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Decoding Supply Chain Outsourcing.Presentation at DIESL’s CAPTAINS OF LOGISTICS Seminar

R SANKARA NARAYANANRegional Head – Lighting Supply Chain, Forwarding & Distribution

March 13, 2015

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Various forms of Sourcing

– Outsourcing To obtain components for products or services from sources outside the

organization. – In-sourcing

Transfer tasks that were performed outside the organization into the organization

– Offshoring Outsourcing overseas or in a separate country

– Near-shoring, Outsourcing to cheaper overseas, still geographically closer locations ,

e.g. Srilanka and Bangladesh– Rural-sourcing

Outsourcing to cheaper rural areas in the country Volunteering – used in crowd sourcing like, posting questions on

internet and evoke voluntory answers

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What is Outsourcing

• “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources,”

• Many Organisations are skeptical about value of outsourcing for fear of loss of control and transperancy.

• They assume their internal operations are “good enough” and improving them is not worth the perceived risk.

• Overlooking potential problems and areas for improvement, however, can result in a timid and complacent workplace culture

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Outsourcing

• outsourcing is the contracting out of a company’s non- core, non-revenue-producing activities to specialists. outsourcing is a strategic management tool that involves the restructuring of an organization around what it does best — its core competencies.

• outsourcing should be carried out from a strategic perspective and integrated into the overall strategy of the organisation by proposing an outsourcing framework.

• key strands related to outsourcing including a value chain perspective, core competency thinking and supply base influences into the decision‐making process.

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Core Competencies

Strategic planning defines the mission and goals for the organization

From this the organization determines the role of each business activity

Core competencies are things the organization does better than its competition

Non-core activities are good candidates for outsourcing

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Outsourcing model

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Outsourcing model

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Why to outsource ?

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Comparitive advantage theory

• If an external outsourcing provider can perform activities more productively than the client firm, the outsourcing provider should do the work

• This applies regardless of the geographical location

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Trends in Outsourcing

• It is no longer primarily about cost

• Often ahead of price, these three issues are central to the decision to outsource, and sometimes to offshore:

– 1. Competitive agility: the ability to respond quickly to new contractual needs, new opportunities and changing market conditions.

– 2. Scalability: the need to better manage unforeseen and seasonal demand and access just-in-time talent. It’s no longer primarily about cost

– 3. Innovation: investment in critical research and development, and the ability to access high-demand, low-supply talent in order to deliver innovative products and services in a timely way.

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Trends in Outsourcing

• Near shoreing is becoming more prevalant : The shift away from the belief that “cheaper is better” is already taking root in developed economies for which quality is again the crucial differentiator

• Outsourcing is increasingly applied by Strategic function - and many that provide expertise by industry, process, regulatory oversight, or job function

• Outsourcing is expanding among mid-sized operators

• Outsourcers and clients are in direct competition for talent. As outsourced work becomes more strategic and of higher value, more talented workers want to do it.

• Structures& processesare becoming more formal – eg IAOP, COP certification, OI, ssonetwork.com

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Few BPO and KPO Examples in India

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Case Study -1 LANDMARK GROUP

• The Landmark Group, started in 1973 and currently headquartered at Dubai is a leading retail and hospitality conglomerate in the Middle East and India

• Operate over 1,500 outlets encompassing over 20 million square feet, spread across 19 countries.

• Sells a broad range of products including general merchandise, furniture, white goods, electronics, baby needs, fashion garments and more.

• Their core retail brands include Home Centre, Centrepoint, Babyshop, Splash, Shoe Mart and others.

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Case Study -1 LANDMARK GROUP

• • BUSINESS CHALLENGE:

• How to have Inventory Visibility ?

• How to Improve supply chain efficiency ?• How to Realize uniform pricing across the Gulf Co-operation Council (GCC) ?

• How to Enhance the customer delivery solution?

• How to Enhance store replenishment and stock taking processes?

• How to Eliminate manual entry in financials, across multiple sets of books ?

• How to Implement flexible putaway logic to manage space constrains in the warehouse

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Case Study -1 LANDMARK GROUP

• Solutions offered:

• Creating a Logistics bolt-on module to manage import, export and multi-leg routing of the supply chain process

• Developing and implementing a large custom module to support the trading business (i.e. Re – Export) and end to end Customer Order Delivery, spread across multiple systems

• Developing an initial pricing engine to factor cost, incidental expenses, and margin to derive uniform pricing across the GCC countries. This is shared with suppliers as a value added service before goods are dispatched

• Simplifying the store return process (very common with very high volumes during end-of-season sales) to better manage stock at warehouses

• Creating a complete bolt-on module to take care of delivery management for customers, primarily for furniture products

• Developing a flexible putaway process to minimize space constrains in the warehouse

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Case Study -1 LANDMARK GROUP

• Solutions offered:

