Outsourcing services is a key tool, enabling organisations to focus on their core activities and often improving the quality, or competitiveness of the service offered. However, given that organisations are heavily focused on adjusting their supply chains post-COVID19, how might their approach to outsourcing change?
We spoke to one of our most senior outsourcing consultants, Elesh KhaKhar, about how businesses can navigate their outsourcing arrangements in light of the current climate.
Firstly Elesh, what do you see as the key areas one ought to consider when reviewing outsourcing arrangements?
There are two key aspects to consider:
1) What are the priorities when adjusting your existing arrangements to better align to the post-COVID19 environment and;
2) How will you need to re-think your overall outsourcing strategy for future work (whether that is a new scope of work or for renewals)
Firstly, what will change post-COVID19?
Well, that’s somewhat of a ‘Rumsfeld question’, in the sense that nobody knows, as it’s all still emerging so agility and preparedness will be key. It will be even more important to build positive supplier relationships so that they are best able to support you in the event that we face more issues and they have limited resources.
Start by looking at the existing arrangements. Ask yourself:
- How did our suppliers perform in the first lockdown and what changes have they put in place to cope with future lockdowns?
- Can we cope with additional lockdowns and what limitations (whether operational, relationship or contractual) did we have that need to be addressed? Be brutal about what needs to be changed for all sides. It is tempting to rely on assurances but those won’t count if you have other emergencies.”
Ok, so building on your second point there Elesh, what should organisations look at when determining any limitations and assessing their ability to cope with future lockdowns?
“There are a number of areas to focus on, but I would say that businesses should start by considering the following key questions:
- The suitability of business continuity and disaster recovery plans – do they take into account situations like lockdowns? Do organisations still to pay for large expensive recovery centres when virtually the whole workforce can now work from home?
- Location plans – do you have all delivery locations in one country and are there options to use other countries/regions?
- Digitisation in delivery capabilities – are outsourcing staff using technology that lends itself well to collaboration. In light of a situation where it is necessary to work from home, are all staff on the most recent tech? Or, at least, do most staff have capable tech to continue their roles working remotely for prolonged periods?
- Outsourcing roles – is there enough overlap in operational delivery to deal with reductions in staff. Are your staff multi-skilled and able to pick up additional tasks if required?
- Transformation – if you have transformation components in outsourcing arrangements, are they still relevant and has the priority order changed?
- Consumption analysis – if you have to divert spend or have cost reduction pressures, where can you make consumption more efficient or increase compliance to achieve optimum benefit from spend?
- Power map – do you have clear knowledge of key stakeholders in the supplier organisation and have adequate relationships to be able to “phone a friend” when some flexibility is needed?
- Agility – what key changes in operation are needed to provide the ability to meet likely business changes as they emerge? Few organisations will be able to give you a roadmap of impacts, so they will need your outsourcing providers to respond. Work with your supplier to develop some scenarios to help prepare.
- Impact on outsourcing providers – outsourcing providers are businesses that will be impacted. Do you understand how they will be impacted and how they need you to support them to deal with these changes or to mitigate any challenges caused by these?”
And once organisations have analysed their ability to cope with future risk, Elesh, what do you think organisations departments need to change in the way that they work?
“Again, it is too early to define the true impact of COVID19, however some things are likely to be expected so early response will provide more capacity to respond to the unknowns. Key items to consider are:
- Shifting to digital – we have experienced an increase in digital channels to market so it’s possible that your previous solutions will be challenged, and you may need to consider accelerating your digital strategy. There are many examples where subscribing to bot-enabled procurement has considerably reduced buyers’ time, enabling them to focus on other tasks and therefore resulted in considerable cost savings, as well as efficiencies in delivery. Are you harnessing the opportunities digitalisation can afford you?
- Security and compliance – with more digital solutions and more remote working, many of the previous solutions that controlled your risk may no longer be valid, so how do you have to change your security and compliance arrangements to respond to this changed environment. Remember to keep an eye on regulatory changes that will influence how you can respond.
- More home/remote working – staff will need to be supported from multiple locations and suppliers will need to be able to respond to this. This could present a big cultural change if suppliers are more used to meeting face-to-face and don’t have the appropriate, more collaborative, technologies.
- Significant changes in revenue streams – organisations will see significant changes in customer spend behaviour and, as a result, there will be a different appetite to spend and you will need to have the ability to reduce costs accordingly. Don’t forget to consider the impact on the suppliers’ business as you reduce costs; a collaborative (but business like) relationship at multiple levels will be key. Don’t forget to consider ways to consolidate your spend to fewer suppliers so that you may have options to help them replace revenue.
- Changes in customer interactions – customers will require more digital or minimal proximity communications. How will this require your outsourcing operations to change?
- Cost reduction pressures – at the corporate level many organisations will be asked to reduce cost while maintaining current service levels. This can be challenging in outsourced arrangements that have built-in spend commitments, or discount levels associated with levels of spend. Be clear about what these are and how they can be mitigated e.g., alternate spend, supplier consolidation etc.
- Agility – BU’s will develop their own business continuity plans so how do you need to align with these? In terms of other impacts, BU’s will be trying to develop some scenarios that they will prepare to respond to. These are not generally made public but try and get to know what they are to make sure they can be aligned. At the very least you are likely to need greater flexibility for volume changes as the business units respond to the opportunities in the future.
- Partner collaboration – BU’s are likely to rely on their own partners to help address the peaks and troughs in their operations. Consider how your outsourcing providers will be able to work in this model, especially if some of the partners are competitors; pre-agreements/arrangements to protect all will be key.”
And do you think COVID19 will have a significant impact on the way organisations shape their overall outsourcing strategies moving forwards, Elesh?
“To some extent, yes. Over the last few years, much of the focus on outsourcing arrangements has been on efficiency and cost management and less on other aspects like; location or supplier concentration, level of control over operations, end-to-end supply chain management, secondary supplier capability and multi supplier collaboration.
The impacts from COVID19 will change the balance between these, whilst at the same time, increasing pressure on efficiency and cost reductions.
This might be an opportunity to rethink the basis of outsourcing arrangements.
In the pursuit of cost reductions, we may have spent less time in considering the question ‘why can a supplier do this cheaper, other than paying their staff less than we do?’.
This question should lead to the operational capabilities that a supplier can uniquely bring, or investments in things like automation that they can make, as well as considerations for the risks associated with achieving the cost reductions that may now be more significant.”
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