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Assessing third party outsourcing partnerships​

Published: January 7, 2021
Author: Lorcan Sheehan

Assessing third party outsourcing partnerships

Much of the frustration with outsource partnerships stems from poor alignment on objectives, and capabilities from the outset.  A successful outsource partnership can enable revenue, cost, sustainability, and other supply chain objectives, but it takes a mutual commitment and effort to succeed.

Here are our top 7 tips as you consider your next outsource partners;

  1. Start with clear objectives of what you want to achieve

If you do not have clear objectives on what you want, there is a danger that you will settle for what the partner is trying to sell. Set out why you believe that outsourcing is the right strategy, and what you want to achieve. By focusing on the objective, you still leave room for the partner to bring innovation on how to achieve that, using their capabilities.

  1. Research potential provider companies that can potentially meet your objectives

Be clear and concise about your scope, your volumes, and your expectations for future changes and capabilities, as your business evolves. Engage with the provider through a common process, and take the time to listen to their service options before focusing in on price, as organisation and cultural fit are frequently more important indicators of future success.

  1. Meet the operating team – not just the sales representative

One of the drawbacks of Covid-19 related travel restrictions, is the loss of interaction with potential partner teams, as part of site visits.   Many have now created virtual tours that give an opportunity to ‘walk through’ an operation, but you should insist on getting to meet the operational team, to have them talk you through how your business would be managed.    The sales contact will frequently disappear into the background once you have gone live, and you need to assess your comfort with those that will be managing the business, on your behalf.

  1. Consider what is needed internally, in order to make the external relationship successful

Outsourced supply chains rely on close integration and communication between the parties.   They need to be committed to the relationship and to see the success of the partnership, as a joint responsibility.   For first time outsourcers, a common mistake is to forget that internal processes will also need to change and instead try to replicate, step by step, what is currently done internally.

  1. Structure the deal to allow success – look beyond the win-lose

A sustainable partnership will require benefits for both parties in the relationship.   Negotiations that focus solely on unit transactional values, frequently lose sight of opportunities to create and incentivise the creation of shared value.   The University of Tennessee has done significant work, under the leadership of Kate Vitasek, on ‘Vested’ rules to structure successful third-party relationships.

  1. Pay attention to Integration

Systems integration is usually the most complex and time-consuming discussion when it comes to outsourcing decisions. The two major mistakes to avoid here are in trying to copy exact current flows that were not designed for the partner’s systems, or to move forward with minimal connectivity which is supplemented by manual processes and workarounds.   Time and effort put into the architecture will be rewarded when it comes to implementation.

  1. Governance is key

The disciplines that are installed when things are going well are what will accelerate recovery when difficult situations arise. A regular structure of daily, weekly, monthly, and quarterly reviews – with defined attendance, metrics, inputs, and outputs – is essential to provide companies with the tools, to recognise potential issues and to manage them constructively, together.   Every relationship will have its challenges, and it is in dealing with those challenges together, that the real strength emerges.

These seven points come from experience on the brand, the service provider, and over the last 8 years, having active consultancy in this area.   We have also developed training for brands and outsource providers, on considerations in an outsourced environment.

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