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by Marty Weil, Contributing Editor Posted on Friday, November 30, 2007 2:09:35 PM   | Abstract: | Outsourcing various business processes and operations to offshore partners may be a good business strategy, but unless these complex relationships are properly managed with the right tech tools, they can go awry. |
In today's turbulent global economy, manufacturers seeking the refuge of offshore markets to trim labor costs are severely underestimating the requirements for the ongoing management of their outsourced processes. Anyone who doubts this assertion need only look as far as the 2007 headlines about Mattel and other U.S. companies that were bitten by defects in products outsourced to China and other "low-cost" countries. "Manufacturers need to understand that their work is just beginning at the time the outsourcing contract is signed," says Vinay Gupta, founder and CEO of Ann Arbor, Mich.-based Janeeva, a provider of outsourcing relationship management (ORM) software. "Outsourcing, by its very nature, breaks the management infrastructure — no more 'managing by walking around' — and outsourcing breaks the IT infrastructure as companies are not able to rely on a captive enterprise environment and on-premise software tools." Outsourcing is a complex business relationship, one that can't be fully automated. And while no one claims that technology is a panacea for fixing all of the problems associated with outsourcing, manufacturers can benefit greatly from the strategic deployment of technologies designed specifically for managing outsourced processes. Conversely, those that fail to properly automate may continue to suffer debilitating setbacks. According to Gupta and other outsourcing experts, manufacturers are still attempting to manage complex outsourcing operations using simple desktop tools, such as e-mail, spreadsheets, file sharing, and a host of other applications. However, these simple tools generate data that is already obsolete by the time reports are generated. In some cases, manufacturers have tried to adapt legacy ERP and MES systems to do the work. While better than desktop tools, legacy systems can be cumbersome and expensive to manage, and they are not readily able to interface with offshore data sources or provide the type of capabilities that outsourced processes mandate. Julie Fraser agrees that there is a fundamental mismatch between existing enterprise systems and outsourcing. "Existing systems really aren't well-designed for it," says Fraser, a principal and industry analyst at Industry Directions. "It's not to say that they don't play a role. But core capabilities are missing, such as collaborative planning and, more importantly, replenishment and communication capabilities — or some mechanism to trigger vendor-managed inventory transactions. Manufacturers need to be able to manage that relationship to specific contract terms with that specific partner." How the outsourcing relationship is managed and the tools required to properly manage it are critical to the success of the endeavor. "The available research all points to a tremendous amount of value being at risk in how the relationship is managed — as much as 30% of the annual contract value," says Danny Ertel, founder and director of Vantage Partners, a firm specializing in negotiation, relationship management, and conflict management. "A well-functioning relationship delivers additional savings, agility, innovation, and better customer satisfaction, and frees resources that can be focused on other things," he says. "A poorly functioning one wastes resources through conflict, escalations, duplication of efforts, slow decision-making, lack of follow-through, and more." Clearly, a gap exists between the requisite tools for success and the use of desktop software and legacy systems for managing these relationships. Some experts believe the answer may be found in software-as-a-service (SaaS), a software application delivery model in which a software vendor develops a Web-native software application and then hosts and operates the application for use by its customers over the Internet. SaaS originally gained traction in functional areas outside manufacturing production, such as CRM, HR/payroll, and financials. Page : 1 2 3 4 ... NEXT |