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Successful OutsourcingBC Supply Chain Council
December 16th, 2004
Robert CookeIntex Consulting Partners
© Intex Consulting Partners Inc. 2004
Agenda
Background on Outsourcing:
- What is it?
- What is being outsourced
- Overview of Process
Best Practices and Learnings
- References:
Direct experience with clients
Conferences, books, articles, interviews
© Intex Consulting Partners Inc. 2004
What is Intex?
BC based boutique consulting firm
Specialists in Shared Services and Outsourcing
Key services:
- Services sourcing reviews and feasibility assessments
- Contract Governance & Vendor Relations workshops
- Relationship diagnosis and alignment
- Organizational change and transition support
Resource pool of senior specialists
Client sectors include public, private and crown across Canada
© Intex Consulting Partners Inc. 2004
About Outsourcing
“Outsourcing has become an essential tool in managing today’s andtomorrow’s organizations”
(Michael Corbett, Chair, Outsourcing World Summit)
“Outsourcing is the fastest growing industry in the world”
(Peter Drucker)
“Outsourcing is one of the greatest organizational and industry structureshifts of the century”
(James Brian Quinn, The Amos Tuck School, Dartmouth College)
© Intex Consulting Partners Inc. 2004
About Outsourcing
Outsourcing is about establishing a long term relationship that results intrue collaborative advantage
It has been defined as “A strategic, long term relationship with an outsidespecialist for managing work traditionally performed within theorganization”
It is considered to be analogous to a marriage and its success rate hasnot been stellar (over 50% of relationships still fail)
There is a growing backlash against outsourcing in the U.S. as it isconfused with “off shoring” but it will continue to grow at dramatic rates
Despite the challenges, successful outsourcing deals can producesubstantial savings, increases in service levels, and consistent, leading-edge solutions
© Intex Consulting Partners Inc. 2004
Outsourcing as Percentage ofCorporate Budgets
0
5
10
15
20
25
30
35
40
1998 2000 2002 2004
Source: Michael Corbett & Associates 2004
© Intex Consulting Partners Inc. 2004
Percentage of Executives NOTOutsourcing
0
2
4
6
8
10
12
14
16
18
2001 2002 2003 2004
Source: Michael Corbett & Associates 2004
© Intex Consulting Partners Inc. 2004
What’s Being Outsourced
Physical Services
Printing and publishing
Mailroom and shipping
Warehouse and distribution
Component manufacturing
Facilities maintenance
Food and catering
Specialist Services
Public relations and legal
Payroll and tax
Recruiting and training
Advertising and promotion
Information technology
Supply Chain
Customer relationshipmanagement (call centres)
Source: Outsourcing Institute 2004
Transactional Services
Order processing
Employee benefitsadministration
Travel and expensemanagement
Accounts payable/receivable
Invoicing and receivables
Data entry and transcription
Industry specific processes(e.g. insurance claimprocessing, visa cardprocessing)
OTHERS?
© Intex Consulting Partners Inc. 2004
Trends In Supply Chain Outsourcing
50% of firms in Europe and U.S. are considering outsourcing part of theirprocurement operations by end of 2006 (22% currently outsource) *
Procurement Service Providers being used today/considered for the future *
- Strategic Sourcing (18%/42%)
- Inventory Management (22/%/44%)
- Requisition to Pay (26%/60%)
- Hosting e-procurement application (39%/75%)
- Hosting e-sourcing applications (45%/75%)
Growth in 4th Party Logistics providers (4PL) who manage services of 3PLproviders such as transportation and warehousing
* from Accenture study of 219 procurement directors in 2004
© Intex Consulting Partners Inc. 2004
Current Practices Discussion
What is the current state of outsourcing of supply chain in your organization?
- What have you outsourced?
- What are you considering outsourcing?
- Why?
