survival outsourcing… best practices for vendor management in today’s tough economic times…...
TRANSCRIPT
SURVIVAL OUTSOURCING…
Best Practices for VENDOR MANAGEMENT in Today’s Tough
Economic Times…
Outsourcing 2.0 Roadshow (San Francisco Edition)
October 15, 2009
Remind us WHY we outsource
Why Conventional Wisdom (Outsourcing 1.0) Vendor Management Techniques are Wrong
Learn Best Practices for Vendor Mgt Techniques
NO CONSULTANT SPEAK…No Buzz Words
Objective for Today…
October 15, 2009
WHY DID WE OUTSOURCE IN THE
FIRST PLACE ???
DECISION TO OUTSOURCE
October 15, 2009
COST REDUCTION…
Low Labor Rates…
Were they simply a MIRAGE???
WHY OUTSOURCE?
October 15, 2009
HIDDEN Costs
Quality Issues
Poor Customer Service - Issues
What did we get for these LOW COSTS?
October 15, 2009
Hidden Costs of Outsourcing
October 15, 2009
October 15, 2009
Offshoring / Outsourcing
•Everybody is doing it…
•It’s not “rocket science”…
•And yet, most companies screw it up…
October 15, 2009
Potential Landmines
• Why do Outsource projects fail? Because moving to an outsourced model fundamentally changes your business…and the old rules don’t necessarily apply.
(Booze-Allen Hamilton Global Operations Practice…2006)
• The flaw, we believe, has been with the “practice” of Outsourcing…not the theory.
(Ernst & Young Supply Outsourcing report…2007)
October 15, 2009
Pain of Outsourcing 1.0
•Results from an Off-shoring / Outsourcing projects
–Lingering illness (70% of projects)
–Fatal disease (15% of projects)
–Miracle cure (15% of projects)
Financial Crisis on a Global Basis
Consumer Demand still remains sluggish
Environmental concerns / issues?
Energy Costs – Transportation – Logistics Costs
Currency Fluctuations in Asia
Global Challenges Everywhere…
October 15, 2009
October 15, 2009
CONVENTIONAL WISDOM
Vendor Management Techniques for these tough economic times…
(Hint…they’re all wrong…)
CONVENTIONAL WISDOM• Now is the time to “SQUEEZE” your suppliers• If you don’t make profits…neither shall your suppliers• Extend your payment terms (Pay invoices slowly…)• Re-negotiate all Contractual Terms• In-Source – Bring work back “inside” your company• Cut Travel expense…Cut contract workers…• Cut Overhead operational expenses (turn out lights…)• When in doubt…restructure / reorganize…
October 15, 2009
Extend payment terms (Pay invoices slowly…)
All of their customers are using this one…
If you want to STAND OUT and GET PREFERENTIAL Treatment….pay your (key) suppliers PROMPTLY…Actually reduce your payment terms…
Think about it…do you “REALLY” want your key suppliers to go out of business?
October 15, 2009
If you don’t make profits…neither shall your suppliers
Do you “REALLY” want your key suppliers to go out of business?
You chose your key suppliers for their technology and process…if they don’t make profits…will they continue to invest in that technology?
I Don’t think so…
October 15, 2009
Re-negotiate Contractual Terms
This goes “above and beyond” pissing off your suppliers…
This is NOT EASY and TAKES time - (hint…it’s not free) Think Lawyers...
Forget why you are doing it…suppliers feel like you are coming after their ETHICS and company’s culture with this tactic…
October 15, 2009
What incentive do they have to “help you out” during these tough times?
You are going to need their help…Please…hold extra inventory for mePlease…add more resources to the projectPlease…ship “just in time”Please…reduce my costs Please…reduce & eliminate service fees
Oh, and please improve your quality…
October 15, 2009
WarningThese are 1-time only tactics…they will not
work more than once…You risk your key suppliers looking to “replace
you as a customer” when business improves…These techniques will backfire…Long term relationships are what will get you
through tough times
October 15, 2009
So, what are the Best Practices in Vendor Management for
Outsourcing 2.0 ???
DECISION TO OUTSOURCE
October 15, 2009
October 15, 2009
Best Practices• Feet on the Street• Trade Personnel - Co-locate your people with Supplier• Shine the Light on the project…Over Communicate• Legal Approach needs to Change• Trust…but AUDIT your Supplier• Use 2 Documents for project control
– Rules of the game operational document (who does what…not legalese)
– Legal contracts need INCENTIVES AND PENALTIES…• Get your “ducks in a row” BEFORE you start…• Invest at the start…to save money over time…
October 15, 2009
Feet on the StreetLocal People…speaking Local Languages…
Face to face – on a DAILY BASIS
Quicker results, More accurate info
October 15, 2009
Trade Personnel Co-locate your people with Supplier
Exchange Badges for all key personnel
Share access to more information than you typically would
October 15, 2009
Shine The Light on the Project…Over Communicate
Include your Suppliers in your Design Include your Suppliers in the Process Include your Suppliers in your Engineering Include your Suppliers in your meetings…(even top level
important meetings…) Include your Suppliers in your Quality World
(Seriously….Include your Suppliers…Early and Often)
LEGAL APPROACH NEEDS TO CHANGE
Americans care more about the “deal & contract”….Chinese care more about “the relationship”
While USA Litigates…The Chinese Build Stuff…
This needs to Change
Focus on The Relationship you have with your supplier
Social Compliance Issues – Global Factories Environmental
RoHS / WEEE EuP / Battery Directives
Financial – Sarbanes / Oxley Operational
Costs Measurements - Savings Contractual Compliance issues Quality Compliance records
TRUST…BUT AUDIT YOUR SUPPLIERS
October 15, 2009
WHERE DO WE GO FROM HERE ?
DECISION TO OUTSOURCE
October 15, 2009
The More Things Change…The More They Stay the same…
• Business Cycles go up and down…• Cost Cutting is an Eternal Quest…• Layoffs are Global…• Counterfeit Products continue to thrive…
Those who Focus on the Relationships with their Suppliers…WILL WIN
I use the example of all relationships (even personal relationships)....in the relationship of Suppliers and Buyers, that things will (and can) change over time....UNLESS you continuously monitor and cultivate the relationship. Regardless of where the supplier is located....(US, Europe, Mexico , or China ) suppliers who are left alone to their own methods will tend to have problems...these problems can and will include: * Loss of the "recipe" for the product or service• Quality problems• Environmental problems* Delivery problems• Loss of key personnel working on your product• Customer Service Complaints
CULTIVATE THE RELATIONSHIP
October 15, 2009
October 15, 2009
SUMMARYVendor Management
It’s not “rocket science”…
And yet, most companies screw it up…
Don’t screw it up…Go Back to Basics and
Focus on the Relationship with your Suppliers..and Improve it
Lighten Up…
– Billy, you've been a fine son, but it's time for a change. I found a child overseas who can do
it cheaper." Copyright © Randy Glasbergen
THANK YOU
Contact InformationThe BootonGroup
http://www.bootongroup.com408-386-8696
October 15, 2009
Outsourcing 2.0 Roadshow (San Francisco Edition)