Tools of the Outsourcing Trade

Outsourcing continues to grow as more companies move to the “virtual” world of contract manufacturing. By incorporating outsourcing into a company’s overall business strategy, companies gain new opportunities to sustain long-term growth and competitive advantage.

On the other hand, globalization can lead to a rush to expand in lowcost countries, straining the ability to manage manufacturing, packaging and supply chain operations.

Despite outsourcing growth and the availability of Web-based tools, few companies have successfully automated communications and operations to collaborate with suppliers, distributors and contract manufacturers. Instead, they still rely on outdated processes that contribute to delays, errors and excessive inventory and costs.

To succeed with outsourcing, a company must collaborate with its business partners. And, effective collaboration requires technologies and processes that improve control, visibility and velocity— namely, barcoding, RFID and track-and-trace capabilities—across the outsourced network.

Companies must maintain high levels of quality, traceability, customer service and brand integrity yet still reap the cost savings and agility of outsourcing. Additional challenges faced by virtual manufacturing and supply chain environments include:

• Technology adoption by business partners;
• Managing compliance and product safety risk;
• Customer service and relationships;
• Cost control.

Companies must also overcome cultural and technological challenges, including:

• Change management. Companies must adjust competencies and culture to work collaboratively;
• Supplier/Contract Manufacturing Organization factors. Aptitude for change, technological capabilities and partner stability all play a part in the success or failure of outsourcing;
• Technology challenges. ERP systems were not designed for contemporary supply chains, so integrating partners is often difficult, time-consuming and expensive.

The Name of the Game
Collaboration may be nothing new, but it is still critical to outsourcing success. Historically, outsourcing partners have resisted making the necessary technology investments and changes within their organizations to enable collaboration because of a perceived unequal benefit distribution. Partner companies often believe technologies only benefit the brand owner and therefore offer a limited value proposition. Resistance to change has also been a major factor limiting adoption, as has security risks associated with sharing ERP data. As a result, potential technology and cultural problems related to collaboration are perceived as so significant that few companies have truly achieved collaboration on a meaningful level.

To successfully streamline cross-company processes, companies need a collaboration solution that fulfills their organizational requirements while also offering value to partners. Facilitating price discovery or reducing partners’ own costs of acquisition isn’t enough. Dramatic cost reductions will only occur when inefficiencies are removed from the total system, with benefits accruing to all parties.

Key to partner collaboration is matching the technology with each partner; the process cannot stem from a one-size-fits-all approach. Technology sophistication will vary across partner networks, as will the means by which integration should occur. Manufacturing companies must ensure their partners are provided choices—such as Web portal, Web services and file-sharing integration—for implementation and for working with their systems, staff and processes.