Got Outsourcing - What's The Truth About China Outsourcing

GOT OUTSOURCING? What's the Truth about China Outsourcing?

Outsourcing…just the “word” conjures up several different meanings and emotions. With companies of all sizes moving their manufacturing, software development and business processes to Outsourcing Providers in far lands; this topic has become “the defining issue” of our time.

There are several things that have become very apparent over the last decade:

• Outsourcing has gone Mainstream
• Outsourcing Changes Everything
• Outsourcing is Not for Everyone
• He who Outsources Best…Wins

So is Outsourcing a “Miracle Cure” or a “Fatal Disease” for your company? That appears to be the Sixty-Four Thousand dollar question of our time.

Let’s look at the reasons why companies decide to Outsource.

Cost Reduction.

It all evolves around cost reduction in some form or fashion. Every company in today’s hyper-competitive environment is constantly challenged to do everything bigger, better, faster….and always “cheaper.” Some companies explain that there are other reasons they are outsourcing…”increase capacity”…”access to advanced technology”…”allow them to focus on their “core values”…it always seems to come back around to cost reduction.

In the world of Outsourcing, there are some basic principles that will occur in every single project. These principles must be followed, or the chances of a successful project will be greatly diminished. With an apology to religion, we will call these principles and rules the Ten Commandments of Outsourcing.

1. Outsourcing is not for everyone…While it seems as if all companies are doing it and constantly talking about it…the reality of the situation is that Outsourcing is “not for every company.”

2. Outsourcing changes Everything!!! Different resources are required. Different skill-sets for your people are required…new training must take place. Different Communication methods are required…it is not your normal business relationship. Different software tools are required for you to properly manage the project. Different legal contracts and operational documents are required.

3. The majority of all Outsourcing Projects FAIL before they get started. This is due to the fact that most companies practice STUPID OUTSOURCING. They have no strategy or plan…they Pick the Wrong Supplier…they fail to do their homework first…and they have little or no knowledge of their own costs.

4. If you are Outsourcing “simply” to cut costs…you will fail.

5. Outsourcing is both a “strategic” and a “tactical decision…companies should not take this decision lightly. They must take their time in a careful decision making process that address all factors.

6. Understanding costs is a key, before you start…and after you start. It costs money to outsource…you must invest up front to save money later. Suppliers can be masters at hiding costs and confusing their costs…hence the term “shell game” sometimes applies to Outsourcing.

7. The “Low Cost” region of today is getting more expensive every day that goes by. Remember Japan in the 70s…Mexico in the 80s…now everyone goes to China or India. What region is next?

8. Properly managed, an outsourcing program can greatly enhance your Return on Investment for your company.

9. The flaw of Outsourcing is in the Practice…not the idea.

10. He who Outsources best Wins. There are many successful companies today who have a business model heavily built on outsourcing. It can be extremely successful…but you must know what you are doing.

While there continues to be a political discussion about the pros and cons of Outsourcing, the internal debate among companies continues to rage about the important question….Do Companies really Save Money when Outsourcing? While there are vigorous arguments on both sides of this question, there are several truths that need to be examined. First, the “stage” of the Outsourcing project will determine the type and amount of savings you are receiving. Typically, the longer you outsource a product or business process, the more you will save. Secondly, by looking at the total cost of your outsourcing projects, you will be able to better monitor and track your savings progress. One of the typical “gotchas” that always pops up is the fact that most companies are unaware of the “Hidden Costs” of Outsourcing.

Hidden Costs typically revolve around the following categories:

• Travel – all of the travel costs…don’t forget all of the “emergency” trips that arise…and the endless management reviews that happen. (It’s interesting, but true, that a lot of unexpected travel for the management teams occur around the Christmas Holidays…when the executives love to visit suppliers (especially in the Far East) for official business trips…that allow them to also take care of their personal holiday shopping duties.)

• Communication or the lack thereof. Differences in language and culture are the biggest issue here…but don’t forget to look at the cost of differences in time zones resulting in endless late night phone calls and meetings.

• Transfer of Knowledge…which include your people, process, and intellectual property. Be careful of losing control over the important stuff…what’s the cost to losing something private and crucial to your firm?

• Quality issues and the cost of resolution. This is always a major concern regardless whether it is a product or service you are outsourcing. Companies can not afford to suffer quality problems simply due to outsourcing.

So Outsourcing is not Rocket Science…but most companies screw it up.

What is the Secret Sauce to Outsourcing? What can your company do to succeed? Should you avoid Outsourcing all together or simply jump in the game with all the rest of your competitors?

While I choose to leave the complex political discussion of the topic of Outsourcing to the television pundits…I believe in Outsourcing, when it is done properly and only in the right situation.

If is definitely not a “one size fits all” magic cure for business today. I have seen many companies who have successfully outsourced and enjoyed major financial wins. On the other hand, the field is littered with companies who have made mistakes during Outsourcing…resulting in disastrous results.

You will need to judge for yourself.

That’s some of the topics covered in Bob Booton’s book entitled “Outsourcing-in-a-Box” and his upcoming “Lucky 8 – Successful Outsourcing in China” For more information on these or other questions concerning Outsourcing, contact The BootonGroup at http://www.bootongroup.com/webinars for more information.

(Note: The book is available for purchase at Amazon or www.outsourcinginabox.com)