Executive Briefings

The 5 Cs of Outsourcing Concerns and How to Address Them

Like many of their larger competitors, today's mid-market companies are beginning to focus on expanding their footprint. The economy is strengthening in a number of areas and based on recent indicators, confidence is increasing as well. One of the challenges, however, is that while the basic fundamentals of responsible business growth haven't changed, the landscape for technology and supply chain solutions has shifted remarkably since the manufacturing sector downturn in 2008-2009.

The 5 Cs of Outsourcing Concerns and How to Address Them

Companies now have the ability to enter into markets considered unreachable five to 10 years ago. Tempting as this new territory can be, capitalizing on these opportunities means re-thinking supply chain and business operations to outsource functions historically managed in-house. In addition to leveraging third parties to support the increased regulatory compliance that often comes with expansion, the outsourcing of functional areas is becoming more and more necessary to ensure timely delivery, satisfied customers and acceptable profit margins. Before companies jump into new markets, they should first consider the following 5 Cs of outsourcing:

Communication

Going outside the four walls and outside the enterprise can produce a number of communication challenges.  With some process and tool preparation, however, you can address these issues fairly well. Start by establishing a level of consistency in responses to orders and information requests with your new partner(s) and consider a series of trial runs or pre-flight tests before going live. You can also select a few typical, not-so-typical, and disaster scenarios as trial runs to both work out any kinks in the process and also configure any additional management by exception workflows that may be needed in your collaboration system.

Control

Visibility into partner operations is now broader and deeper than ever before. Platform and data integration have now evolved to the point where key supply chain data, such as inventory, WIP, quality, pack-out and final delivery can be shared and managed in near-real-time. This visibility obviously depends on the technological capabilities of both partners, but many next-generation supply chain tools offer a variety of integration options, including XML, RNIF and EDI into a central management console to enable real time/near-real-time management of multiple partners and operations.

Cost

Partnerships can be tricky and more costly than planned, especially if expectations, requirements and cost measurements aren’t set properly at the beginning of the relationship.  Implementing a strong tracking system and workflow process between companies can help to monitor cost areas that can impact profit margins as well as the success of the programs.  Many newer collaboration tools can help to identify and manage hidden cost areas (shipping window and carrier selection compliance, and 3-way invoice match automation, for example) as well as the more traditionally visible costs. 

Coordination

Collaborating on production and logistics schedules has become more complicated because of two primary factors: increases in customer demands and the risk of supply chain disruption from events such as clogged shipping lanes, materials shortages, or regional conflict or disasters.  Like communication and control, the key to increased coordination and scheduling lies in establishing typical and worst-case processes during the planning phases of the relationship and ensuring that workflows are configured properly.  I’ve also seen some companies with higher-risk supply chain operations run periodic “tests” and “disaster” drills with their partners to stay prepared.

Customer

Customer satisfaction with the product and delivery experience can easily become an issue when control of that experience is outsourced, if safeguards are not in place upfront. Although quality issues can arise due to lack of vendor standards, many times just the fact that functions are outsourced can lead to issues. You can experience miscommunications about order requirements, delays in cross-border shipments, or damage due to additional handling and shortages caused by rejected shipments. Many times customer satisfaction can be improved by solving the issues above: communication and control.

A Confident Supply Chain

As mid-market supply chains begin to eye global expansion, they must be wary of the new reality that is today’s supply chain and logistics marketplace. Rapid, unplanned expansion for mid-market companies, which often have slim margins and small cash coffers on hand, can be dangerous if executed poorly. If, however, companies consider the 5 Cs of expansion that we’ve discussed, and if they make informed decisions about the supply chain solutions they rely on to keep their organizations running smoothly, healthy, profitable expansion could very well be in their future.

Source: TAKE Supply Chain

Companies now have the ability to enter into markets considered unreachable five to 10 years ago. Tempting as this new territory can be, capitalizing on these opportunities means re-thinking supply chain and business operations to outsource functions historically managed in-house. In addition to leveraging third parties to support the increased regulatory compliance that often comes with expansion, the outsourcing of functional areas is becoming more and more necessary to ensure timely delivery, satisfied customers and acceptable profit margins. Before companies jump into new markets, they should first consider the following 5 Cs of outsourcing:

Communication

Going outside the four walls and outside the enterprise can produce a number of communication challenges.  With some process and tool preparation, however, you can address these issues fairly well. Start by establishing a level of consistency in responses to orders and information requests with your new partner(s) and consider a series of trial runs or pre-flight tests before going live. You can also select a few typical, not-so-typical, and disaster scenarios as trial runs to both work out any kinks in the process and also configure any additional management by exception workflows that may be needed in your collaboration system.

Control

Visibility into partner operations is now broader and deeper than ever before. Platform and data integration have now evolved to the point where key supply chain data, such as inventory, WIP, quality, pack-out and final delivery can be shared and managed in near-real-time. This visibility obviously depends on the technological capabilities of both partners, but many next-generation supply chain tools offer a variety of integration options, including XML, RNIF and EDI into a central management console to enable real time/near-real-time management of multiple partners and operations.

Cost

Partnerships can be tricky and more costly than planned, especially if expectations, requirements and cost measurements aren’t set properly at the beginning of the relationship.  Implementing a strong tracking system and workflow process between companies can help to monitor cost areas that can impact profit margins as well as the success of the programs.  Many newer collaboration tools can help to identify and manage hidden cost areas (shipping window and carrier selection compliance, and 3-way invoice match automation, for example) as well as the more traditionally visible costs. 

Coordination

Collaborating on production and logistics schedules has become more complicated because of two primary factors: increases in customer demands and the risk of supply chain disruption from events such as clogged shipping lanes, materials shortages, or regional conflict or disasters.  Like communication and control, the key to increased coordination and scheduling lies in establishing typical and worst-case processes during the planning phases of the relationship and ensuring that workflows are configured properly.  I’ve also seen some companies with higher-risk supply chain operations run periodic “tests” and “disaster” drills with their partners to stay prepared.

Customer

Customer satisfaction with the product and delivery experience can easily become an issue when control of that experience is outsourced, if safeguards are not in place upfront. Although quality issues can arise due to lack of vendor standards, many times just the fact that functions are outsourced can lead to issues. You can experience miscommunications about order requirements, delays in cross-border shipments, or damage due to additional handling and shortages caused by rejected shipments. Many times customer satisfaction can be improved by solving the issues above: communication and control.

A Confident Supply Chain

As mid-market supply chains begin to eye global expansion, they must be wary of the new reality that is today’s supply chain and logistics marketplace. Rapid, unplanned expansion for mid-market companies, which often have slim margins and small cash coffers on hand, can be dangerous if executed poorly. If, however, companies consider the 5 Cs of expansion that we’ve discussed, and if they make informed decisions about the supply chain solutions they rely on to keep their organizations running smoothly, healthy, profitable expansion could very well be in their future.

Source: TAKE Supply Chain

The 5 Cs of Outsourcing Concerns and How to Address Them