© Intex Consulting Partners Inc. 2004
Successful Outsourcing:Best Practices and Learnings
© Intex Consulting Partners Inc. 2004
BP# 1: Have a Clearly Defined OutsourcingManagement Process
Re
latio
ns
hip
Man
ag
em
en
t
© Intex Consulting Partners Inc. 2004
Phase I: Pre-Planning
© Intex Consulting Partners Inc. 2004
BP# 2: Establish Clear Goals
Innovation
Speed to MarketAccess to SkillsVariable Costs
Flexibility
Improved Focus
Reduced Costs
“Outsourcing is not the goal, business improvement is”
“If outsourcing is based on cost savings alone it will ultimately appear asa hollow solution”
© Intex Consulting Partners Inc. 2004
Outsourcing Begins With Three SimpleQuestions…
1. If starting from scratch today, would you really do it yourself?
2. Are you so good at it, that others would hire you to do it for them?
3. Will tomorrow’s leaders come from this part of the business?
If core competency, the answer will be yes to all three.
© Intex Consulting Partners Inc. 2004
BP# 3: Formalize the Pre-Planning Phase
Establish a project team: project manager, business expert, financial and HR support
etc.
Complete scope and baseline assessment. Clearly understand what is included in the
function
- Is the Function ‘well-defined’
- Has the function been successfully out-sourced by other organizations
- Are there ‘significant’ potential benefits from out-sourcing this function
- Is the organization ‘ready’ for this type of change
If processes are ‘a mess’ you may want to consider fixing them up before proceeding
Complete Initial business case
- If just considering the outsourcing option this will require comparison of current costs to vendormarket best fully loaded costs.
- If considering other options such as shared services, business process improvement the processis much more complex as processes and sub-processes and their associated costs will need tobe defined
© Intex Consulting Partners Inc. 2004
Phase II: Contracting
© Intex Consulting Partners Inc. 2004
BP# 4: Comprehensive Due Diligence
Soundness- Financial strength, funding and stability- Clearly defined and visible cost structures- Management team strengths & capability- Technology capability- Staff capability- Customer satisfaction rating- Growth potential
Practices- Quality and continuous improvement processes- Problem solving capability and reputation- Project management and transition experience
Reality- Site Visit- Culture and values fit and compatibility- Demonstrates clear understanding of your needs and expectations- Service philosophy- Work environment: employee capability, performance and climate- Contract priority for them
© Intex Consulting Partners Inc. 2004
BP# 5: Win/Win Negotiations and Contracting
Keep in mind that you want a long term relationship where you become partners in longterm success- Build a strong working relationship while negotiating the optimal deal
- Establish a common ground for working together (but recognize you have very different goals)
- Keep the negotiation process friendly: unresolved conflict will live on
- Clearly define service level expectations
Move to process focusing on:
- Key objectives (not tasks or rigid performance indicators)
- Open sharing of costs and financials
- Honesty re expectations and concerns
Develop a document that is:
- Flexible and can adapt to changes in technology, economy, business needs
- Structured as user friendly, not to be filed away
Define a process for managing changes
Use professional negotiators
© Intex Consulting Partners Inc. 2004
Phase III: Transition Planning
© Intex Consulting Partners Inc. 2004
BP# 6: Recognize the Real Work Begins Afterthe Contract is Signed
Once the contract is signed the real work begins: (for many this is seen as theend of the project – this is wrong!)
The real work after the contract is signed is to:
- Finalize the transition plan
- Handle the transition (movement of people)
- Implement new operating model and processes
- Deliver intended results
- Manage contract governance
- Sustain a long term working relationship with the vendor
Establish a dedicated internal transition team as well as a joint team todevelop and implement the plan
Ensure change management is an integral part of the transition
Recognize in the planning that transition goes on for a number of months afterDay 1
© Intex Consulting Partners Inc. 2004
BP# 7: Develop a Risk Management Plan
Risk management asks the questions, “What could go wrong and whatwould we do – mitigation or contingency - if it did go wrong?”
Each risk is assessed with respect to the likelihood of its occurrence and theconsequence of its impact should it occur
Mitigation/contingency plans are developed for highly rated risks which includeclearly defined actions and accountabilities
A process for ongoing identification and assessment of risks needs to bedefined
Risks are typically assessed in the following categories:- Customer Care & Performance
- Financial
- Human Resources/Labour
- Market
- Political
© Intex Consulting Partners Inc. 2004
BP# 8: Take Change Management Seriously
The change and cultural shock created by outsourcing can severely impactbusiness performance.
