The term "outsourcing" has gone through an interesting evolution.
Ten years ago, many viewed outsourcing as a dirty word – as in the context of American workers losing their jobs. Then outsourcing was something most organizations practiced to one extent or another, but not all that effectively.
Next it became a standard practice for most companies, realizing that they could grow more successful and client-centric by focusing on their core competencies and leaving the experts to focus on areas of their operations that were, well, better left to the experts.
Now, in these shifting economic times, I see many firms who have outsourced operations taking an even closer at their outsourcing providers in an effort to reduce the number of providers they are dealing with, trim costs and provide the best customer satisfaction.
I know of many positive Logistics Service Provider (LSP) stories about companies that outsourced functions and achieved significant cost savings from outsourcing advantages, as well as greater speed, flexibility and customer satisfaction.
On the other hand, I have also heard some horror stories in which the client only focused on cost and tried to tell the LSP "how" to do their job as opposed to telling them "what" needed to be done. This, plus other broken concepts of outsourcing, has resulted in major disasters.
As we roll with the economic punches, the supply chain outsourcing relationship has taken on an even more important role, with organizations reviewing contracts and searching for more value and benefits. Cost savings and realizing additional value from an existing outsourcing situation is all about the relationship you have with your existing outsourcing provider.
As we’re really seeing these days, that relationship can be strained by the volatility in business climate and economic cycles.
Here are some ideas on how to respond to change in ways that can help keep costs down. These points are from the book Logistics and Manufacturing Outsourcing: Harness Your Core Competencies, which I co-wrote with Steve Simonson, Bruce Tompkins and Brian Upchurch.
- Be willing to change direction if the situation warrants it.
- Gracefully incorporate changes when needed.
- Recognize that customer demands change over time and work to ensure that the agreement and initiative are adjusted accordingly.
- Support the implementation of process changes.
Although change is unpredictable, you can predict that it will happen to your business. In terms of the outsourcing relationship, document new requirements as they happen and how they impact the performance of both you and your provider. This will save time, effort and also cut costs in the long run.
You can accomplish this in a few steps.
1. First, have a documented plan to respond to change to give everyone a point of reference and avoid surprise.
2. Then, take that plan and put it into action, while monitoring performance and cost.
3. Next, both you and the provider should document what is going right during the change along with anything that is going wrong, while looking for ways to improve.
What are you doing these days to look beyond your outsourcing contract? How is your relationship with your outsourcing partner?
For more on not just existing outsourcing relationships, but how to develop new relationships and manage all aspects of outsourced functions, see the book Logistics and Manufacturing Outsourcing - buy the book with a 40 percent discount for blog readers.
Also see the podcast, Logistics Outsourcing Cost Reduction from the Global Supply Chain Podcast series.
http://www.tompkinsinc.com/podcast/transcripts/6-2-09_podcast20_logistics_outsourcing.asp