Key considerations for outsourcing

How to make outsourcing work


Outsourcing means doing what you do best and buying the rest, says Michael Marks, co-founded of the Indian River Consulting Group, a company offering management consulting services to senior distribution and manufacturing executives. (www.ircg.com.)

Wise outsourcing can provide a number of long-term benefits, he noted in his presentation on gaining a competitive advantage through outsourcing, delivered at this year's Heavy Duty Aftermarket Week, the largest North American gathering of the independent heavy duty industry. The benefits include: a better company focus, increased efficiencies, improved performance and reduced costs.

The decision to outsource is a major strategic one, said Marks, and it involves weighing the potential cost savings against the consequences of a loss in control over the product or service.

A starting point is to "think critically about what your sticky customers are actually buying from you," he said. "Then, consider what are your firm's three greatest strengths and three greatest weaknesses."

Candidates for sourcing meet two criteria:

  1. The process or function has been a long standing weakness - "or at least a pain in the rear."
  2. The process or function is not something that is critical to a customer choosing you as a supplier.

CHOOSE CAREFULLY

Marks stressed the importance of finding the right outsourcing partner. The potential outsourcing partner must have the same importance to you that you have to them or the business relationship will not work.

"Outsourcing is a little getting married," he warned. "It is much easier to get into some situations than it is to get out of them."

Be very clear on the performance measurement criteria for outsourcing, he said, and recommended doing a 90-day trial. Further, he advised over communicating the change to outsourcing to both employees and customers, and setting up hotlines to deal with any issues, because you will always have them.

"If you play in the herd, outsourcing exactly like your competitors, you are simply playing a different version of the race to the bottom on price," said Marks.

"Decide on your purpose. Are you playing to win the game, or are you simply playing not to lose?"

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