Reason #1: Reduce or Control costs
It’s no surprise that the number 1 reason to outsource is to reduce cost. But how can you know that outsourcing will in fact reduce your total process cost? In fact outsourcing to the wrong company or outsourcing the wrong aspects of your business can do exactly the opposite. It can drive costs up, and it can dilute the focus of your team as it works to first implement, live with the consequences of and then back out of a poorly executed outsourcing strategy. If the outsourcing company is putting your people or core processes at risk, then there is no money to be saved at all. On a unit cost basis, there may be the appearance of savings, but when you factor in the net impact to the Overall Equipment Effectiveness (OEE) of the process, the resources it steals from core operations, or the impact of poorly managed risk, outsourcing to the wrong company can be a disaster.
A recent example comes to mind. At this plant, the plant manager was dutifully following corporate's direction to use a specific company to outsource an aspect of their operation. Being a global relationship, there was significant pressure to use the products and services of their global partner. The problem was that the requirements at this specific plant were well outside of the focus or expertise of the outsourcing company. In an effort to keep competitors out and remain the “one-stop shop”, this Outsourcing firm took on the roles and responsibilities required by their customer. These roles included legal environmental reporting requirements and after some time, following a compliance audit, it was discovered that records were being falsified by the outsourced company’s employees. Upon discovery, the plant manager immediately walked the individuals thought to be responsible off company property. Blame and liability aside, this plant manager was forced to deal with the mess this situation created.
The only reason to outsource any aspect of your operation is if a 3rd party can do it better, faster and less expensively (lower total process cost) than using your own resources. They need to bring their own specialized expertise, have robust systems in place to ensure long term compliance and sustainability and they need to be looking at the data to continue to drive improvement and innovation associated with this area. If outsourcing doesn’t improve your teams’ productivity by integrating these systems with yours, letting you focus more deeply on your core operations, the strategy needs to be revisited.
Outsourcing can offer significant cost reduction and savings, however you have to choose your outsourcing partner carefully. Make sure your goals are aligned. Make sure their expertise adds value to what you are looking to achieve and enhances your total process execution. Make sure they have the checks and balances in their systems to not only ensure they are consistently meeting their deliverables but they are also reviewing their KPI data and how it impacts your total costs to continue to identify opportunities for improvement. Otherwise, Outsourcing could lead to higher costs and greater compliance risk.