Outsourcing and SCMLuxe (Part 2 of 3)

Outsourcing business processes like Finance and Accounting, HR administration or Customer Service Call Center processes are done for several reasons:

1.   Lower costs from moving operations to lower cost locations (like India, Philippines etc)

2.   Economies of scale from consolidating these transactional processes in a single location

3.   Ability to build centers of excellence wherein best of breed solution and best practices can be deployed

4.   Convert capital expenditure involved in processing these transactional tasks into variable expenses by outsourcing to a vendor who can then bill based on volume of transactions handled. Thus enabling the move from a capex to an opex model for business processes

5.   Managing volume fluctuations for these processes and the inability of a company to provide resources during peak periods while maintaining them during periods of low volumes. For eg: a retail company may require only 100 people to process customer orders in low season but during the Christmas holiday season would require 500 people to perform the same tasks. How does it staff these peaks, what do the staffs do during the rest of the year. How does one manage attrition and employee development in such a situation? Outsourcing to a specialist provider of these services is one answers

6.  Advantages of 24/7 hour operations by utilizing time zone differences across the globe

Traditionally companies have tended to offshore transactional low

end work like bookkeeping and call center operations. Companies are moving towards offshoring processes requiring higher skills like supply chain operations (order management, fulfillment or inventory management and indirect procurement).

Let us look at what factors need to be considered while considering offshoring SCMluxe processes:

1.   Brand capital: Any processes which directly impact the brand should not be offshored for whatever reason since the heart of a luxury product is its brand value. Design and marketing  communications are examples of processes which need to be kept in-house

2.   Customer Facing processes: Processes which need direct interaction with the customer, either in person or over phone. Customer service for instance always need to be local and personalized and not delivered remotely from a low cost country (LCC)

3.   High cost administrative tasks: Luxury companies typically have offices in high cost locations. Though retailing requires such locations, the administrative tasks such as finance and accounting, HR administration, Travel and Expenses administration need not be performed from these high cost locations

4.   Disbursed administrative processes: Activities that are performed from disbursed locations such as warehouse mgmt, inventory and merchandising planning, logistics administration,  might benefit from consolidation of processes in a single location

5.   High Volume processes: Certain processes which have high volume benefit from consolidation and driving benefits from discounting. Processes such as indirect procurement and Travel and Expenses accounting, hospitality mgmt will benefit from consolidating volumes and obtaining discounts

In the next post we will discuss specific SCMluxe processes which will  lend themselves to outsourcing and the models we can use for these processes