Strategic Outsourcing - Advantages And Concerns

Strategic outsourcing is the kind of outsourcing that is done on a strategic level. As per this method, the control of a process or a product is transferred to a third party service provider. These providers may provide the services at a remote location or at the same place - whichever is more convenient, and more importantly, more cost-effective for the company. This type of outsourcing has been found to yield the best results for their clients' businesses. Through its ultimate services, they in fact add value to the core business processes of the company.

Advantages

There are plenty of advantages of strategic outsourcing. These valuable services have both tangible as well as intangible benefits, which may include the following.

* Ease of management

* Free up of internal processes

* Lower manpower costs, and

* Various competitive strategic benefits

How To Make The Best Use Of These Services?

However, in order to make the best use of the strategic outsourcing services, you will have to take several factors into careful consideration. For example, it is very important for you to understand that availing such services can be beneficial for a company only if they are capable to bring some tangible business benefits. It means such things must be planned properly. If you have not planned things in a proper way, it may bring some unpleasant results, which may include increased costs for the firm, theft of customer information or intellectual property, delayed deliveries, decreased quality, and even lowered customer satisfaction levels.

Outsourcing Of Finance And Accounting Services

The outsourcing of finance and accounting services has become very common. In the recent years, the number of such companies has been increasing rapidly. Most of them choose BPO firms located overseas for these types of strategic outsourcing services. However, since finance and accounting are very serious matters for any company, and any error in the process may cause disaster for the entire firm, it is very important to plan such outsourcing very carefully. Just because a BPO firm is willing to provide you such services at a low cost, it does not mean that they are best choice for you. You will have to make sure that the outsourcing firm is capable of providing you efficient services in a timely manner.

If things are been planned properly, such strategic outsourcing services can be very advantageous for the company. Besides accruing substantial savings, it may also help them improve the efficiency of the processes. Some of the services that can be outsourced in this regard may include training of accounts staff and software assistance, payroll processing, ledger maintenance, preparation of financial statements, audits, and book-keeping - just to name a few.

Common strategies that should be used in Outsourcing

A successful transition to outsourcing with a 3PL is a process that depends on a variety of factors that differ from business to business. The decision to outsource will depend on the company's operation plans, goals, product lines, expansion, acquisitions, etc. Before making this decision, it is necessary to conduct a comprehensive study and document the advantages, challenges and cost benefits of outsourcing.

Once a decision has been made to outsource, the next step is to adopt a scientific selection process and appoint a team of consultants who are specialist in this area to assist in short listing and recommending the suitable 3PL that fits all your requirements at the best possible price. Evaluating and selecting the right 3PL partner is a challenging and risky process for even the most experienced companies. While this process can be challenging, a systematic approach and a well developed outsourcing strategy will clarify your needs and alternatives and positively impact the final decision.

The following strategy can be used for selecting a 3PL for your company:

SET OBJECTIVES. Clear business objectives for choosing a 3PL provider should be developed and prioritised. This will guide the selection process and assist in evaluating the success. The type of provider relationship that will be needed should also be determined.

DETERMINE CUSTOMER SERVICE REQUIREMENTS. Conduct upfront research to identify a select list of preliminary 3PL candidates. All eligible 3PL companies should be surveyed to determine facility locations, warehousing and distribution strengths and weaknesses as well as their service areas. This will help in eliminating companies that cannot adequately address your functional specifications. Developing a detailed method for critically evaluating the capabilities of 3PL candidates can make or break an outsourcing selection process.

SOLICIT REQUESTS FOR QUOTATION. The request for information (RFI) or quotation (RFQ) is a tool to gather information and measure the strengths with respect to capabilities and cost effectiveness of outsourcing. When selecting a 3PL, the RFQ document should be as detailed as possible and it should be accompanied by all relevant documents about the project and expectations. The RFQ should include a detailed description of the areas to be outsourced including: the scope of the contract, locations, facilities, departments; information on volumes involved, number of deliveries, warehouse sizes, number of items, etc.; the logistics tasks to be performed; the level of performance required. Furthermore, the RFQ should indicate a format for price quotation and a timeframe for responses.

VISIT THE POTENTIAL PROVIDER'S FACILITIES. Facilitating tours of a potential 3PL provider's facilities and interviews with their existing clients is an important next step. Experiencing the company's facilities gives you a chance to determine how flexible their operation is and their willingness to work to meet your needs as they change.

PREPARE LEGAL DOCUMENTATION. Contract negotiation is a pivotal step in a 3PL relationship. It is necessary to document what is agreed and what is disagreed clearly in order to avoid ambiguity in the relationship. It is also necessary to determine if the 3PL is accountable for the level of accuracy and product conditions and establish what party will finance improvements if system upgrades become necessary. The contract should address all possible friction points and address them with remedies. Exit strategies such as mediation and arbitration should also be part of a 3PL contract.

DEVELOP PROJECT IMPLEMENTATION PLAN. There should be a detailed logistics outsourcing project implementation plan as well as periodic reviews in place to make sure everything is on track and there are no drastic deviations in the scope of the project. The project implementation is the process of translating thoughts into actions and it requires active co-operation and co-ordination on both sides of the relationship. Project implementation includes IT integration, operating procedures customisation, understanding the service measures, defining the escalation process etc. All these activities require precise handling and a dedicated team. The 3PL companies usually have their own project implementation methodology. What is critical here is customisation, to suit the specific requirements and deliver agreed service levels.

