I recently read an article titled, Eight best practices for supply chain outsourcing. It explained how some companies have adopted these best practices while others have struggled. It boils down to outsourcing the right process to the right partner and establishing clear lines of communication.
The difficulty often lies in minimizing the risk of the outsourcing decision. One sure fire way to reduce the risk is by treating your partner as an extension of your business,, whereby, information is shared freely without latency. A company cannot make good decisions based on data that is a week old. Supply chain executives will often challenge receiving data related to the outsourcing process since managing that part of the business is what they are paying their partner for. That is true, but if you are accountable to your customer, you need to have some level of understanding of your business including (and especially) the outsourced pieces. Be selective on what you need to see, but see it often! Let your systems monitor the business and alert you when you need to take action.
The article refers to the due diligence that must be performed when selecting the right partner, aligning strategies, and considering more than cost when making your selection. This is very true – you can pull the trigger on an outsourcing partner relatively quickly, but pulling out work and moving to another partner can have serious consequences, affecting fulfillment and cost.
Service level agreements (SLA’s) are critical along with creating the appropriate key performance indicators (KPI’s) to track performance and project future performance. For example, if your partner is manufacturing for you, and you provide them with a new forecast, you need to understand the implications of that forecast before execution commences. You may have just created an obsolescence issue worth millions of dollars that could have been mitigated if you knew sooner. This is why visibility into your partner’s operations is so important in this example. Often when things go wrong in an outsourcing model, there is considerable finger pointing, and resources are wasted tracing back to root cause. The end result is non-value added activity. Understanding how your actions today will impact all of your KPI’s now and in the future eliminates this waste. Look forward rather than backward.
An important aspect of any outsourcing relationship is trust. Progress is being made. However, this will continue to be a challenge as both parties are so focused on their own profit and loss. My colleague, Trevor Miles, has made some excellent points on this topic in his post: Do you trust yourself to collaborate? The real barrier to collaboration is not technology, but trust.
Companies that have struggled with outsourcing or are considering it as a new strategy will benefit from the referenced article.
What are your thoughts on outsourcing?