Making Outsourcing More Flexible

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

In order to alleviate a problem, one must find the source and isolate it. In this case, the supplier offers to do certain services at a set amount of time, and amortize costs. The problem is that these do not cover changes and improvements.

Another problem is the future itself. The buyer and supplier agree upon costs, services, and expectations but the reality is that no matter what research you do, you never really know what the future holds. These are the reasons why flexibility really is the key to a successful outsourcing contract.

Proposed solution

On way to achieve flexibility is to differentiate the length of the contract, and the length of the relationship as well. This makes the buyer able to adjust whenever a contract expires, and a new one is about to start without having the problem of “courting” the supplier again. This would then result in long term relationships on short term contracts. GP

Posted in BPO Outsourcing  on December 20, 2008 - 3:40 pm by admin  |