Outsourcing leverages a range of benefits that have the potential to ultimately improve supply chain visibility. According to Supply Chain Insights LLC, over 40 percent of companies outsource some manufacturing efforts and, additionally, 80 percent of companies outsource transportation. Despite these numbers, however, outsourcing regularly fails to achieve maximum ROI and cost savings for many organizations. Why?
Avoiding Contract Pitfalls
Outsourcing is only effective when companies and their outsourcing partners have open and clear communication when formulating and executing contract terms. Once a company finds a partner who meets their most important needs, rather than blindly navigating through the relationship, ongoing collaboration is critical in developing a solid statement of work. This statement should cover:
How costs will be measured;
Performance and cost metric measurements;
Accountability for specific activities to establish clear communication guidelines from the onset of the relationship; and
Areas in the process where workflow automation is necessary.
When aligning with outsourcing partner(s), an initial contract provides an accurate starting point for measuring performance and identifying areas for future improvements. For example, a California high-tech company outsourced its inbound materials hub to a 3PL, where the 3PL acted as the single point-of-contact for arranging all of the inbound transportation into the hub from suppliers located all over the world. They developed and executed a contract that offered incentives to reduce cost drivers, which included lowering the number of expedited shipments and increasing the number of freight/standard shipments and consolidations. Using the incentives encouraged the partner to meet and even succeed the agreed upon metrics. The 3PL saved the hub over $1m by dropping expedited shipments from 15 percent to 5 percent and, as a result, they received more bonuses.
Implementing Workflow Automation
Workflow automation is essential to negotiating outsourcing agreements because it provides a complete end-to-end view of supply chain operations, giving everyone involved visibility into key pain points. Although workflow automation is not a new concept, it offers a strategic advantage for mid-market companies that could mean the difference between success and failure.
If a company continues to use manual processes, there will be barriers in achieving desired cost reductions. Often, companies see the same -- or even an additional -- number of workers assigned to maintain aspects of the outsourcing partnership, such as managing communications and metrics or reconciling system data. Time and energy wasted cancels out any possible outsourcing cost reduction. In addition to decreasing productivity, manual processes drive human error, which creates order inaccuracies that can cause a detrimental ripple effect across the supply chain hitting the bottom line. Correcting order or shipping mistakes can lead to higher operational costs and permanently impact company perception and the customer relationship.
To maximize outsourcing efforts, companies can shift from manual processes to workflow automation for easier collaboration and improved supply chain functions through wider operational visibility across the board. Streamlined, automated processes are also easier to implement, boosting scalability and quality control for more efficient supply chain operations.
Take for example, one of the world’s largest brewers by volume who found themselves managing their invoicing processes manually, continuing an old-fashioned, inefficient approach that drove expenses higher than needed. They aimed to increase AP automation for suppliers and buyers to view and address any transaction issues or delays quickly. After integrating automation, the team’s cost to handle PO/invoice transactions dropped by $2.50 per transaction. The organization also saw better reliability, reduced errors and late payments from the immediate invoice and KPI tracking capabilities.
Workflow automation eliminates the potential for human error and delivers discipline through consistency and accuracy. Furthermore, employees who were previously assigned tactical and transactional process execution can now direct their efforts on more strategic business activities to improve decision-making and boost business growth.
Reaping the Rewards of Outsourcing
Working with multiple partners can fuddle communication and insights into the supply chain. With workflow automation, mid-market companies can access real-time information and obtain a more holistic view of their supply chain. By integrating revenue and expense operations, or order-to-cash and procure-to-pay, companies can expand that view to better manage buyer and seller activities (e.g., order fulfillment, delivery and payment receipts, etc.). High levels of visibility maximize agility and speed by cutting overall cycle time, where process automation can save 40 percent to 60 percent of operations and administration costs.
Companies can collaborate alongside the right outsourcing partner who offers additional talent and resources within a growing network of partnerships and allow them to focus on their core competencies and quickly scale and grow globally. Workflow automation removes manual processes to help reduce errors and bring improved cycle times to better handle risk management and improve supply chain functions. Confidence in solidified contract terms and workflow automation enables companies to reap the rewards of their outsourcing investments while meeting customers’ pressing demands in today’s 24/7 competitive environment.
Source: TAKE Supply Chain
Timely, incisive articles delivered directly to your inbox.