Category Archives: Outsourcing

George Kimball’s Tips for First-Time Outsourcing Buyers

Over on Horses for Sources, Phil Fersht recently ran a great piece on practical outsourcing tips over a pint which contained advice from George Kimball that is definitely worth your time.

The article contained nine essential tips for first-time buyers which can determine the difference between success and failure, including these too-often overlooked tips:

  • Get good advice.

    Don’t try to do it all in-house, and, definitely, don’t just “turn it over to the experts”. No outside advisor will know your business as well as you do. You need to find an outside advisor you can work with who will work with you to create the best agreement for your specific situation, as there is no one size fits all agreement for outsourcing.

  • Prepare to manage the contract and relationship.

    Weak governance — too few people, without sufficient clout, and accustomed to managing operations, rather than relationships — remain the single, most common, avoidable error among customers. A team needs to be built before the contract is signed and needs to be involved in the deal making process.

  • Tone matters more than people suspect.

    Not only does collaboration require good working relationships built on candor, civility, and trust, but you need to remember that the people you will be working with not only come from a different culture, but, likely, one that is much older than yours. (For example, civilization in China and India goes back thousands of years. They don’t want to deal with “children”.) Furthermore, the world is changing, and in just a few years, the “low cost” countries of today will be the economic powerhouses of tomorrow.

For the other six great tips, check out George’s practical outsourcing tips over a pint and if you really want to dive in, he recently published Outsourcing Agreements: A Practical Guide.

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It’s Time To Re-evaluate Your Supply Strategies

Late last year, CAPS Research released a report on “Supply Strategy Implementation: Current State and Future Opportunities 2009” that was based on data from 130 supply organizations across 26 industries. In this survey, the respondents rated the overall importance and implementation importance of 23 different strategies. The results are a little scary: the six lowest rated strategies (where the lowest rated strategy is deemed to be only 77% as important as the highest rated strategy) are the strategies that should be given the highest importance. While the following six strategies, that were ranked highest, are arguably important:

  • Vision, Mission and the Strategic Plan
  • Commodity & Supplier Strategy Process
  • Strategic Cost Management
  • Engagement by Corporate Executives & Business Unit Leaders
  • Human Resource Development
  • Procurement & Supply Organization Structure & Governance

not a single one addresses how you will actually contain costs during a sourcing project. While each of these organizational enablers will improve the capabilities and efficiency of your team, they don’t address the proper way to tackle strategic or high opportunity categories. What’s needed are the following six strategies, which were, unfortunately, ranked lowest:

  • Collaborative Buyer/Supplier Development & Continuous Improvement Collaboration will enable the identification of additional opportunities.
  • Standardization of Systems, Components & Processes Standardizing on parts reduces category management complexity and associated costs.
  • E-Sourcing & Supply Chain Strategies This is where the cost savings really kick in. A well executed e-sourcing project will generally save between 5% and 15% above and beyond what will be obtained with traditional methods. And if advanced techniques, like strategic sourcing decision optimization, are applied, you’ll save an additional 12%, on average. Plus, a well defined supply chain strategy will generally deliver better results than a project undertaken without a strategy.
  • Strategic Insourcing/Outsourcing Identifying those categories you are best equipped to handle and those categories that you are least equipped to handle can result in significant cost reductions as you will be able to outsource those categories you are least equipped to handle to specialists.
  • Environmentally Sustainable Supply Chain Management The times they are a changing’ and you have to be green to save green. Seriously. Run afoul of regulations or ignore your social responsibility, and your supply chain financial statements will soon be covered with red.
  • Supplier Integration into Customer Order Fulfillment A business exists to serve its customers. Integrating the supply chain end-to-end will improve service levels while decreasing associated costs.

So rethink your strategies — and maybe you’ll see your bottom line improve.

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Is Egypt Trying to Make BRICE out of BRIC?

Late last year, I noted how “Made in China”, for a growing number of operations, is now “Made in Egypt” as even China is adopting outsourcing. According to a recent Industry Week (Made in China now Made in Egypt) article, over 950 Chinese companies have set up operations in Egyptian free zones and made an investment of about 300 Million to take advantage of cheap labor, investment incentives, and unrestricted exports.

But an even bigger story, as pointed out in a recent paper in “Education and the MBA in the outsourcing sector” by Mark Kobayashi-Hillary of the Egypt ITIDA, is probably the imminent rise of IT Outsourcing In Egypt, which, despite only having 77 Million people to India’s 1.1 Billion, has a large annual graduating class of 330 Thousand students, with 63 Thousand graduating in commerce, 17 Thousand graduating in Engineering, and 14 Thousand graduating with science degrees. Within this pool, you find a large number of technologically skilled, achievement-focused, and multi-lingual students (who also speak English, French, German, Spanish, Italian, Portuguese, or Dutch) suited to the IT services sector. Furthermore, the government is funding a number of workforce development initiatives (which it also initiated) that is currently contributing 6,000 to 8,000 graduates for the IT-BPO industry annually, with plans to scale the efforts until Egypt is producing 40,000 graduates suitable for IT-BPO by 2015.

Furthermore, as highlighted on the “Outsourcing Intelligence Network”, the Egypt IT-BPO Industry aspires to export revenues of 1.1 Billion US this year. And while there are single long-term multi-year outsourcing deals that exceed 1 Billion in the US, for what was, until recently, a relatively unknown player, that’s significant, especially when you consider that Cairo was recently ranked 7th in a recent study by Global Services in its list of the top 50 emerging outsourcing cities. This followed a ranking of “Offshoring Destination of the Year” by the UK National Outsourcing Association in 2008. And, over on Horses for Sources, Ashutosh Vaidya, in a conversation with Phil Fersht, notes that he believes that new emerging countries like Egypt will play a role — in a Hub and Spoke strategy, which was echoed by Phil in a comment.

And even the Wall Street Journal recently had a blog entry on Egypt: Land of Pyramids, the Sphinx … and Outsourcing? which noted how Egypt just cracked Gartner’s list of the top 30 countries for outsourcing and how Intel, the innovative company which transformed its operations from a memory producer to chip producer and shook the industry (and made a market where it’s all about the Pentiums) recently announced it is going to open a production centre in Egypt.

So while Egypt may still be a long way off from making BRICE out of BRIC, it looks like that is their intent. What do you think?

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Are We Throwing It All Away?

Someday you’ll be sorry
Someday when you’re free
Memories will remind you
Of what was meant to be
But late at night when you call for help
The only sound you’ll hear
Is the sound of your voice calling
Calling out for help

Just throwing it all away
Throwing it all away
And there’s nothing that I can say

With apologies to Phil Collins, that slightly modified verse just keeps playing over and over again in my head. This recent article in Industry Week on “optimizing outsourcing relationships for today’s market realities” has me shaking my head. Manufacturers signed contracts to outsource more than $10.4 billion worth of IT and business process services in the last six months of 2009. 10.4 Billion! That’s an awful lot of services being handed out and an awful lot of knowledge at risk of disappearing. Not that I have anything against augmenting your capabilities with those from best-in-class organizations, but the way most organizations approach outsourcing, where it’s just thrown over the wall and forgotten about until all knowledge of the service disappears from organizational memory, scares me.

And ever since I saw that ridiculous article that said we should “outsource thinking”, I’m on edge. We’re on the precipice of a new age, but if we’re not careful, it will be a very dark age in American history. Innovation got us here, and without innovation, which depends on thinking, we’ll fade away.

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