Results-Focused Outsourcing and Modularisation (ROM) for outsourcing action plan

This approach that we have developed and successfully used combines the key parameters in order to effectively
- prepare,
- engage,
- select,
- integrate and
- manage
the service providers to create value for the modularised set of services. These are the five key steps in the process as shown in Figure below.

Each step consists of further sub-steps - each one of which has its own set of template, heuristics or methodology to facilitate rapid deployment of outsourcing strategies. The results achieved through a systematic, logical and pragmatic approach such as this one far surpass any others.

First stage of Outsourcing ACTION PLAN: Preparation

As the cliché goes – failing to plan is planning to fail, and in case of outsourcing this could not be truer. Outsourcing creates a long lasting relationship with the supplier, which calls for serious and rigorous preparation before committing the company for an extended period. Long-term contracts need long-term strategic thinking.
The company must have a good reason for outsourcing, such as focusing on core services, gaining access to specific skills, reducing the costs, gaining more flexibility in service delivery, improving service quality or access to Results-focused Outsourcing and Modularisation is the Solution technology.
For example, Boeing knew that in order to compete with Airbus in the race to create the next generation of airplanes, it would need to leverage suppliers’ expertise, access to technology and concentrated resources.
As such, the global aircraft maker rigorously collected and analysed all such internal information in order to determine outsourcing was indeed the best solution to build potentially game-changing products such as the 787 Dreamliner.
The point is to have a clear, holistic view of a working business model and how outsourcing fits strategically within that model. A lack of preparation will often result into an underestimation of costs (often forgetting the cost of complexity) and also an overestimation of ROI.
Other issues to consider at this stage are legal issues, problems of confidentiality and security of the internal data, means of information sharing and possibility of disengagement.

figure 1 - Outsourcing ACTION PLAN: the big picture

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second stage of Outsourcing ACTION PLAN: market engagement

After a thorough preparation in the first stage, it is time to create a fit-for purpose market engagement strategy. This could include very formal tenders or RFQs (Request for Quotations) through to RFPs (Requests for Proposals) to semi-formal RFIs (Requests for Information) or even informal discussions with the potential suppliers.
In fact there is a whole continuum of market engagement strategies that can be used, ranging from very rigid approach to a totally flexible one.
For this reason market dynamics in the supplier market must be thoroughly known and understood. The buyer has to carefully analyse the cost of the supplier to know the negotiation margin and establish valid price responses.
Moreover, if the price is too low and the supplier is not making enough margin on the contract, the deal is likely to be reneged or marred by underservicing.
At the same time, the company should be open to consider all potential suppliers around the world and not only the ones with which it already has relationships. Utilising information about the suppliers is key in the market engagement stage of outsourcing since it allows companies to have a clear picture of the future total cost of ownership.
For example the cost of consulting in the implementation of an IT project is much higher than the cost of the software at the beginning. Knowing about the supplier’s practices and history makes it possible to calculate future complementary costs of the outsourcing project.

For detailed description of the rest of the steps on the outsourcing action plan, please purchase the book below.

Outsourcing 3.0: Outperform Outsource Outprofit

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URL: https://outsourcing3.com/

Author: Vivek Sood

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