By Richard Edwards

Supply chain management may be well-established as a key business process – in some industries at least – but, traditionally, there has been little appetite for outsourcing it.

Still, there could be reasons why that’s about to change.

A recent report by analysts Gartner suggests that more firms should look to outsourcing as a way of getting the most out of their supply chains, arguing that technological advances were being under-utilised by firms wary of handing their supply chain management to a third party.

”Supply chain executives are starting to apply more comprehensive analysis to outsourcing decisions,” said Michael Dominy, research director at Gartner. “These will factor-in agility, responsiveness and cost.”



This may cause more than a few raised eyebrows in procurement organisations that believe their supply chain management is already in safe hands, but Dominy suggests that the argument in favour of outsourcing is a compelling one.

”Companies must focus on what they can do best and appropriately outsource activities that value chain partner can do better,” he said.

”This often means using logistics, manufacturing or business process outsourcing partners, instead of performing these supply chain activities themselves.” 



That’s a notion that Ilan Oshri, associate fellow at Warwick Business School, believes is valid.

”It’s another business process that can be outsourced, although it’s not as widely outsourced as IT but it’s certainly view as a central business process,” he tells Procurement Leaders. 

”Clearly it’s very central to the value chain of the firm.”

Oshri believes that there’s a growing reliance on a multi-vendor model when it comes to outsourcing, and that companies are still falling short when it comes to utilising the value that vendors can bring to the supply chain management space.

”A lot of the change is needed from the client side,” he says. “It’s not simply about which business processes should be outsourced and which shouldn’t, it’s all about companies taking the decision to take more risk – and by doing this we’re talking about building up a genuine partnership, not just in terms of goodwill but also in terms of contractual commitments.” 



Oshri argues that, generally, this isn’t happening as companies look to cut out risk and shun innovation. 

Gartner’s study, meanwhile, identifies a number of steps that firms can take to make the most out of any outsourcing agreement, foremost among them, aligning “the outsourcing strategy with the corporate and supply chain strategy.” 



Another factor is connected with the need to manage supply chain outsourcing partners and factor this into future strategy.

The third major finding of the study is outlined by Dominy. “The major players in the supply chain outsourcing market are expanding their services into each other’s turf,” he said. “Knowing what services are core and which ones are not for each service provider is an important factor to consider.” 



There’s little doubt that outsourcing offerings in terms of supply chain management are far more mature now than they have been in the past. 

The reluctance of firms to place responsibility for this area in the hands of a third party, however, remains. 



Source: Procurement Leaders

ABC television staff has called on managing director Mark Scott to stop outsourcing production ahead of the expected cancellation next week of ABC productions The New Inventors, The Collectors and Arts Nation.
Some staff believe that the job losses could amount to 100 positions.

Media understands the ABC’s director of television Kim Dalton is going to announce the end of a raft of ABC-produced shows to add to the growing list he has already axed: Spicks and Specks, Talking Heads, Can We Help and the Hopman Cup.

In a letter delivered to Mr. Scott yesterday, staff said the quality of Australian content was at risk.
“Under the current mixed model of production, ABC TV internal production staff and budgets have been steadily eroded. Starved of resources and opportunities, we are finding it increasingly difficult to deliver the quality content that the Australian public deserves.”
The letter was signed by a TV production staff in Sydney.

Sources say up to 100 people, including camera operators, researchers, directors and producers in the television and resources division as well as regional production staff in Adelaide and Perth are set to be retrenched.

The model pursued by Mr. Dalton, who has pursued a strategy of outsourcing ABC-produced shows to independent production houses, risks the broadcaster becoming merely a funding body, or a “mere facilitator of the private TV production market”, staff said in the letter.

Mr. Dalton did not deny jobs or program cuts in a statement to Media in response to questions.
“Television is not a static business. Planning is ongoing around programming, the production slate and the management of resources. Programs may be cancelled – such as Talking Heads or Can We Help. Key talent may decide not to proceed with ongoing series – such as Maggie Beer and Cook And The Chef or Adam Hills and Spicks and Specks,” he said.

“Programs are moved in the schedule – such as Poh’s Kitchen. New programs are commissioned – such as the drama Miss Fisher’s Murder Mysteries, the comedy At Home With Julia or the sports show Marngrook Footy Show.

“ABC TV’s primary objective is always to deliver the best quality and diverse service it can to its audiences.”

In their letter to Mr. Scott, staff wrote: “We also firmly believe that for the ABC to continue to deliver quality Australian television content it must afford its staff the opportunity to create innovative, value for money content.”

The staff letter called for an audit of the relative costs of internal versus external production has been ignored by Mr. Scott.

“We believe that the current bias shown for external production is based on the false premise that we are less efficient,” the staff said.

“External studies have in the past demonstrated this not to be the case. Before the ABC further dismantles internal production we urge you to address the questions that were presented to you in the open letter of 27 May 2011.”

Channel Ten is also cutting costs and has announced an ongoing program of redundancies of 100 positions.

Source: The Australian

Best Practice Shared Services and moving away from BPO 1.0

Recent research from the Hackett group highlights how “best practice” managed services can still achieve significant results in terms of cost reduction and increased efficiency even in tough economic times.

“Best Practice” Managed Services organisations reduced costs and improved performance during the economic down turn of 2009/2010 according to the most recent performance study results from the Hackett Group. The 9th Annual Global Business Services (GBS)/ Shared Services Performance Study Results, by the Hackett Group, utilises a best practices database derived from more than 5,000 studies conducted with over 3000 major companies worldwide.

