Focus on Human Assets

Cost challenges will continue to escalate and markets will consolidate as the effects of the US recession ripple through the global economy, notes Pradeep Vachani, head of logistics for WNS Global Services. Currently, there is demand in Asia, but how long can the pace of economic growth continue in India and China? And reaching those markets or others where demand is strong requires flexibility.

Given the volatility of global demand and cost drivers, the critical question many medium- and large-sized companies are asking is, “How do I service growing markets without creating the asset laden operations and infrastructure traditionally used to serve markets in Europe and the US?” The answer for more and more companies, says Vachani, is to look at information technology (IT) providers, business process outsourcing providers and third party logistics companies (3PLs) and say, “If I can outsource what is not core to me, it creates a competitive advantage.”

That’s a better model than creating those asset-intensive operations and infrastructures, he continues. The demand is there today and I need to service it, but what if it slows down and I’ve created assets that are going to make my cost structure different from my competitor who has outsourced?

Business process outsourcing (BPO) is accepted as a sound business practice in the US and increasingly in Europe, says Vachani. It helps with the demand and supply mismatch for people and helps leverage logistics talent without geographic constraints. One prime opportunity Vachani sees centers on the fact that about 60% of the processes in logistics are paper based and continue to be paper based despite technology developments. Of that, Vachani estimates 70% can be neutralized from a location point of view and can be done in a low-cost location.

In other words, functions like documentation, preparation of air waybills, bills of lading, or cargo bills, finance, accounting and back-office support functions can be handled by skilled workers without regard for where they actually perform the work. Even some compliance-related and freight audit functions aren’t tied to geography.

“Manufacturers are interested because a big portion of their costs are related to logistics–movement of goods–both on the raw materials side and finished goods. They’re outsourcing many of those functions,” says Vachani. These are all functional organizations, he points out, and they are typically run as cost centers. As such, there is tremendous pressure on headcount because reducing headcount cuts cost.

These smaller departments face the same volume (or more) of transactional detail which doesn’t allow them to focus on more value-added work such as analytics. A $3 billion to $4 billion company typically spends $100 million on logistics, says Vachani, and its management would like to analyze that spending and optimize rates and monitor contracts. Moving much of the transactional detail to a BPO can free those internal resources to perform more of that analysis and focus on supplier and customer relationships.

In many cases, the technology tools of the BPO can support that analysis and even help the contracting firm upgrade its abilities. Some firms have implemented analytical tools and even layered business intelligence tools on top of that, but, in many cases they are still strapped for resources, says Vachani.

A BPO will typically look at the processes and people and ask, “Where can this work best be done?” It’s not a new phenomenon, says Vachani, manufacturing has been doing this for 35 years.

Whether the drivers are energy costs, compliance, security issues or just shippers and logistics providers looking for new ways to reduce costs, newer and emerging markets offer talent pools and a cultural fit that support the move to outsource much of the transactional portion of the logistics function and may even offer some support for the analytics.

Vachani says the BPO will take a client’s processes, break them down into their components and optimize each. Looking at a process in customer service or documentation, he explains, the work can be broken down into smaller sub-processes that can be handled in any location. Many BPO users prefer to keep more of the customer service and customer facing functions, but that leaves many of the supporting processes open to outsourcing.