Therefore, both parties must understand the cost drivers of the two infrastructures and coordinate changes so as not to drive additional costs into the process. A good example of this new outsourcing model is the relationship between Frito-Lay and Excel Logistics, which was created due to the revamp of supply chain strategy for third party set-up by Frito-Lay Meachum, In-house logistics, however, offered no synergy.
Frito-Lay promptly began to look for a third party. Requirements called for three-day cycle time from order placement to delivery. Excel Logistics was chosen because Frito-Lay required a quick entry into the marketplace and Excel had vast experience with the customer, providing shorter learning curve. Order are entered and electronically transmitted to Excel.
Excel then processes, picks and loads the order in addition to selecting, dispatching and paying the carrier. They effectively become the operational arm of PepsiCo Foods. The result—in less than two years, Frito-Lay has assumed the No. Cost levels are in line with what had been anticipated from the beginning and customer service levels is better than Frito-Lay as a whole, hitting the plus percent mark.
The potential benefits of outsourcing for a company are enormous. Outsourcing allows a company to lower its cost, turn a fixed cost into variable cost, release capital investment for use in other areas, avoid future investments, and generally refocus management on the bottom line. Some of the top reasons for companies to outsource are identified as follows:. A key benefit of outsourcing is substantial cost reduction of the outsourced commodity. A related benefit of outsourcing is the variable nature of unit-priced outsourcing, which in effect translates a fixed cost infrastructure into a pay-as-you-use variable cost infrastructure.
For example, if a warehouse with steady operating cost is outsourced on a unit-cost basis cost per item in the warehouse , the warehouse service becomes variable. This allows the company to match its expenses to its revenues. This is especially beneficial in the case of seasonal business or cyclical business down turns.
The customer is also able to avoid the ongoing reinvestment required by infrastructures such as new equipment or facilities upgrade, because the outsourcer provides that investment as part of its cost. In addition, when selling the assets or transferring the people, the customer realizes a positive cash in-flow and releases assets for redeployment elsewhere. This, in turn, lowers the invested intensity of the business. Perhaps the greatest benefit of outsourcing is that it allows management to focus its attention on strategic parts of the business, and allows the outsourcer to focus on improving the professionalism of the service such as the warehouse or data processing infrastructure.
Emphasis is on reducing shipping time by using a single carrier to minimize in-transit problems.
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A final benefit of outsourcing is that the outsourcing organization may be able to more closely align these services by allocating them to the consuming processes or departments on an activity basis to achieve a more effective alignment between the consuming departments and the outsourced infrastructure. The history of long-term outsourcing has not always been glorious.
Two Good Choices
This model uses the Planning and Managing Project process as a guide for its implementation. The model has three phases. The first phase is Define and Organize Outsourcing. Outsourcing is fundamentally a tool for organizational change. To be effective, any outsourcing effort must be based on a clear strategic direction. The work involved organizational implications, and risks of an outsourcing decision are too great to be implemented as an unthinking reaction to a short-term situation.
Organizations outsource because they want to accomplish something. In many cases, the goal is to reduce and control costs while meeting or improving service levels, quality and other performance objectives. Sometimes it is for better allocation of capital dollars—to make sure that it has only productive assets on its books. Whatever the reasons the problem is that too often organizations do not understand these goals at the outset.
The goals drive the actions. There is no right or wrong, but there is effective and ineffective within the context of what the organization is trying to accomplish. Once the organization understands why outsourcing, it then turns its attention to the critical question of what functional areas represent the best candidates for outsourcing.
Picking the wrong areas is often a source of failure. Every non-core business function is a candidate for outsourcing. The best candidates are those with the greatest contribution to the business goals at the lowest risk. The scope of services selected to be outsourced is critical. Set too large, the results may not be definable.
Set too narrowly, the desired results may not be obtainable because of continuing internal dependencies. In addition, the pros and cons of integrated versus a selective approach to vendor selection must be carefully weighed. Here the team identify the length of the contract, clarify expectations and set performance metric. The contract must also define service level requirements and escalation process.
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If the legal department in the organization gave a standard contract, then the team may incorporate the above and customize the contract. Defining requirements in clear, complete, and measurable terms is one of the most difficult, yet most important, parts of the outsourcing process. A clear definition of accountability is essential to success.
