Map Expectations with Clear Terms, Metrics and Incentives
It’s critical that you set crystal clear cost and performance expectations with your partners, including exactly how costs will be measured and by what metrics. Ensure you have agreed upon baseline metrics so both you and your outsourced partner are confident that you have an accurate starting point for measuring current performance and future improvements.
It is often useful to provide incentives for your partner to meet or exceed the agreed upon metrics. These incentives can be in the form of bonuses for exceeding high priority metrics, or they can be in the form of penalties for sub-standard performance. You should also ensure that your partner has clear accountability for specific activities that you are measuring so that they cannot shift the blame onto you for their poor performance due to a dependency on your systems or resources. All of these expectations should be clearly documented in your outsourcing Statement of Work and contract.
Manual Processes Could be Consuming Your Cost Savings
Companies often find that once they have outsourced an activity or function, they do not experience the headcount reduction (and corresponding cost reduction) that they were expecting. If they are using manual processes to collaborate with their partner, they often have just as many people (if not more) now focusing on the new activity. This includes managing partner communications, metrics calculation, working with exceptions, and reconciling data across their systems and their outsourced partner systems. Relying upon manual workflow processes such as email, telephone, fax and spreadsheets can be a productivity killer when collaborating with an outsourced partner.
These manual processes lead to slow cycle-times, human errors, lost information, lack of agility in responding to changes, and overall inefficient use of resources for maintaining processes. This inefficiency often drives a corresponding increase in expedited shipments in an effort to maintain customer satisfaction levels. However, poor customer satisfaction and an increase in customer returns is often the actual result. Here are some of the common areas where manual processes cause increased costs.
Manual Vendor Onboarding Causes Inefficiency and Erodes Savings
As you are setting up your outsourcing program, think about the longer term. Although you may just work with two or three outsourcing partners at the beginning, as your company, markets or product lines grow, you may need to outsource more manufacturing or distribution activities to additional partners. Or, because of partner performance issues, you may need to change partners. If you manually set up each vendor or don’t offer flexible integration options, this can slow the onboarding process or create additional costs in order to meet each vendor’s technology level.
Establishing a common, repeatable onboarding tool set enables you to approach each onboarding as a rapid “plug-n-play” rather than as a one-off project, delivering costs savings through labor efficiencies and getting new vendors up and running faster. Establishing common business practices across all partners also makes outsourced projects and vendors more efficient to manage over the long term.
Scheduling Issues Get Expensive
Outsourcing functions to 3PLs or CMOs can often lead to increased pressure on communication channels to ensure that the left hand is aware of what the right hand is doing. When production output or customer deliveries are less predictable than desired, both customer satisfaction and overall cost can be negatively affected. The solution is to improve communication with your partners regarding longer-term demand forecasts and partner commitments. Investing in a collaboration console that includes demand collaboration functions as well as workflow automation and alerts when exceptions occur will help you more easily stay in sync with partners.
Compliance Issues Generate Confusion, and Costs
Again, the key here is consistency. If each of your CMOs or 3PLs is shipping products to your warehouse or directly to your customers using different labels, different formats or different documentation, this can easily cause confusion and delays in the receiving area. In some cases, your customers will also reject and return shipments if you fail to meet their specified requirements. Shipping document inconsistency can also lead to shipment delays or fines due to lack of regulatory compliance for certain countries. If you are using a manual one-off process for the creation and communication of required shipping document and label formats with your outsourced partners, then inconsistencies and errors will be introduced into the processes. The complications in managing guidelines manually are increased exponentially when dealing with multiple global regions and outsourced partners. The inefficiency and potential for errors can be greatly reduced with a stand-alone, centralized label or documentation solution or a solution integrated into a collaboration portal.
Fill in the Missing Link with Workflow Automation
Growing and successful mid-sized companies cannot afford to continue to rely on manual processes to execute their supply chain operations and partner collaboration. An effective solution that quickly provides an attractive ROI is the implementation of a partner collaboration portal with a focus on workflow automation and metrics dashboards. Benefits include:
• Reduction in overall cycle-time, with an increase in execution speed and supply chain agility.
• Avoidance of human errors and increase in accuracy.
• Increased operational visibility, real-time process monitoring, event driven alerts, and analytics.
• Enabling your people to get out of the tactical/transactional process execution steps, and focus their time on higher value, more strategic activities (i.e., management by exception).
• Automation of the calculation and sharing of metrics/KPIs via dashboards
• Ability to be less reactive and more proactive.
Get the Cost Saving You Expected
Cost reduction is the top reason that companies choose to outsource some or all of their manufacturing or distribution activities. So, the fact that process automation typically saves 40 to 60 percent of operations/administration costs should be extremely relevant to those companies looking to cut costs. A best-in-class partner collaboration portal focused on workflow automation and metrics dashboards can be the missing link to ensure that your actual cost savings meet or exceed your expectations. These solutions can be implemented quickly and at reasonable cost with hosted solutions available via the cloud.
Source: TAKE Supply Chain