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Best Practices in Supply Chain Outsourcing

by: Ronald Escanlar

Wednesday, September 14, 2011 |

Best practices that can help supply chain executives

Outsourcing as a business strategy has gained prominence even in the supply chain industry, where outsourcing fills in the inherent inadequacies of small companies and leverages the comprehensive capabilities of multinational companies. Research firm Gartner, Inc. has culled eight best practices that can help supply chain executives in identifying, evaluating, and choosing the right outsourcing service providers for their operations.

Best Practice No. 1. Create an outsourcing strategy that will integrate into your existing supply chain strategy.
Since the outsourcing service provider will be essentially integrated into the supply chain, strategically, any decision with regards to the scope and magnitude of outsourcing must support the overall operation of the company. At the onset, the outsourcing service provider must be willing to work hand-in-hand with the client-company in improving profitability.

Best Practice No. 2. Ensure that the company is ready to manage an outsourced service provider.
Before setting out to engage the services of an outsourcing service provider, ensure that there will be someone in the corporate hierarchy who is sufficiently equipped to manage outsourcing partners. Supervising an outsourcing service provider is different compared to managing an in-house department. Besides, there are different types of outsourcing services, and a company keen on contracting outsourcing services must be familiar in getting the right outsourcing deal for its requirements.

Best Practice No. 3. Be clear on what you need to outsource.
Decide on what processes to shift to an outsourcing service provider. Essential operations that involve sensitive company data, such as intellectual property (IP) and confidential customer data, may or may not involve an outsourcing service provider. Among providers, competition is so fierce that outsourcing companies are combining and expanding service offerings in an effort to attract more companies into the outsourcing fold.

Best Practice No. 4. Outsourcing is more than cost reduction.
An outsourcing deal that is primarily pegged on reducing cost may be sacrificing other important factors, such as quality assurance and customer service. Some companies have tripped on the mistaken notion that outsourcing deals will solve their problems and return them to profitability. Aside from cost-service analysis, companies considering outsourcing must also factor into their risk assessment the following: quality control, customer feedback, and past performance.

Best Practice No. 5. Carefully consider the variety of risks involved in outsourcing locations.
Consider the location - outsourcing deals are, more often that not, offshore, too, in nature. In Asia alone, IP legislation and enforcement differ widely between India, China, and the Philippines. Corruption in the public and private sectors in the three countries mentioned also varies.

Best Practice No. 6. Open communication channels are vital to an outsourcing relationship.
Communication and transparency, especially involving personnel movement, processes, and capabilities, are important in maintaining an efficient supply chain outsourcing deal. Surprises are not needed in an outsourcing deal that places a premium on predictability and reliability.

Best Practice No. 7. Be clear on managing service level agreements and performance indicators.
Documentation is an important part of any partnership. With clear documentation, qualitative and quantitative assessments can be quickly made and brought up in regular meetings. The impact of the supply chain outsourcing can be safely measured against the performance of the company.

Best Practice No. 8. Take advantage of the outsourcing service provider's skill and experience.
In any outsourcing deal, sharing is as important as having a clear service level agreement (SLA). A partnership between companies is meant to guide both companies to profitability - a mutual relationship that aims to assure mutual growth. A client-company will gain from a specialized outsourcing service provider who has the tools and the immediate know-how that the client-company can take advantage of, instead of having to invest time and resources to have those same skills and knowledge within the company.

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