The function of a supplier in the business outsourcing chain

By Prof Ndede Amadi

We have discussed some of the reasons why companies outsource their business processes.

Some of the reasons we gave for outsourcing are the following: cost savings; focus on core business; cost restructuring, improved quality; knowledge; contract; operational expertise; access to talent; capacity management; catalyst for change; enhance capacity for innovation; reduced time to market; co-modification; risk management; venture capital; and tax benefits.

In this article, we will assess the systems needed to ensure you successfully undertake business process outsourcing assignments.

The factors you should consider include:

Cost savings –Usually, the destination country has lower labour costs, compared to the country of origin. It is important to consider whether you can provide good quality service, compared to others in the same country, and to others in other countries where labour costs are lower than the origin country.

Focus on core business – This is actually the primary reason why businesses outsource their processes. Consider whether you can provide high quality services, compared to others.

Cost restructuring – By outsourcing some of its processes, a business is able to reduce its fixed costs (those costs that get incurred regardless of production volumes). Outsourced work is a variable cost, because the payments made correlate to the volume of work done. Consider whether you are able to provide quality service at reasonable costs, compared to both the outsourcing company itself and to other competitors.

Hire and train

Improved quality – Sometimes a business will outsource a process because it is not willing to invest in the expertise necessary to provide the correct quality of the service required. By outsourcing, it is able to get the needed quality at a more affordable price, rather than hiring and training staff internally. Consider whether you can provide the expertise required by the buying company.

Knowledge – Sometimes a business will outsource a process in order to obtain new knowledge. Since a supplier of outsourced services is expected to be an expert in the outsourced process, an outsourcing engagement can help the buyer company acquire, and develop this new knowledge through knowledge transfer.

Operational expertise – as with ‘knowledge’ and ‘improved quality’, a business will outsource a process because the supplier of that service has better operational expertise than it has in-house. The primary consideration here for you the supplier is whether you have operational expertise that will attract and retain world class outsourcing companies.

Access to talent – A business will sometimes outsource a process so that it can have access to talent that it does not already have in-house, and is not willing (or able) to develop. The major consideration here, as in operational expertise, is whether your own operations have that pool of talent that can be recognised by, and be subscribed to, by international players.

Capacity management – Sometimes a business may have the talent and expertise in-house, but lacks the capacity to manage that talent and skills. In such circumstances, the people and the technology will also be outsourced along with the process. The major consideration here for a supplier is whether you have both the process expertise, and the capacity management expertise to top the competition.

Enhance capacity for innovation – To upgrade its own capacity for innovation, an outsourcing company will seek out a supplier with superior capacity than itself. The major consideration here for you as a supplier is whether you have the requisite expertise.

Reduced time to market – An outsourcing company may have the capacity to undertake a process, but may not be optimal in its delivery timeframes and schedules. It may outsource that process to a supplier with more efficient processes that can reduce the time to market for the product or service. The major consideration for a supplier is whether you have, or can develop, faster, and better, processes than the international outsourcing company itself.

Co-modification – If smaller companies are offering a service cheaply, because of their relatively lower overhead costs, and if their processes are of good quality because they have been standardized, a large international corporation with larger overhead costs is much better off outsourcing to these smaller suppliers. Consideration how well you can compete against local, regional, and global players.

Risk management – Anyone in the risk mitigation business will tell you that risk is best spread out. Sometimes by outsourcing a process, a business is able to share the risk with the supplier of the outsourced process. A major consideration here for you as a supplier is whether you have the asset base the buyer will consider adequate buffer for its outsourced process.

Venture Capital – This is achieved when the outsourcing relationship is between countries that match government funds with private venture capital for startups in the country.

—info@kekobi.or.ke