CSC's Top Outsourcing Tips
Be sure to check out this story in August's issue of Supply Chain Digital. Trust us, it's way cooler!
No longer a new or unknown phenomenon, outsourcing has become a normal part of any organization’s sourcing strategy and a key tool for the supply chain team.
While outsourcing provides considerable benefits, such as lower total costs of ownership, ability to focus on core value-adding activities and exploitation of key providers’ skills and resources, there are pitfalls, including overlapping responsibilities, confusing objectives, strained customer/provider relationships and organizational resistance to change.
Since its first commercial outsourcing agreement in 1990, CSC has continually refined its best practices. Walt Howell, CSC’s president of Global Business Development, shares his top five outsourcing tips:
5. Incent and reward the right behaviors
Every outsourcing agreement has performance credits to incent the provider to focus on activities that are most important to the customer. Not every agreement, though, has “earn back” provisions, whereby the provider can recover a portion of the credit for successfully correcting the problems that were impacting performance. Earn backs create a carrot-on-a-stick to drive the provider to meet and exceed the customer’s business objectives. For each Service Level Agreement (SLA) that has a default, if the succeeding four months of performance meet or exceed the SLA’s target, the provider could earn back 75 percent of the assessed default amount, thereby positively incenting the provider to continually improve service.
4. Apply a ‘reasonableness’ test to SLAs
Every buyer wants exceptional service at the lowest cost and uses SLAs to create metrics that measure their provider’s performance. IT services are complex, and that complexity is magnified when multiple services are provided within a single outsourcing agreement. It is a challenge to design the SLA schedule to ensure all activities are adequately measured without creating so many individual metrics that effective management becomes nearly impossible. Applying a “test of reasonableness,” and eliminating SLAs that do not add real value in achieving the customer’s business objectives, enable both the customer and provider to focus on value creation.
3. Create a governance structure that will succeed
Many have compared outsourcing to marriage, an apt analogy to describe the relationship between provider and customer, especially when many of the provider’s employees have transitioned from the customer. Clearly defined rules and boundaries within a comprehensive governance structure create a positive environment to resolve conflicts and address confusion. Successful governance structures have multiple layers where each joint committee has defined roles and responsibilities, memberships and decision-making authority. Make certain there is a clear escalation path from one layer to the next.
2. Eliminate barriers to success resulting from “Selective Implementation”
Successful outsourcing usually requires the adoption of the provider’s standard service model. That model will have been developed over years of experience with multiple customers, and will reflect the highest common factor of the provider’s experience. It will also, almost always, differ from the model used by the internal IT prior to outsourcing, inevitably resulting in resistance to the transformation. While bringing concerns about security and risk to the forefront can be healthy, it can also amplify a fear of change. What results is selective implementation of the proposal whereby those elements, without challenge, are introduced quickly while others are left for later.
Selective implementation creates undesired conditions such as overlapping customer and provider delivery teams, delayed implementation of new technologies and tools and redundant systems. It causes confusion, added cost, increased administrative overhead, frustration within the ranks of the customer’s employees and, ultimately, IT loses credibility when the organization’s business objectives are not achieved. Creating and agreeing to a joint technology and process transformation schedule at the very beginning of the relationship – reinforced with executive support from both the customer and provider leadership – can help eliminate these barriers.
1. Focus on business strategy and not technology
Outsourcing is a business tool that enables strategies to succeed, objectives to be met and value to be added. It transforms the IT department from doers to managers. Success comes when decisions are made and conflicts are resolved with a clear business objective in mind. Failure to focus on the business first leads to commoditization, and IT is too critical a function to allow its value to become commoditized. The most successful outsourcing relationships are those where the customer and provider share a common vision of the future and role of IT in attaining the customer’s business strategy and objectives.
Walt Howell is an industry veteran with more than 35 years experience as a CIO, operational provider and executive in the IT industry. He is currently the president of Global Business Development for CSC.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”