Supply Chain Enabled

Restarting your outsource partnership

Published: April 12, 2022
Author: Lorraine Hagerty

 

For most, the benefits of outsourcing are far-reaching, from leveraging specialised knowledge, to expanding your markets, channels, and service offerings.  For some the reality is challenging, and it can take more time than expected initially, to become accustomed to working together as outsource partners.   For others, challenges being experienced have begun to frustrate, and there is a need to find a way back on track.

There can be many reasons why things are not going well, and in our experience, they are due to issues on both sides. No-one is without responsibility. It must be said, however, that both parties generally want to rescue the partnership and put it back on track for everyone’s long-term benefit.

So what pitfalls should you avoid, and how can you get things back on track?

Control

Control over your business is key, whether or not you are operating an outsource partnership.  Whether controlling cost, risk, quality, compliance, or other key factors, all of these are critical to your business’ success.

In an outsourced environment, however, it is important to remember that while you maintain overall control and responsibility for your business, many of your own internal processes may need to change to suit your new working relationship.

When outsourcing for the first time, many businesses make the mistake of trying to maintain control over aspects of their business that now reside with their new partner.  They can lose sight of the fact that they are engaging with expertise in areas of the business that will provide them with the opportunity to leverage benefits.  Processes such as order management, returns, inventory planning, storage requirements, inbound deliveries, and lifecycle management, are among those with which companies struggle most to adjust.  This does not mean that you should relinquish control over your overall business, but you may not, for example, be able to facilitate the same level of flexibility to your customers as you had done in the past.  In an outsource environment, you are now dealing with aligning two sets of systems, two sets of integration messaging, two sets of operational processes, whilst maintaining the balance with your customers.

Where you have been doing this for some time but are having challenges with an outsource partner, leveraging good governance structure as outlined below, opening the lines of communication, and revisiting your supplier management process will help you to realign your business.

Governance

In our experience, the introduction or realignment of governance structures is very often the key to getting back on track with a provider.  Having the right governance structure between your organisation and your partner can be one of the biggest drivers of success and having it setup from the outset is a best practise.

The right governance structure with your outsource partner allows for;

  1. Clarity of expectations and clear communications between your organisation and your provider
  2. The alignment of both organisations’ performance metrics with the needs of the business. Often KPIs and metrics have been put in place, but may not represent the business needs and priorities, whether from the outset or as the business evolves over time.
  3. Process and structure to not only monitor performance, but to provide a forum for swift resolution of issues and strategic progress
  4.  Fact based assessment of operational and contractual performance of your supplier
  5. Forum for executive engagement on supplier performance and development opportunities

Governance should include a structure that allows for appropriate communication and resolution of issues.  Whether with a new partner, or working to realign with a current partner, having a structured approach to governance, with regular structured meetings, will provide the forum to resolve issues that arise.  Resolving the small issues can often prevent them from becoming larger problems and keeping the regular lines of communication open provides for a united approach to managing the business. 

In our experience, and depending on your business, governance should take the form of;

  • Daily operational communication, driven by requirements and issues of previous, current, and next day
  • Weekly operational meeting with a review of the prior week’s performance, and a longer-term focus on operational metrics, actions, and the next week’s forecasted activity
  • Monthly meeting as a performance review, outlining the month’s performance, exceptions, improvements, issue management, forecast review, and project updates
  • Quarterly business review (QBR), focussed on executive review of your scorecard, metrics, joint projects, executive updates, and commercial opportunities
  • Annual business review

Communication and information sharing

A fundamental ingredient for successful outsource partnerships is ensuring the right level of knowledge transfer between organisations.  Knowledge transfer must be successful from your business’ perspective, as well as your provider’s.  It is essential to ensure clarity in information shared, setting of expectations, process mapping alignment, reporting, and the closure of internal and external issues that are outside of either party’s control.

All such communication elements, if not properly and clearly shared, may cause a failure in meeting the expectations of either party.

Maintaining an open line of communication with your provider will ensure that both sides are engaged and working towards a common purpose.  This can be a simple undertaking early in the partnership but can become more challenging to maintain.  Often if things are not going well with your provider, re-opening that line of communication can be key to getting your partnership back on track.

Implementing the governance approach as suggested above provides the opportunity for regular communication.  Creating a contact map between both organisations is a great way of building the relationships across the business, ensuring that the connections of each of the named key stakeholders is clear.  In the situation where there are challenges across the organisations, your contact map will be the structure to underpin those key contacts for meeting your business needs.

Cost and contract

The cost of outsourcing can be placed hand in hand with the contractual arrangements that you have in place.  Costs will have been estimated initially, based on your business’ current and forecasted activities.  While these may change with time, the impact on your original quotation or cost estimates should not be ignored.

Under or over-estimating your forecasted volume may have a cost impact.  Not being specific enough in your business requirements, or your customers’ requirements, may have a cost impact.  Not outlining your expectations regarding service levels, KPIs, metrics, may have an additional cost impact.  All of these factors are important in ensuring that both sides to an outsource contract have the right understanding of the agreement being entered into, in order to minimise the surprises later!

Likewise, your business might be finding that costs are spiralling out of control with the provider you have been in partnership with for several years.  Aside from inflation and other surcharge related costs, in addition to unforeseen costs such as the impact of war or freight delays, there should be no surprise costs.  If that is what you are experiencing, then a review of your current activities should shed some light on the issue.  Once identified, the changes can be discussed and understood with recognition of additional cost drivers, improvement programs for cost mitigation opportunities, or renegotiations where necessary.

Managing customer expectations

In any business, managing the expectations of your customers is key to your success.

Where issues with your outsource partner are creating a knock-on effect on your customer expectations being met, this needs to be resolved as a priority.  It is important to remember, however, that you chose this partner having gone through a tender process and they had managed your business successfully until recently.  Something has changed.  Re-opening up the lines of communication, leveraging the metrics that you have agreed between the organisations, and utilising your governance structures, can help the work to resolve these issues.

When outsourcing for the first time, you should consider that some elements of your business activities that have always been done to support your customers may no longer be supported by your new partner.  Perhaps you had special arrangements with some large customers which may not be simple to replicate with your new outsource partner.  Perhaps there are additional (and sometimes significant) costs involved in providing your customer with these services.

Your customers should feel looked after and be made to feel special, but your ongoing communication and management of expectations with your customers in the channel are key to that success.  If these expectations can no longer be met, they have to be communicated carefully.

The right partner

As with all partnerships, unless you are the right fit for each other, it may be time to consider looking elsewhere.

If you have tried and exhausted all the options for re-opening lines of communication towards resolving your differences, but you can’t find a way forward that suits your business and your partner’s business, then that time may have come to part ways. 
Before you do that, however – remember that you chose this partner for good reasons.  They were a good fit for your business when you made that choice. Expected costs were in order because you both signed on the dotted line.  Your organisations were culturally aligned or at the very least, able to work through your cultural differences.

So, what has changed?

Perhaps your business has evolved to a point where your partner is no longer able to satisfy your business requirements.  Perhaps they cannot scale to meet your growth needs?  Can they provide the automation to provide you with new required services or to shape your channel needs?  Perhaps their business has moved in a different direction, and you are both no longer strategically aligned.  If these things happen, it is not anyone’s fault, and you can agree an approach to move on, independently.

If you are new to the outsourcing world and looking for that right partner, be aware of the considerations noted above.  Along with the commercials being right and the industry knowledge and capabilities being right, your partnership should consider factors such as risk, security, and scalability.

Lastly, but by no means insignificantly, is the need to believe that you can do business with this company and their people, for your organisations to head down the path of working together towards shared success.


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