• Addressing and automating complex financial posting requirements

• Developing the bin-based stock count process at stores

• Creating a custom replenishment engine to take care of store needs• • Implementing Merchandise Financial Planning (MFP) for better Pre and In-season

planning

• Assisting warehouse managers to implement physical layout changes and improve operation efficiency

• Integrating Genesis solution seamlessly with all satellite systems to ensure data consistency across the systems

• Providing business cutover, data migration, operational report and warranty support

• Conducting Train the Trainer workshops for approximately 120 users

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Case Study -1 LANDMARK GROUP

BENEFITS DERIVED:

• Increased return on inventory investment and more accurate costing

• Greater control over the business processes

• Accurate, detailed inventory tracking

• Accelerated receiving cycle, reducing the time required to move and sell items

• Improved customer satisfaction through end to end visibility

• Enhanced inventory visibility across the group

• Increased efficiency and accurate financial recording

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Case Study 2

Dell Call Center

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Case Study 2Dell Call Center

• REASONS FOR SHIFTING TO INDIA

• Talent availability - Cheap as well as skilled labourers ,often overqualified.

• Dell could gain more experience by working with third party vendors.• Outsourcing helps Dell benchmark its quality and cost.• Since Dell has seasonality in the business, outsourcing business to

India allowed Dell to ramp up and down without changing employee count

• Outsourcing to India allowed Dell to spread its call centers geographically, and then, may mitigate something such as natural disasters

• Risk mitigation / Distribution .

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Case Study 2Dell Call Center

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Case Study 2Dell Call Center

• CHALLENGES FACED:

• Time consuming to find the right people and teach them about Dell’s Culture

• Language and cultural dimensions

• Technology is also a big challenge. When Dell set up its first call center, it took about seven months for Dell’s officers to decide what kind of routers and switches to use.

• Difficulty in employee retention

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Case Study 2Dell Call Center

• DOWNFALL:

• Customer satisfaction had dropped. • Dell stopped using a technical support center in Bangalore, India

to handle calls from U.S. customers due to many complaints on quality of service,

• There are other complaints such as delays in reaching senior technicians when speaking technical support employees in India.

• CASE ANALYSIS:

• Dell failed to plan for the call centre in the long term.• Did not plan for with new additions in Dell’s technology base.• Long delays in transfer of calls lead to customer frustration. • Cultural issues

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Case Study 2Dell Call Center

• LEARNINGS:

• Need for Detailed Planning

• Investigation and pre outsourcing analysis .

• Training employees to acquire language skills of the customer base.

• Outsourcing manager to be appointed to mange and monitor off shore outsourcing projects.

• Critical monitoring

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Why do companies Outsource?

– Reduces administrative burdens – Focus on strategic areas – Reduce costs – Focus on core functions – Acquire new skills – Acquire better management – Assist a fast growth situation – Avoid labour problems – Focus on strategy – Avoid major investments – Handle overflow situation – Improve flexibility – Improve ratios – Jump on to bandwagon – Enhance credibility – Maintain old functions – Improve performance – Begin a strategic initiative

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Outsourcing Process

Understanding company goals and objectives

A strategic vision and plan

Selecting the right vendor

Management of the relationships

A properly structured contract

Open communication

Senior executive support

Use of outside expertise

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Outsourcing Methodologies

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Risk Evaluation

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Rating Mechanism for Service Provider Selection

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Whether to outsource or not ?Use Breakeven Analysis

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Whether to outsource or not ?Use Breakeven Analysis

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Outsourcing decision based on Break-Even

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Advantages of Outsourcing

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Concerns about Outsourcing in SCM

Fear of losing control

Lack of confidence

Lack of outsourcing education

Management philosophy and tradition

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SCM Outsourcing Risks

Short term :

– Pricing issues – Operational issues at supplier’s end

Long term :

– non-performance by a supplier – nonalignment of company’s goals with supplier’s goals

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Myths of Supply Chain Outsourcing

• – My Outsourced partners are all supply chain experts

– Partners have state-of-the-art IT infrastructure

– By outsourcing production and fulfillment, no need to worry about execution

– Outsourced partners will provide expert project management

– Outsourcing automatically gives a time-to-market advantage

– Fulfillment is easier to outsource than manufacturing

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Range of SCM activities for outsourcing

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Benefits of SCM Outsourcing

• Scope for rigorous analytical skills and techniques to operations that are often managed by intuition and “gut feel.”

• Operational savings can be realized by improving process performance and optimizing staffing profiles.

• Companies can realize additional value through increased process performance, which can improve the entire client supply chain management organization.

• Focused investments and resources on companies’ core competencies to help improve speed and efficiency and anlytics capabilities

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Benefits of SCM Outsourcing

• Instead of having to manage multiple departments and vendors, companies gain a single point of accountability through vendor.

• Outsourcing helps to create an integrated, global supply chain management organization, replacing functional or regional silos, with improved decision making capabilities.

• Companies can decrease their operational workload, reduce seasonal staff shortages and enhance process compliance.

• Companies gain access to worldclass technology faster and cheaper.

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Optimising Supply chain to Perfection

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