipment are installed at your location. And the only way you’re going to get what your building is worth (as you would have invested a considerable amount in the power grid, specialized hookups, etc.) is if you can find another company making a similar product who’d be able to take advantage of the infrastructure.

And then there’s the IP issue, especially if you’re outsourcing internationally. Yes, you own the design, but the end customer isn’t going to buy a design. They’re going to buy a product. And if the outsourcing firm borrows from your IP to make a competing product at a lower price point, then your potential customer base could shrink considerably, especially if they get their product out first (possibly licensed through a related, but distinct company). And while you could probably get an injunction pretty quick in your home country (if it has good IP laws), how much are you going to be able to accomplish in the rest of the world in a short time frame?

In other words, while I can see the model starting to take off with new start-ups who can’t afford the infrastructure or who can’t afford to hire a whole team when the immediate plan is to produce a single product and see if it takes off (or with companies trying to quickly expand into new markets with similar challenges), I believe it will be a while before ESO takes off in big established companies who already have large teams in place.

Does anyone have a differing opinion?

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