Outsourcing without Compromising Total Involvement and Control

Recent technology and process advancements make it possible to reduce costs but also increase collaboration with suppliers through smarter outsourcing

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July 7, 2010 — Outsourcing as a business strategy began gaining prominence in the late 1980s and early 1990s as organizations began looking for ways to diversify to compete globally and to trim costs. Both were accomplished by contracting with a firm that specialized in a service that the buyer either was not set up to perform or could not perform as cost effectively as a supplier.

A furniture manufacturer, for instance, can develop marketing materials and have them printed for in-store use or direct mail campaigns, but it is not staffed to design, write, print and distribute marketing collateral professionally. Outsourcing that type of work makes sense even to the point, for some, of basically contracting with a marketing or advertising firm to provide a turnkey solution and delivery of the final product. The buyer provides guidance but not day-to-day, hands-on involvement. Accounting, legal counsel, human resources and building maintenance are among a host of other disciplines that are popular to outsource.

When buyer organizations began outsourcing some of their core competencies, such as the cutting of wood to precise dimensions for furniture making, then outsourcing was escalated to what is called a strategic partnership. Information technology and customer service often are outsourced as strategic partnerships, but the distinction between outsourcing and forming a strategic partnership can be opaque depending on how the buyer organization defines its core competencies. Regardless, whether it is called outsourcing or a strategic partnership, the buyer organization is using outside resources to perform activities traditionally handled by internal staff with internal resources.

According to the International Association of Outsourcing Professionals, outsourcing is increasingly recognized by businesses, universities and economists worldwide as a critical management science. Not only are the latest developments in outsourcing helping companies reduce costs, but they are spurring innovation. Spending for outsourcing in all business activities has continued to climb at 10 percent to 20 percent for the last decade — in good economic times and bad.

In addition to gaining competitive advantages, outside expertise and cost reductions, outsourcing can enhance quality, reduce risk, avoid staffing issues and establish supplier contractual obligations. On the negative side, outsourcing can dilute the buyer's hands-on involvement, shift control to the supplier and not fully utilize the buyer's institutional knowledge.

A Competitive Procurement Environment

However, by using new methodology and technology, a buyer today can gain the advantages of outsourcing without experiencing the negatives. This is possible because of research and development that was conducted in the 1990s that culminated with patents that were issued in 2002 and 2008. The patents provide the foundation for a competitive procurement environment in which suppliers bid to win work by offering deep discount pricing of 25 percent to 50 percent as they schedule that work to fill their production gaps or downtime.

This strategy is further enhanced by vendors now being able to eliminate price precedent. Vendors normally price work based on how much the buyer is willing to pay. If vendors price too high, buyers shy away from dealing with them. If vendors price too low, then buyers want to hold vendors to the prior price. By eliminating price precedent, vendors can be allowed to bid high, low or not at all, with no repercussions on their receiving other work to price for which they are qualified. Vendors can now base their pricing less on what they perceive the buyer is willing to pay and more on the instant need to fill their production gaps or downtime.

Driving this advancement in procurement is a unique communications and workflow system that requires full interaction and documentation between the buyer's team and the supplier's team. Hands-on involvement is not minimized, and control by the buyer is strengthened rather than weakened.

If the furniture maker were to use this system for buying its annual furniture catalog, the catalog editor would put into the system theme ideas, layout suggestions, furniture photos to feature and so on. Because this type of system is Web-based, only buyer and supplier designees have access to that information. Input is instantaneous in the system's self-contained, secure environment. Should an art director with the supplier want to comment on draft layouts, that is possible with those remarks being available to all who have been granted access for that phase of the project. As work progresses, access among team members will change. Some may not need to communicate about production, packaging, delivery or invoicing. Others will. Some, like the buyer's chief marketing officer and the supplier's account manager, will need access from start to finish.

Every task is benchmarked, and whoever is responsible for that task must verify changes and its completion and make notations as needed. Because of that sophisticated level of information sharing, accountability is fully assigned and documented. Because all actions are available for everyone who is given access to see, the total process is 100 percent transparent. Because every action and notation is documented and archived, the system becomes a powerful resource for planning future annual furniture catalogs.

Outsourcing may be a misnomer for this type of interactive teamwork between the buyer and the supplier. This is more than contracting with an outside supplier and hoping for top quality results. This is more than a way to reduce costs significantly. This is a procurement alternative that proves innovation can have positive bottom line results without the negatives that are commonly associated with outsourcing.

About the Author: William Gindlesperger is chairman and CEO of e-LYNXX Corporation. He is a nationally recognized entrepreneur, inventor, author and consultant in print and procurement. He invented the methodology that optimizes cost reduction in the procurement of specification-defined goods and services, and he has been granted two separate business method patents by the U. S. Patent Office, first for the competitive procurement of print and then for the competitive procurement of all specification-defined goods and services. More information on e-LYNXX Corporation at www.e-lynxx.com.