Paling breaks down outsourcing into simple terms for GAAS attendees.
By Brian Cruickshank, AAP
Editor, Counterman
DETROIT — Outsourcing has become more than just a global buzzword. It’s a real-world business practice used by many companies, including those in the automotive aftermarket.
In fact, many Automotive Aftermarket Industry Association and Motor & Equipment Manufacturers Association member companies currently participate in some sort of outsourcing practice. Wednesday afternoon’s final speaker, Mark Paling, said that companies spent $550 billion on outsourcing in 2005.
Paling is the director at Alvarez & Marsal Business Consulting.
Paling began his presentation with a few definitions:
Outsourcing: The delegation of select company operations to a third-party supplier that specializes in that process.
Offshoring: The movement of a business process to a foreign country. Business Process Outsourcing: Fundamental re-engineering of a business process by adapting standard capabilities and best practices from an outsourcing supplier.
Paling outlined the evolution of outsourcing, from early ‘tactical’ outsourcing though modern ‘strategic’ outsourcing. Paling, along with many other experts, expects outsourcing to grow as margin pressures push companies to find advantages in low-cost countries such as China, India, Poland, Russia, Brazil and The Philippines.
Although many companies are outsourcing, the path to it is littered with failures. Paling outlined some proven techniques that have helped companies successfully launch relationships.
First, he said that it’s essential that a company decide up front why it wants to pursue an outsourcing relationship. Paling advises that companies should clearly identify their objectives. Secondly, companies must understand the specifics of ‘what, how and where’ of their proposed outsourcing practice.
Paling stressed that company leadership must regularly communicate to the company rank and file the business objectives, vision and status of the outsourcing. This message must come from the top, and in the absence of it, employees will make negative assumptions. Paling also advised that companies should not view outsourcing a procurement process. Evaluate supplier offerings and negotiate win-win economics.
Paling said that integration is very important. Paling described a few important steps:
Adoption of standard services: Adopt supplier services as much as possible to realize true savings.
Horizontal Integration: Apply attention to the integration of outsourcing services. Change Management: Communicate change management steps during the planning and execution of the transition.
Governance: Invest in the development of well-defined governance, including measurement.
Contract Flexibility: Negotiate contract flexibility since changes will inevitably occur.
Outsourcing Competency: Formalize outsourcing as a core competency and standardize best practices.
Understanding outsourcing’s issues, complexities and challenges will make the path to outsourcing successful and mutually beneficial for your organization and your outsource partner.
