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BPO as a Survival Tool in Uncertain Times
Seven simple rules for ensuring the success of your business process outsourcing initiative
By Jaison Augustine
Business process outsourcing (BPO) represents a strategic and efficient life raft for companies striving to stay afloat in these tumultuous times. If implemented appropriately, BPO can be a fast and simple solution to rapidly reduce costs, help companies survive the economic downturn and set the stage for future growth and expansion after the economic tsunami subsides. While this article specifically looks at the prospects for BPO within the logistics industry, the "success factors" suggested below are applicable to any company looking to undertake an outsourcing initiative.
BPO to the Rescue
Why BPO for logistics companies? Rapid cost reduction is mandatory for companies trying to survive the most challenging economic climate in over 60 years. And while they have been laggards in BPO uptake, logistics companies can gain significant cost savings value by leveraging BPO.
For example, approximately 60 percent of a logistics company's operating costs are attributable to customer service. Of this, roughly 60 percent is back-office document processing or phone-based customer contact. Outsourcing these processes to a logistics industry-savvy service provider can deliver cost savings of 40-50 percent.
But BPO delivers benefits that extend far beyond cost savings, including moving costs from fixed to variable, maintaining focus on the customer and retaining them in the face of operating cost reductions, placing focus on knowledge rather than intuition to increase revenue, consolidating delivery operations to standardize business processes, getting even more out of shared services costs and delivering continuous improvement. Logistics companies that have included BPO in their corporate strategy are better poised to weather this economic storm, which threatens to sweep even the most established players away.
Clearing the Decks for Success
Seven Simple Rules for Logistics Companies
1. Ensure BPO is a CEO priority. In uncertain times, sponsorship for critical initiatives such as BPO must come from the very top. Only the CEO can deliver the message that there are no other options for survival. Otherwise, the imperative for outsourcing is not taken very seriously, and management sees implementation as optional, easily finding ways to opt out, with arguments ranging from "outsourcing never works, we've tried it," to "the process is too critical to outsource" to "I have to implement new systems first." As many logistics companies with a history of private ownership try to stay afloat in the current environment and attempt to reinvent themselves to stay ahead of the competition, there is clearly no time to lose or room for "management by consensus." This is a decision for the CEO and no half-measures will work. BPO succeeds for logistics companies when there is clear visibility of the CEO behind the wheel.
2. Approach outsourcing with an open mind. The BPO industry has moved well beyond delivery of volume-based voice and data work into highly complex industry and insight processes — think freight audit, tariff filing and maintenance, claims management, billing, exceptions management and marketing analytics. Therefore, smart companies collaborate with providers to determine "the art of the possible." They start the outsourcing discussion by saying, "This is where we need to get to, so how do we get there?" In the logistics industry, there are a number of companies that are improving their operating ratios by moving processes offshore, either to captive operations or to third-party providers. Ocean carriers including Maersk, APL, Hapag-Lloyd, NYK, MOL and CSAV initially pioneered the move offshore by setting up delivery centers in India and other lower-cost countries such as Malaysia and China. And third-party logistics companies such as FedEx, Exel, Penske, Ryder, Yellow and Bax Global are taking the next step by outsourcing to external BPO providers. Processes delivered offshore include not only rules-based work such as export documentation, as well as time-sensitive shipment updates and tracking, but also more complex finance processes such as accounts receivable and consolidation of books. A typical business case for logistics companies delivers annual savings in the range of $1 million per 50 full-time equivalents (FTEs) when a documentation process is moved to an offshore BPO provider, with a payback period for the initial investment, necessary for knowledge transfer and transition, of less than nine to 12 months.
Business process outsourcing (BPO) represents a strategic and efficient life raft for companies striving to stay afloat in these tumultuous times. If implemented appropriately, BPO can be a fast and simple solution to rapidly reduce costs, help companies survive the economic downturn and set the stage for future growth and expansion after the economic tsunami subsides. While this article specifically looks at the prospects for BPO within the logistics industry, the "success factors" suggested below are applicable to any company looking to undertake an outsourcing initiative.
BPO to the Rescue
Why BPO for logistics companies? Rapid cost reduction is mandatory for companies trying to survive the most challenging economic climate in over 60 years. And while they have been laggards in BPO uptake, logistics companies can gain significant cost savings value by leveraging BPO.
For example, approximately 60 percent of a logistics company's operating costs are attributable to customer service. Of this, roughly 60 percent is back-office document processing or phone-based customer contact. Outsourcing these processes to a logistics industry-savvy service provider can deliver cost savings of 40-50 percent.
But BPO delivers benefits that extend far beyond cost savings, including moving costs from fixed to variable, maintaining focus on the customer and retaining them in the face of operating cost reductions, placing focus on knowledge rather than intuition to increase revenue, consolidating delivery operations to standardize business processes, getting even more out of shared services costs and delivering continuous improvement. Logistics companies that have included BPO in their corporate strategy are better poised to weather this economic storm, which threatens to sweep even the most established players away.
Clearing the Decks for Success
Seven Simple Rules for Logistics Companies
1. Ensure BPO is a CEO priority. In uncertain times, sponsorship for critical initiatives such as BPO must come from the very top. Only the CEO can deliver the message that there are no other options for survival. Otherwise, the imperative for outsourcing is not taken very seriously, and management sees implementation as optional, easily finding ways to opt out, with arguments ranging from "outsourcing never works, we've tried it," to "the process is too critical to outsource" to "I have to implement new systems first." As many logistics companies with a history of private ownership try to stay afloat in the current environment and attempt to reinvent themselves to stay ahead of the competition, there is clearly no time to lose or room for "management by consensus." This is a decision for the CEO and no half-measures will work. BPO succeeds for logistics companies when there is clear visibility of the CEO behind the wheel.
2. Approach outsourcing with an open mind. The BPO industry has moved well beyond delivery of volume-based voice and data work into highly complex industry and insight processes — think freight audit, tariff filing and maintenance, claims management, billing, exceptions management and marketing analytics. Therefore, smart companies collaborate with providers to determine "the art of the possible." They start the outsourcing discussion by saying, "This is where we need to get to, so how do we get there?" In the logistics industry, there are a number of companies that are improving their operating ratios by moving processes offshore, either to captive operations or to third-party providers. Ocean carriers including Maersk, APL, Hapag-Lloyd, NYK, MOL and CSAV initially pioneered the move offshore by setting up delivery centers in India and other lower-cost countries such as Malaysia and China. And third-party logistics companies such as FedEx, Exel, Penske, Ryder, Yellow and Bax Global are taking the next step by outsourcing to external BPO providers. Processes delivered offshore include not only rules-based work such as export documentation, as well as time-sensitive shipment updates and tracking, but also more complex finance processes such as accounts receivable and consolidation of books. A typical business case for logistics companies delivers annual savings in the range of $1 million per 50 full-time equivalents (FTEs) when a documentation process is moved to an offshore BPO provider, with a payback period for the initial investment, necessary for knowledge transfer and transition, of less than nine to 12 months.
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