DESIGN EFFICIENT PERFORMANCE MEASUREMENT SYSTEM. During the startup phase of the outsourcing relationship the customer must take the initiative to develop performance measurements and reporting methods that support the company's business goals for the outsourcing strategy. The 3PL's performance should be measured on qualitative and quantitative performance measures regularly. Ideally, financial, productivity, utilisation, quality and cycle time measures should be considered. One of the objectives of performance measurement is not just to measure the performance but also initiate necessary corrective actions with regard to negative performance and explore the possibility of gain sharing in the case of positive performance so as to encourage continuous improvements. Regular performance measurement presents the perfect opportunity for both the customer and the 3PL to communicate effectively to make the outsourcing relationship a great success.

TRUST AND COLLABORATION. The success of an outsourcing relationship between a company and the 3PL provider requires a combination of trust and collaboration. Trust determines the level of flexibility a company can allow the 3PL in managing the operations to the best of their capability. The outsourcing arrangement can be truly successful only when there is a high level of trust between both parties in the business relationship. Unless there is this sense of trust and collaboration in the client-3PL relationship, it most certainly will fail.

Companies who have managed to build a healthy structure of trust within their organisations are able to create a healthy structure of trust with their 3PL providers. Key to this is the understanding within the client organisation that there is a single set of goals and there has to be a commitment to support and live the goals. Once this infrastructure of trust has been created, then the client-3PL relationship can start to produce magnified value, and prove to be true win-win.

In order to build trust in your relationship with a 3PL it is crucial to select the right 3PL partner that can meet your particular requirements and with whom you can strengthen your relationships. Thus, the key to a successful logistics outsourcing is a well-organised process of selecting and communicating with the potential 3PL providers.

Trends On Outsourcing Strategies

Contrary to what some naysayers of outsourcing are saying, the industry is alive and well, and it seems that it's going to stay for a long while yet. Competition in outsourcing is becoming very stiff now, what with the industry expanding, as is what professional services firm Pricewaterhouse Coopers surmised in its Jan, 2010 report. Everyone wants a piece of the cake, but when everyone's toting the same salver, it's a bit difficult to decide to whom to give a piece to.

Which then begs the question: What strategies are some of the outsourcing companies employing now in order to differentiate themselves from the competition? Well, taking a look at the recent outsourcing news, here's what we found:

They're Forming Partnerships

"Strategic partnership" is the term, and that's what these companies are doing now, take Fortify and Keypair Technologies, Liquent and TAKE Solutions (NSE:TAKE), Hexaware (NSE:HEXAWARE) and EBaoTech, or the most well known of the bunch, Wipro (NYSE:WIT) and Main Street America Group, who all announced new strategic partnerships on March 4. All of these companies forged their strategic partnerships to help them broaden their reach and improve their offerings.

They're Refocusing their Business

The very nature of outsourcing is that it allows you to focus on your business; outsourcing companies themselves should already be experts with this. Thus, it wasn't so surprising when the news came out on March 4 that Convergys (NYSE:CVG) had sold their HRM line of business to NorthgateArinso. With this move, Convergys will be able to focus on their business, and as their CEO, Jeff Fox put it, "[the move] provides an opportunity for Convergys to focus our investments and efforts on growing our Customer Management and Information Management businesses." And Convergys is not the only one who's refocusing their business. Infosys (NASDAQ:INFY), on March 5, made it known that they are now planning on having a third of their revenue come from new services such as cloud computing and platform-based offerings. This is in line with adopting a ‘pay-per-use business model' wherein customers will be paying only for what they use, and what results they achieve. As Infosys' CEO Senapathy Gopalakrishnan so ably put it, "It increases the risk, and the way we can make money is when the platform is shared. We can't make money on a single deal because competition will make sure that our margins are very less. And you have to remember that we need to share these revenues with other vendors." By focusing on less ventured waters, Infosys is ensuring that they'll get a nice foothold in that market.

They're Going Green

Going Green is now a big issue in many countries, including the United States and this doesn't just go for the big companies. Even right down to the home makers, people are finding the environment a big issue and a noteworthy cause. Which is why the move done by Xerox (NYSE:XRX) company, ACS, merits one for the books as an effective strategy, not to mention that they're also helping the environment. On March 4, ACS unveiled their newest green effort which is the state-of-the-art green data center at Telford in the UK. The center boasts of "the best-of-breed technology with the highest caliber of green credentials," and the ability to save up to 70% of energy costs while reducing the carbon footprint by approximately 4,200 metric tonnes annually. With this impressive data center, which was designed and built by IBM (NYSE:IBM), ACS is clearly showing the public their stance and support for becoming more environmentally friendly, ushering the company into the public's, or any potential clients, good graces.

They're Keeping Their Ear to the Ground

What about us you ask? Well our strategy is that we keep our ear to the ground. Information is essential and keeping up to date on your competitors and prospective clients is a must. Of course it's not always easy to do so when there are a million things to do, and another million things are happening in the world, not just in outsourcing. But it really does pay to be informed. With us, we offer email outsourcing news subscription service as a value added service, which is not only good for, well anyone who's interested in outsourcing since the service is free and open to anyone, but also with us because this allows us to go through the news on a daily basis and see what's up in the world of outsourcing.

These are only four, from a span of two days mind you, and I'm sure there are hundreds of different ways outsourcing companies can differentiate themselves from their competition. The only question now is do you use them?