Cover Story: Rising to the Challenge of the Outsourced Supply Chain

Five success factors for outsourcing your supply chain


5. Be Flexible Looking back on the whirlwind of the last two years, Meyer says that one of the big lessons she has taken away from the experience is that OEMs must maintain a degree of adaptability at each stage of an outsourcing exercise. "What you're prepared for is usually not the problem," she says flatly. The uncertainties in market conditions, the complex dynamics of relationships with outsourcing partners and the many other "unknowables" in an outsourcing exercise place a premium on an OEM's ability to bend with the wind, when necessary, to keep the process moving forward rather than stopping to try to fix every glitch that comes up along the way.

In SafeView's case, that meant hiring an NPI buyer, for example, or acting as a filter for design changes coming back from Beta customers. The bottom line is that, while an OEM can outsource many separate functions, it cannot outsource management responsibility for a project, and the OEM must be prepared to apply the same degree of executive-level involvement in an outsourced project — or an even greater degree of involvement — than would be the case for an internally manufactured product.

Would SafeView ever consider taking its manufacturing in-house? Not likely, says Meyer. "Actually," she concludes, "when I went out to find our facilities, I deliberately looked at places that I knew didn't have enough room for manufacturing. So it was a very definite decision that we would outsource manufacturing from the start."

Sidebar: Five Success Factors for Procurement Business Process Outsourcing

Procurement business process outsourcing (BPO) is a growing trend but continues to represent a small number of engagements; Forrester Research, in a July report titled "The Mixed Procurement BPO Opportunity," estimated that about 60 companies had signed procurement outsourcing agreements as of June — double the number from a year ago, but still suggesting a relatively immature market. Major providers of procurement BPO services, as highlighted in the Forrester report, include Accenture, Ariba, A.T. Kearney, IBM Global Services and ICG Commerce. Other companies offering procurement BPO services to one degree or another include EDS (of which A.T. Kearney is a subsidiary), ePlus, Global eProcure, Infosys and Prorizon.

Based on his four years of experience in the BPO space, Jason Gilroy, vice president of procurement outsourcing at King of Prussia, Pa.-based ICG Commerce, offers these suggestions for ensuring procurement BPO success:

  • Understand where BPO can, and cannot, help. Gilroy says that procurement BPO typically is not a budget reduction move but rather involves a value-creation business case — BPO might not help a company reduce its procurement headcount, since the goal is more typically to shift current staff away from less-value-adding work on various non-core indirect material categories and toward projects involving more strategic categories that can help a company differentiate itself in the marketplace.
  • Don't be too prescriptive in the relationship. Build flexibility into the relationship — and the contract — with the BPO procurement provider from the start. "If the initial scope of work is built too rigidly, it makes it very difficult for the relationship to move cohesively together as the customer's business changes," Gilroy says.
  • Establish a structure for tracking results. ICG runs monthly cross-functional savings councils with its clients to ensure not only that they are reporting on realized savings to the procurement sponsor but also that a senior finance representative on the council can validate the methodology used to arrive at the reported savings and attest that the savings are actually hitting the company's bottom line.
  • Ensure senior-level executive sponsorship. It's very easy, he says, for the procurement staff executing the relationship with the outsourcing provider to get hung up on micromanaging how the BPO service provider is doing its job, rather than focusing on whether the provider is achieving the goals of the program. "It takes a strong executive sponsor to be able to pull people back and say, ‘Hey, remember, that's not why we're doing this. We're not trying to say that we did it with six heads, so we want [the service provider] to do it with four people. We don't care how many heads they can do it with, but whether they can deliver this much more value than we were going to deliver.'"
  • Look for a partner with genuine operating experience. Managing procurement activities and spend on a long-term basis for multiple large companies is not the same as providing sourcing and procurement system implementation services on a one-off consultative basis. Further, it requires an entirely different infrastructure than that required to manage a procurement department internally. Make sure you "check under the hood" to ensure your provider offers a proven and well-tested procurement operation that allows you to leverage and benefit from the learnings and scale that comes from their work across multiple companies. You should expect to be able to tap into an adaptable procurement operation that integrates deep category and process expertise, a transaction processing infrastructure and most importantly, the market data, best practices and benchmarks gleaned from working day-in and day-out across multiple companies.
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