Outsourcing Services (B)
What are the benefits of outsourcing services? What are the rules that should be defined when negotiating outsourcing services?
Posted: Jul 2009
If you decide to outsource some services from your business, make sure that you stay with one basic though – you need to state clearly what you want from contractor. Do not count on assumptions. Do not count on "It is expected by default". Do not expect that things that are not said will be understood. You've got to say what you want.
Outsourcing services or externally contracted services can be defined as assigning a job to somebody that is not employee of your company. There are several justifications for outsourcing services; lack of expertise, lack of manpower for certain task, seasonal tasks, activity out of primary business, cost optimization, avoiding of "dirty" jobs, ...
There are many situations when company wants to take the outsourcing solution. Logistics services are frequently used as outsourced services. For example, the company has a focus on production and sales/marketing, but wants to reduce complexity by outsourcing warehousing and distribution services. Or, company do not need permanent legal advisor, due to limited need for this activity and therefore outsource it by contracting legal affair agency.
But regardless of type of activity you need to outsource just remember the basic rule: say what you want. You need to say it by verbal demand but also you need to include it into contract agreement. Here are few basic guidelines for description of your outsourcing activity:
What needs to be done?
Define what needs to be delivered
Define timeframe of activities
What is the technology involved?
Agree on Tracking and periodical reporting
Additional analysis and data input needed
Beside basic framework of activities it is necessary to define "What If?" options. These points need to describe parameters that will protect both parties. For example, the manufacturer of beverages is outsourcing the distribution, but wants to keep the service level to their customers.
Therefore company decides to demand for a certain delivery lead time into contract. From the other side, the delivery contractor wants to protect minimum breakeven point of profitability and therefore requires minimum annual delivery volume.
In case that either party breaks the rules, the penalty should be paid to the other party, in order to give both parties a certain minimum level of protection from basic business risks. So there should not be "I though", "You said", "That is assumed", etc.
Outsourcing services is giving great opportunities for both parties, the business owner and contractor. The business owner is gaining simplification of business activities that are not the focus, reduction of costs, balanced headcount and higher efficiency.
The outsourcing contractor is developing his technical capacity without need to deal with customers, think about commercial policy, portfolio, etc. Instead it builds his technical capacity and therefore obtaining higher output and lower costs due to specialization.
Combined together both parties makes more efficient and competitive value chain that can give them advantage toward their competitors, thanks to the outsourcing services.