BPO

Archive for December, 2008

To ensure the quality of goods and services, competition among companies is needed. This is the idea with competing companies, and not partnerships. You can say that outsourcing is a partnership between a buyer and supplier. The problem is the difference between discussions and disputes.

Whenever you are working as a team, there will always be discussions and debates as to how things are to be done, but this shouldn’t lead to an all out war. The relationship between the buyer and the supplier is very important, especially since long term contracts are usually involved. If there is dispute, then productivity and efficiency will also be affected. Here are a few ways to alleviate or avoid such disputes.

Flexibility is important

For a buyer-supplier relationship to work, flexibility should be included in the contract. Certain outsourcing contracts are already based upon flexibility principles. They are able to define how both parties should act when they face changing circumstances that are beyond their control.

The Importance of contract concepts

Both parties should be able to use the concepts in the contract for management. A well-structured contact would be the best reference for the buyer and supplier when rising issues are needed to be addressed. If the contract was made in the belief that the parties would constantly communicate, then they should be doing so. They should be able to hold meeting periodically about the course of action based on the contract.

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Outsourcing is one of the most popular ways for companies to cut costs. What they do is to outsource services and manufacturing to suppliers that offer cheaper labor and production costs. This is why so many companies from developed countries have been counting on the work force of nations such as China and India, where labor is a lot cheaper but are still able to deliver the same results.

The need for flexibility

A lot of buyers and suppliers have been raising the question as to how flexibility can be achieved and if it is actually feasible. It becomes difficult for the buyer to be tied to a long term contract when technology seems to be moving at such a fast pace. The thing is that companies don’t want to be in long term contracts, but would want to renew the contract with the supplier. One way of doing this is by giving incentives to the supplier so that it would be encouraged to renew the contract.

The contradictory nature of outsourcing

You can say that outsourcing is quite a paradox; it requires high costs to get in or out of a relationship with a supplier, and a long-term agreement would be necessary in order to lower costs. The long term contract would define the costs and the metrics based on what they have predicted to happen in the future. The problem is that no one really knows what will happen in the future, and this requires an amount of flexibility in the contract. So what happens is that long-term and flexibility start to battle it out.

The root of the problem

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The playing field has definitely changed for participants in the corporate playing field. Nowadays, there are a lot of ways to cut costs done by companies. These have made the world even more globalized in the sense that companies can have certain duties performed by companies in other countries, and being more cost-effective. One of the common trends amongst companies is to outsource work.

What is outsourcing?

Outsourcing is when a company subcontracts a service to another company. This is usually done in the interest of lowering costs. What they would do is have the supplier perform a particular service and the buyer’s concerns are the end results (as contrasted to contracting out where the company is also concerned how it’s done). This enables the company to split service and manufacturing duties so that it becomes cost-efficient.

What are the disadvantages of outsourcing?

There are always disadvantages to every good idea out there. There are companies that tend to overlook the disadvantages and outsourcing then becomes unsuccessful. These can be avoided if the company works based upon the fundamental principles of outsourcing. These should be applied from the beginning of the relationship of the buyer and the supplier. One of them is for the buyer to determine what the services encompass and the metrics. This way, the buyer is ensured that it gets what it is paying for.

This should be done even before the contract is signed. The buyer should also be in control what the services and the performance would be. If the buyer lets the supplier dictate this, then problems are sure to arise. The buyer should also be able to describe what the scope of the services will be.

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