The challenge for any company lies in developing a relationship that clearly defines roles and responsibilities, especially when there are shared responsibilities. Since outsourcing represents a long-term relationship with another firm, it is critical to define not only the desired results but also the type of relationship needed for ongoing success. Having well defined service levels will reduce ambiguity in the agreement and assist in creating a more positive working relationship.
Providers must be selected based on their total capabilities and cultural fit. A careful balance of relationship building and a competitive, methodical approach must be struck throughout the provider selection process. Once the provider is selected, final agreement must be crafted to describe in detail the scope and nature of services; provide performance guarantees with both incentives and penalties; and describe how the relationship will be managed.
This framework includes the rights to review and approve important personnel, how the transition will be managed—especially in the critical area of people, and how the right level of flexibility will be built into the relationship.
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The standard, isolate, analyze risk process as in project management can be used with the risk assessment matrix. A detailed risk management plan needs to be developed. Focusing on human resources and internal and external communications are critical during the transition to the outsourced environment. This is in addition to the natural attention to the operational details of moving to the new environment.
Early successes must be promoted and problems must be quickly identified, escalated if needed and resolved. Change must be expected and the process for dealing with change understood by all. Technology has become a powerful tool for managing the relationship between the organizations.
Video-conferencing, advanced teleconferencing, e-mail, collaborative online tools, intranets, extranets, and Internet can all be used. Technology enables outsourcing; it also enables its management. Collect status, analyze variance, take adaptive actions and report status are recurring tasks. Once a solid foundation has been set and in operation, the next most common set of problems can be in the way the relationship is structured.
Measurement is inherent to good structuring. Organizations can only achieve what they can measure. Many organizations have reported significant difficulty in measuring and reporting the things that matter most—the quality of the services they are receiving, continuous improvement, comparison to industry standards, and the actual business value realized. They even report some difficulty in measuring the more basic aspects of the services—quantity, costs and customer satisfaction. Other problems created during the formulation of the relationship are:. Unresolved differences in culture and management styles among organizations are common problems.
Too often, no management system for the relationship is put in place until after problems surface. Similarly, direct personality conflicts between individuals with different organizational backgrounds can easily occur. Even a lack of employee training on the workings of the new environment can cause serious problems. Frequently, managers do not have the experience needed to manage outside relationships. The traditional skills that made managers successful—technical skills within their field, operational planning and oversight, resource allocation—are not the skills needed for success in managing an outsourcing contract.
Establishing results-based goals, communications and negotiations are what are needed. The good news is that none of these problems undermine the essential value proposition for outsourcing. But, they do suggest that the anticipated benefits are not automatic and that organizations—both customers and providers—need to do a better job of applying sound management principles to this rapidly expanding business approach. Managing a long-term outsourcing relationship is no easy task.
Some of the common contributing factors to give rise to a dysfunctional or unsatisfactory outsourcing relationships are:. Even if the cultures are compatible, the two parties still have fundamentally different goals and objectives that are frequently difficult to harmonize.solutionsexplorer.org/the-shape-of-the-new-four.php
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As soon as the contract is signed, these assumptions begin to change. However detailed the contract or favorable the terms, most contracts cannot anticipate the changes in an evolving environment.
This phenomenon tends to ensure that one, if not both of the parties will be become disenchanted with the relationship. Longer-term contracts that lack flexibility tend to increase the likelihood of dissatisfaction. The inflexible nature of the contract usually favors the supplier. With us, quality is not compromised. Our IT professionals are highly competitive because of their solid exposure to multiple and complex IT projects over time.
Many of them have attained global-standard technical certifications. For instance, our. Net Developers take pride as being Microsoft Certified in Application Development track, while our team of webshop programmers are Magento Certified.
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Cultural orientation also makes it inherent for our colleagues to extend impressive service. Our flexibility in rendering longer work hours allow for your projects to be accomplished much faster. Moreover, we have multiple technical resources who can work on projects in cases of sickness, personal emergencies, attrition, and the like. Besides their technical skills, the main strength of IT professionals in the Philippines is their English proficiency.
Without sacrificing high quality With us, quality is not compromised. Service-oriented Cultural orientation also makes it inherent for our colleagues to extend impressive service. Much longer working hours Our flexibility in rendering longer work hours allow for your projects to be accomplished much faster. Strength in English communication Besides their technical skills, the main strength of IT professionals in the Philippines is their English proficiency. Some challenges As with all other things, engaging the services of offshore IT companies is not always a walk in the park.