Martijn Geerling, senior advisor for the Hackett Group, comments, “Analysis of the results of the 2011 GBS Performance study indicates that after establishing a  successful GBS organisation, most companies achieve further savings through technology leverage and process improvement programs, which is not surprising. Interestingly, most successful GBS organisations report higher savings mostly because they have a more comprehensive process scope.”

Companies intend to move closer to a fully globalised service delivery model, enabling a 24/7 operating environment, with optimised skills and resources across time zones. Global process policy and process design standardisation / localisation has become the norm for many companies and many have (or are in the process of) standardising onto a single ERP system.

“World-GBS organizations have a more mature shared services model. They do this by increasing process scope to higher value-add processes and extending scope to cover more business functions. Therefore, they can tap other savings opportunities than labor arbitrage, such as working capital reductions,” adds Geerling.

Sourcing decisions are strategic decisions which can lock a company in an operating model for the long term. Therefore, companies should evaluate their internal capabilities and seek out a service provider that can partner and complement the enterprise where internal capabilities are lacking and less developed.

Geerling asserts, “Our research and implementation experience confirms time and again that World-class organisations operate at significantly lower cost levels in back office cost whilst being more effective in supporting enterprise goals. They do this by focusing more rigorously on operational excellence in transactional processes and investing in value-add processes; doing things smarter and with less resource.”

In many regards, the results reflect the trend within the BPO and Outsourcing industry, where organisations are aiming for greater strategic objectives and business transformation rather than just reducing costs. Geering states, “Across industries we observe that, as companies are preparing for growth GBS organisations enable business growth by becoming multi-functional and developing better service management models. This is a non-industry specific trend; we find World-class GBS organisations in many industries and expect the model is applicable to all industries.”

Geerling continues, “Finance and Procurement are the areas where we expect to see most transformation effort focused both through globalisation and changes to the operating model, shifting from a largely captive, onshore model to a more global and mixed operating model. As companies mature their GBS model, we expect that multi-function models will enable companies to focus more on business growth as GBs organisations are expected to deliver operational excellence in back-office processes.”
The study shows that World-class GBS organizations have more mature governance models and show a better understanding of best practices in this area.

According to Nemertes’ 2010/11 “Communications and Computing Benchmark,” nearly 97 per cent of organisations are currently using or planning to use some form of outsourcing, documenting a solid increase from 2009 when the figure was 85 per cent. Currently, 73 per cent of research participants use managed services (the largest component of outsourcing), up from 65 per cent in 2008. In fact, managed services have seen a tremendous run since 2006, when only 27 per cent of organisations used managed services.

Outsourcing consists of a range of options on a continuum from managed services to hosted services to Software as a Service (SaaS). Managed services typically include outsourcing management of a specific application, technology or function, often including maintenance. Usually, managed services consist of managing onsite equipment at the customer premises, though with a service such as business continuity/disaster recovery (BC/DR), onsite equipment is at a provider facility. Hosted services deliver applications via either the Internet or dedicated network using MPLS, Carrier Ethernet, or leased line. SaaS is similar to hosted services with the same delivery model. However, SaaS is intrinsically multi-tenant, on-demand, with pay-as-you-go pricing. In comparison, hosted services are often not multi-tenant, on-demand, and typically have multi-year pricing.

Several factors drive the adoption of managed services. The top reason IT staff outsource is to save money, a driver 69.5 per cent of organisations cited. The greatest savings results from reducing the staff and perhaps 24 x 7 facilities to house them. Providers take advantage of economies of scale to offer management and maintenance services at rates lower than it costs organisations to provide the services internally. A lack of staffing skills is the next greatest driver: About 30 per cent of organisations indicate a lack of internal skills as a primary managed-services driver, and about 25 per cent of organisations identify lack of staff as a primary driver. IT leaders often decide against employing staff to manage systems they view as commodities and use those headcounts for more strategic functions.

These drivers directly reflect plans to adopt managed and even hosted services in 2011. The top managed services are for functions seen largely as commodities in IT: Network/router management and IP Telephony. IT leaders who continue to grasp internal control of network/router and IPT management should closely evaluate the cost of outsourcing versus internal management.

As most IT operations and data centres are viewed as cost centres, CIOs and IT leaders are under constant pressure to do more with less.  When times are tough that pressure is increased, hard decisions are required to cut costs while maintaining quality of service.  According to a recent survey by IDC Research, [1]69 per cent of CIOs see managed services, also known as discreet outsourcing, as the solution.

The survey revealed that senior IT executives clearly understand the difference between managed services and outsourcing.  A managed service is where the day-to-day management of a specific IT-related activity is handled by an external organisation. As opposed to full outsourcing, the management responsibility still resides with the client and not the provider.

Managed services and outsourcing can exist within the same organisation by fulfilling the requirements of different functions, depending on what is critical for daily operations and how much control is required or desired by IT leadership.

David Lenz, General Manager of Ingram Micro’s Enterprise Technology Group, says, “That remote management and managed services has seen tremendous uptake in Australia and Asia Pacific region in the last couple of years.”

Earlier this year Gartner cited 19 per cent average growth across the industry’s client base over the previous 12 months.  That growth does not seem to have stopped. ASX-listed ComputerCorp expects the managed services market to escalate as organisations find new issues that these solutions can address. The company experienced 35 per cent growth in the last year, much of it attributed to managed services.

The IDC survey identified service/help desk, applications operations, data backup and restore as expected uses for managed services in the next 18 months. Currently, managed Web hosting/operations SaaS and disaster recovery services are the most common uses for managed services.

The factors in selecting a managed services partner include costs, flexibility or willingness to work with a customer’s changing needs, the ability to customise services and a trusted reputation in the marketplace.