Introduction
In theory, the decision to outsource is driven by the company's choice to focus on core competencies, or in its quest to improve customer service levels, or as it strives to develop more efficient processes. In reality, it is mostly driven by cost, more specifically, a need to reduce the existing cost base. Irregardless of the driver, entering the world of outsourced logistics activities can be a challenging exercise even for those who are well prepared or have had previous experience.
The outsourcing life cycle has three distinct phases. The establishment camiseta 2011 phase commences with the initial "go or no go" decision making process and extends through to the actual implementation and change management processes required to transition to the outsourced model. The management phase encompasses the processes required to ensure the successful operational management of the business relationship with the service provider. The development phase involves the transition from an operational business relationship to a more strategic and collaborative business relationship.
The following paragraphs will address each phase of the outsourcing life cycle and are intended to provide some guidance for those that have already outsourced, or are considering outsourcing, all or part of their logistics functions.
Establishing the relationship - Key Success Factors
Far too often the importance of a properly defined scope of work (what it is you want the service provider to do) is overlooked. One of the greatest frustrations of logistics service providers is the lack of quality information that is provided as part of the tender process. Each task within each process should be clearly documented. This is particularly important where you have specific requirements outside of what would be normally considered standard practice. Providing detailed information should extend beyond a thorough definition of the processes to be performed. It should also include the provision of sufficient shipment and throughput data. This will enable the supplier to prepare the best possible and most cost effective response to your requirements.
The less data the higher the cost is likely to be ? the supplier will always add a premium to cover the uncertainty.
It is important that service level expectations are clearly articulated. There should also be a differentiation between your standard requirements and any non-standard requirements. Even if 99% of your orders are dispatched
Establishing well defined performance measures will have two major benefits. Firstly it will ensure that there is no ambiguity as to what the service level expectations are. And secondly, and as importantly, it will ensure camiseta 2011 that the service provider knows exactly how the performance measure is determined and how it is to be calculated. As an example DIFOT performance, when calculated on order line fill rate can paint a very different picture than DIFOT performance when based on the complete order fill rate. 9 out of 10 lines delivered in full on time gives a DIFOT performance of 90% when calculated on a line item basis. When calculated on the complete order the DIFOT is 0%.
A disciplined supplier management process is essential. There is a perception that once you outsource, you will loose control. Reality is, that if done properly, control is increased, not diluted. In order to maintain control, the customer must take responsibility for the supplier management process. They must define the reporting methodology and format; they must set up the reporting schedule and timetable; and most importantly they must measure and monitor performance diligently and consistently.
The most critical factor that will determine the success or failure of any outsourced process or activity is the selection of the person that will be given responsibility for managing the relationship with the service provider. It should be recognised that the skill set required to manage supplier relationships is quite different to the skill set required to manage the day-to-day activities of a logistics operation. This is not to say that the existing skills are not transferable, nor is it being suggested that the required skills can not be learned, it is however recommending that the selection criteria should not be based on operational knowledge alone. The candidate's suitability with regard to communication, negotiation and facilitation skills should also be carefully considered.
Common Pitfalls
Far too often the structure of the agreement between the parties is developed in a manner that will not necessarily support the dynamic business requirements of the relationship. The traditional method of embedding the business requirements within the contract tends to restrict the amount of operational flexibility of the relationship. One of the best ways to achieve this is to actually separate the terms and conditions from the business requirements. This can be done by including the scope of work, the pricing schedule, the service level expectations and the performance measures as addendums to the contract. Not withstanding specific corporate governance requirements of the organisation, segmenting the contract may also remove the need for legal and senior management approval of changes to the business requirements that are immaterial to the terms and conditions of the agreement.
The value of ensuring that adequate training has been undertaken prior to the transition is frequently underestimated. This applies equally when moving from an in sourced to an outsourced operation for the first time or when moving from one supplier to another. Far too often we take for granted the amount of operational knowledge that is held by a limited number of key staff. Not even the best and most thoroughly documented processes will capture this type of information. It is essential that there is a process to transfer this knowledge prior to the transition.
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