How can we solve outsourcing and insourcing not working in the service supply chain
by Mike Heslop, founder of Centrex Service
Insourcing and outsourcing within the service supply chain are still not working, so how can the eternal problem be solved?
As official GDP figures show, the UK is once again in recession, businesses are looking to strip waste wherever possible to remain buoyant and profitable.
The insource versus outsource debate has long been discussed across all industries, but neither has become the defacto as both have continued to encounter problems. As a solution to this, a new proposition being brought to the market; leansource.
Mike Heslop, founder of Centrex Services and creator of the new concept, argues that combining sourcing principles and applying lean methodology provides the key to successful supply chain management.
Lean on me
When Toyota first brought lean principles to the manufacturing world they created a revolution in the way waste and value were approached. Essentially focussing resource only on goals which create value for the end customer, lean principles strip processes and expenditure which don’t work to achieve that value.
In all businesses, the stripping of waste is key to maximising profit margins and outsourcing has been a key bone of contention in the waste debate for many years. Outsourcing often seems like the logical option for business but the decision to outsource is too often based on short-term benefits such as cost reduction, with no assessment of the long-term impact of the decision.
The same principles apply to insourcing, which may seem like a quick fix in the short term, but ultimately ties up valuable staff resource which could be focused on other core business critical tasks, and is not scalable.
It is vital that a business considers the impact of decisions such as outsourcing on its customers and the business’s effectiveness. In my view, any change in the supply chain that doesn’t add value to the customer is a waste. Much like the traditional lean principles, the leansource methodology questions what, where, when and why sourcing decisions are made from this very simple but effective standpoint.
Traditionally within the service supply chain, the two options available to businesses have been either to outsource to a third party or in-source to a standalone team. However, the rapidly changing world of technology has surpassed the traditional supply chain model, which is not designed to keep up with these rapid changes. Equally management structures and practices, and even the boardroom are often not equipped to react to these increasingly complex supply chains. The answer to this is an approach which takes the core principles of lean manufacturing and applies them to service supply chain solutions, to eliminate waste and improve service, simplifying the whole process.
Over a number of years, I have come to the firm conclusion that we should not outsource or insource – but leansource. It’s a methodology within the supply chain that delivers remarkable cost and service advantages, through a single touch supply chain solution. The issue with the traditional outsource supply chain model is that with multiple suppliers come multiple opportunities for disconnects within that supplier infrastructure.
For example if one outsourced supplier is waiting on parts delivery with which to repair an item, and the delivery is delayed, they will not only fail to meet their service level agreement (SLA), but the end customer’s business will also be impacted by equipment down-time.
The logical solution to this problem is to implement a simple end-to-end supply chain solution which incorporates initial call handling, stock management, field service, logistics, repair and close. By closely coordinating these elements of any service supply chain, (as this doesn’t only apply to the IT sector), not only is the potential for delays and disconnects removed, but the ‘blame culture’ which can often form part and parcel of these supplier infrastructures is eliminated. This is what we term as connected process thinking, essentially the antithesis of supply chain silos.
Lean mean machine
The sheer labyrinthine size of the traditional supply chain model has left the industry fragmented and confused with little or no accountability. By implementing a complete end-to-end solution which incorporates a single point of contact for service, repair and disposal, the time-span for this process is also reduced. As there is no multiple party liaison required between out-sourced providers there are no delays related to communication breakdown, or jobs being passed back and forth between those providers.
Perhaps most importantly of all from a business perspective, the leansource approach reduces costs associated with the service, maintenance and disposal of parts within the service supply chain. The multiple outsourced supplier model results in costs growing exponentially in parallel with the number of suppliers, and by reducing the number of suppliers the costs are in turn reduced.
The leansource approach increases the level of responsibility the supplier has for a client company and as they are responsible for all aspects of the service supply chain will provide the best solutions available rather than the cheapest or quickest. Advocation of replacement rather than repair when repair is an option so a complex or unprofitable job can be passed to another supplier, is also eradicated with leansource.
Leansource eliminates waste and improves service. It radically changes the mentality that is applied in the typical supply chain and allows manufacturers to reach customers in a different way. By identifying the inefficiencies in supply chain silos, leansource challenges each process, culminating in a chain that is valuable, capable, available, adequate and flexible. The leansource supply chain exceeds service level agreement and removes inefficiencies, placing the customer at the heart of the service. Using leansource enables companies to easily manage service supply chains by simplifying the complexities of hardware maintenance and add value to their service supply chains, enabling them to rise above the competition.