Many professionals view outsourcing as a costly, ineffective solution — yet nothing could be further from the truth. When done right, it can save your organization money while simultaneously enhancing worker performance and product quality.
When you take a moment to think about it, you outsource all the time in your daily life. Do you mow your own lawn, do your own taxes or wash your own car? Probably not. The reason for this is that there are companies that can perform these tasks faster and better than you because they are specialists in these services. When you outsource the care of your yard to a landscaper, you maximize your free time and enhance your living environment. When your accountant does your taxes, you’re spared hours of number crunching; plus, you get assurances that this important responsibility is done well. When you get your vehicle detailed at the car wash, you’re keeping it in good shape — and you allow yourself to utilize the time you saved on more important tasks.
In short, you outsource tasks because they’re not what you want to spend your time and attention on. Similarly, in manufacturing, you want to focus on your core competencies. Your company sets itself apart through its mission, beliefs, products, and services — not through its expertise in labor management.
To focus on what makes you special, you need to leverage outsourcing or insourcing, which is when an external provider operates within a client’s facility alongside its team. Note that insourcing has another significant benefit: Combining the provider’s operations management expertise with the client’s in-depth knowledge of its business yields innovation. This, in turn, facilitates the development of new strategies to further streamline processes and improve critical areas of the business.
It’s important to understand that an outsourcing arrangement has to be carefully constructed and executed in order to be successful. Without proper preparation, clear objectives, and a sound strategy, a performance partnership can quickly fail. Some of the most common mistakes we see in outsourcing arrangements include selecting the cheapest offer without considering value, failure to raise service levels over time, and clients trying to micromanage the service provider.
Fortunately, it’s possible to create a sound outsourcing arrangement that benefits both parties. Keep the following five principles in mind:
- Implement an outcome-based business model. Unlike a transaction-based model, an outcome-based model ensures predetermined outcomes.
- Focus on the “what,” not the “how. ”The client specifies the desired outcome; the provider determines how to achieve it.
- Clearly delineate and track the desired outcomes. Once the desired outcomes have been described, the provider can propose an appropriate solution, as well as methods for measuring outcomes.
- Optimize pricing model incentives for cost-service tradeoffs. This allows you to balance risk and reward for both the client and the service provider.
- Establish a governance structure that emphasizes insight instead of oversight, as this will allow you to determine areas of improvement.
Outsourcing can take various forms. For example, there are temporary staffing agencies that provide temporary labor to companies looking to control costs, maintain flexibility, and decrease their exposure to liability. There’s business process outsourcing (BPO), which involves the contracting of specific processes to an external service provider. There’s also workforce process outsourcing (WPO), an arrangement in which the service provider provides the labor and meets specific service levels at a predetermined transactional cost. WPO offers several distinct benefits, including greater flexibility, fixed labor costs, decreased employer liability, and reduced risk.
Take a Flexible Approach to Labor
A good service provider will work with the client to understand its outsourcing objectives and design a solution that addresses the challenges it faces while helping it advance towards its desired future state.
When it comes to achieving your outsourcing objectives, it’s wise to take a flexible approach to labor. You should take seasonal spikes that drive the need for more labor into account. In addition, set production standards by determining your desired cost per unit (CPU) and tracking performance. Furthermore, we recommend offering competitive remuneration, along with incentives to find the top performers in your workforce. This creates a win-win situation — workers get competitive wages and incentives, and companies aren’t caught in the trap of paying ever-increasing wages to workers with tenure.
Find the Right Service Provider
Once you decide to outsource part of your operations, it’s critical to find the right service provider. At nGROUP, we don’t just provide labor: We work closely with you to understand your objectives, analyze your current operations to pinpoint opportunities for improvement and create a strategy for implementing the best possible solution in a cost-effective manner. In other words: We enter into a true partnership with you to help you achieve your operational goals.