There will always be resistance to change because of:- parochial self interest
- misunderstanding and lack of trust
- differing assessments of the process and outcomes of change
- low tolerance for change
Change Management is about:
- Understanding the type and scope of change
- Understand how people and groups manage and overcome personal andorganizational resistance to change (traditional “change management” tasks)
- Developing and assessing organizational change options
- Planning for change implementation
In the end, success is all about the people!
© Intex Consulting Partners Inc. 2004
Phase IV: Contract Governance &Vendor Relations
Pre-Planning
Contracting
TransitionPlanning
ContractGovernance &
Vendor Relations
ContractGovernance
Start-Up &Activation
Page 0
ResultsAssessment
RelationshipAlignment
© Intex Consulting Partners Inc. 2004
Contract Governance & Relationship Management
CONTRACT GOVERNANCE
To Monitor, Direct and ControlVendor Performance
RELATIONSHIP MANAGEMENT
To Establish a Long TermSustainable Relationship
CONTRACT MANAGEMENTThe process of ensuring effective contract governance
and relationship management
© Intex Consulting Partners Inc. 2004
BP# 9: Formalize Contract Governance
Well selected and trained stay back team
- Clarity of roles and accountability for managing vendor performance
- Knowledge of the contract
- Knowledge of contract law
- Skills in managing non-performance and vendor relationships
Cleary defined governance processes
- Performance reporting against standards
- Time sensitive reporting of performance problems
- Problem escalation and conflict resolution process
© Intex Consulting Partners Inc. 2004
BP# 10: Focus on Vendor Relations
When things go wrong, focus on understanding joint contributions
Wise decisions need joint input
Surprises should be rare: work as a team to maintain internal and external
alignment
Cultural differences need to be explored, understood and managed
Key Relationship Success Issues
- degree of trust
- ease of working together
- capacity for joint problem solving
- capacity to resolve conflicts
- openness and quality of communication
- capacity for taking a ‘what is best for the relationship” perspective
© Intex Consulting Partners Inc. 2004
Vendor Relations Progression
Step 1: Start –Up Friends and colleagues working together to achieve
mutual goals Minimal change in roles and expectations
Step 2: Honeymoon All working together during months of transition Stay back team staff very much involved in their old work
and day to day management Not much confrontation on performance issues Some signs of growing stress start to emerge
Step 4: Sustaining the New Relationship Increased recognition by both parties of each other’s unique needs Building protocols, increasing communication and trust
Step 3: The New Reality Recognition that goals are not all congruent Increased conflict over responsibilities Performance feedback increases tension Increased demands by vendor to reduce costs reduces
performance and customer satisfaction
Where is yourrelationship?
© Intex Consulting Partners Inc. 2004
Relationship Management Challenges
Management of negative perceptions lingering from negotiations
Resolution of ambiguities in agreement
Efficient and effective joint decision making
Proactive identification of conflict or tension
Maintaining and enhancing trust
Management of commitments
Learning from both recurrent conflict and broken commitments
Maintenance of internal alignment (both sides)
Minimization of surprises about internal (organizational) changes
Anticipation of significant external changes that will impact therelationship
© Intex Consulting Partners Inc. 2004
Actions to Enhance the Relationship
Relationship alignment workshops
Audit the health of the relationship on a regular basis
Formal monthly, quarterly and annual meetings to discuss the relationship
Develop relationship vision, goals and metrics
Develop “working together” , communication and decision making protocols
Establish conflict management methods and processes
© Intex Consulting Partners Inc. 2004
Summary of Best Practices and Learnings
BP# 1: Have a clearly defined outsourcing management process
BP# 2: Establish clear goals
BP# 3: Formalize the pre-planning phase
BP# 4: Comprehensive due diligence
BP# 5: Win/win negotiations and contracting
BP# 6: Recognize the real work begins after the contract is signed
BP# 7: Develop a risk management plan
BP# 8: Take change management seriously: it’s all about the people
BP# 9: Formalize contract governance
BP#10: Focus on vendor relationship
BP#11: Others? What have you learned along the way?
© Intex Consulting Partners Inc. 2004
Questions?