The Art and Science of Outsourcing
Murem Sharpe, Vice President - Kelly Management Services, Kelly Services, Troy, MI 48084, 810/362-4444.
82nd Annual International Conference Proceedings - 1997
Developing supplier relationships into strategic partnerships can be a purchasing manager's critical edge in creating successful outsourcing contracts. When a purchasing professional develops practical contracts to implement a company's reengineering plans, it's by following the steps discussed in this session.
Kelly Services is a global provider of staffing and outsourcing services. The company is a $3 billion company, ranks in the Fortune 500 and employs more than 750,000 people. Kelly Management Services, providing outsourcing services from invoice auditing to inventory control, is one of a number of business units that provide specialized business services around the world.
This seminar will address resource allocation as a tool for obtaining long term competitive advantage. Much has been written about different styles and types of outsourcing. I suggest that any outsourcing arrangement should be made with an eye toward a long term relationship if you want to maximize the return on investment.
The presentation will also present three separate tools that the audience may take away and use in their own organization. First, a screening device to help decide what is core versus what is critical support. Second, how to procure expertise and process innovation, all leading toward external customer-focused service. Third, how to decide what types of alliances to put together-long term, short term, contractual, or joint venture.
Core vs. Critical. How do you identify core business versus critical support functions? James Brian Quinn from Dartmouth proposes a very useful matrix which I use. One of the critical components of the matrix is to evaluate what component of your business is proprietary. As we approach less proprietary components, outsourcing considerations become more complex. You may still need to control the work and scope of work. However, you just don't have enough intellectual managerial shelf space to maintain it as a core competency.
Now, determining what is proprietary and what is not will turn out very differently for different companies. For example, 40 percent of companies currently outsource payroll services. Kelly Services who is in the staffing business and employs 750,000 people is not apt to outsource payroll services. Because it is core to our business, it is something that we are probably going to keep in house.
I also will provide numerous examples how to look at functions and divide them into proprietary and non-proprietary pieces. Often you will find it most appropriate to only outsource pieces of the business mix. Flexible long term platforms may help you outsource and manage details that run across the whole company, like your information systems and your distribution of information.
Procuring Expertise and Process Innovation. What I offer in this section of the presentation are some steps on how to go about developing and delivering a long term outsourcing solution. As you will see, you can apply this as a screen to your own processes.
I will present in detail the steps of process design, simulation, documentation, control, and continuous improvement. Start with the assumption that all work is a process, a series of value added steps and you've got to take a look at the process design.
First, take a look at how the work is done. Process design follows very specific steps and it's time consuming. If you're not willing to take the time at the beginning, you probably won't get a very good result at the end. Work flow mapping allows an internal manager to document the value added process. An outside supplier can also provide benchmark information about how other companies using the same processes are doing. An outside supplier can also bring the technical tools necessary to the table. The most important element of process control is that it ensures that you're going to get what the outsourcing contract says you're going to get. It's a report card on your supplier.
Kirk Conklin at Egghead summarized process documentation better than I ever could because he's on the buyer side of this equation. He said that it is very important to focus on the bottom line, to document everything, so that when Fred or Mary go on vacation or move to another company, you can still keep the process moving.
Strategic Alliances. No matter what type of relationship you might start with, be assured, it will evolve. Once you outsource a particular function you might find yourself in the situation where you think, hey, this is looking more like a commodity to me than something where I would have to have a long term relationship or be in a joint venture. Let's more it out to a spot buy. Remember, the reason you only have a few core competencies in each is that to be best in class, you have to make a substantial investment. Are you willing to do that? If not, put it out on the table and talk about it.
This seminar will provide you with some tools, some food for thought for screening core versus critical support, and the whole process management, process improvement area. I strongly recommend that for every process you're considering outsourcing, that the supplier is willing to work with you at the task-and then establish a strategic partnerships.