Monday 28 March 2011

Challenges in Outsourcing

- Jayanta Ghatak

Long after Outsourcing has become a buzz word in many industries, logistics it seems is still waking up to it. The challenges in outsourcing are plenty but in my reading – the most crucial among them is the mind set. For instance - the fear of leakage of sensitive data and information, which should also be a deterrent for the I.T industry, does not hamper outsourcing for the likes of Wipro and TCS. On the contrary outsourcing is a key driver for the information technology industry. The above in reality is a perceived challenge – other challenges of the mindset include Loss of Internal Logistics Management Facilities, biased choice of service providers, service degradation, emergency response, longer order cycle time, loss of control and representation, reduced contact with final consumer and less visibility to customers.

Apart from perceived challenges, outsourcing also throws up some real ones. They can be broadly classified into a) Strategic, b) Organizational, c) Operational, d) Selection and e) External challenges.

Strategic challenges include Management Buy in, Scope of Outsourcing and Cultural fit. Scope of Outsourcing corresponds to the problem of the extent of outsourcing the company needs to offload. Scope of Outsourcing can be tricky as companies are usually unsure about drawing the line between what works in house and what needs to be outsourced. The ability of cultural amalgamation between the client and LSP is a necessity as the latter functions as an extended arm of the client and for many end consumers the LSP is the client.

Organizational challenges include redeploying existing resources which at times become a major roadblock to outsourcing and improving efficiency. Change management also becomes a key area of focus in an outsourcing scenario. Companies face a daunting task of forecasting the quantum and the timing of change.

Operational challenges include reengineering existing processes in view of outsourcing strategy, framing KPIs/ SLAs both for internal resources and for external agencies, implementing processes across the organization and initiating MIS generation and measuring performance and benefits of outsourcing.

Selection challenges include ability to understand and assess customer’s requirement, Project management and roll-out capabilities, framing appropriate performance measurement system, information technology integration and interface, IT and communication infrastructure up gradation, managing relationship with customers/ vendors/ authorities/ employees, developing short-term and long-term infrastructure, developing strong intra-country dependable distribution service, ability to scale-up/ down depending on customer’s requirement, developing and enhancing Intellectual Capital, Continuously enhancing and expanding service offerings, developing and implementing industry-specific SCM solutions with tangible measurable results.

    Apart from the above, outsourcing also deals with external challenges like poor road conditions, lack of dependable communication infrastructure, managing multiple government authorities and understanding and adopting laws of land.


(Author: Mr. Jayanta Ghatak is the Zonal Business Head (East) for Drive India Enterprise Solutions Ltd. (DIESL), a TATA group company.)

2 comments:

  1. Every supply chain program, good or bad, launches from a plan. It’s
    the ability to forecast and analyze product demand, consumer buying
    patterns, and economic trends that separates the winners from the losers. In
    reality, any kind of a forecast is going to involve the black arts of predicting
    the future, a process that inevitably will result in some errors even under
    the best circumstances. It’s not an issue of what happens if a forecast goes
    wrong—it’s more an issue of by how much.

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  2. I believe that all those challenges can be overcome and improved especially in Logistics Management in the Philippines. Thanks for your tips and advice.

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