Vendors can be a critical path component in your value creation chain or they can be a completely undifferentiated source for something as mundane trash can liners. Regardless of where they fall on that spectrum, they’re going to get some attention in this week’s One Year, Thirty Minute Challenge.
The vendors you use for commodity purchases probably don’t significantly impact your ability to build sustained competitive advantage. However, even these vendors can cause some grief if they’re late with orders, have inexplicable pricing or returns policies or are chronically terrible at resolving screw-ups. With the wide variety of vendors available for these commodity purchases, spend a little time finding one who anticipates well, is conscientious and is easy to do business with. Enough said.
On the other end of the spectrum are those vendors who are deeply ingrained in your value creation chain. These vendors are partners in every sense of the word. We often call this special vendor relationship outsourcing. At the outset, outsourcing was typically something that large businesses did to save money. Call centers were moved halfway around the world to take advantage of a skilled workforce that provided services for a fraction of what a domestic workforce was paid. Factory workers building TVs, shoes and hundreds of other items allowed manufacturers to keep costs low, pass along savings to customers and boost profits. But since the beginning, outsourcing has changed dramatically. Now, businesses, large and small, look to outsource vendors to –
- obtain specialized services they don’t possess in-house
- get services that the outsource provider does better than they to do it in-house
- easily scale up and down to meet fluctuating demand
- focus their attention on core value creation activities while outsource providers take care of tasks that don’t add value to products or services
- resell additional products or services that they do not produce in-house
- provide services more economically than they can in-house
So, let’s jump into this week’s One Year, Thirty Minute Challenge.
For what disciplines in your organization might outsourcing make sense?
Early discussions on outsourcing targets focused on core vs context activities –
- Core being those activities where the company was creating value for customers – the activities that made the company unique.
- Context being those activities that provided the company no additional brownie points with customers even if they are done perfectly.
The conventional wisdom was to outsource context and keep core in-house. Current thinking is a bit different. Skilled outsource providers now deliver services that empower employees to do better work and enable the company to deliver better products and services to their customers.
Here are some options for outsourced services. Some might be on your radar now and some you might not have explored yet. Read through the list and see if any of these might improve company operations, improve customer experience, mitigate risk or boost the bottom line.
- Payroll – Managing payroll related documents, collecting hours worked, calculating paychecks, cutting checks, making direct deposits, providing year-end tax documents, providing management reporting and providing an online payroll portal for employee self-service. Beyond these core services many providers deliver extra unique services like 401Ks.
- Human Resources – Providing training, consulting and resources for hiring, development and termination. Providing templates for important documents like non-compete agreements and non-disclosure agreements. Providing insight on the broad variety of pre- and post-employment assessments available. Ensuring client compliance with ever-changing federal and state employment laws.
- Bookkeeping – Entry of financial data, accounts payable, accounts receivable, general ledger and invoicing. Providing management reporting and filing.
- Accounting – Providing management reporting, advice on cash management, use of debt and equity financing, tax preparation and minimization of tax liability, collections, shareholder relations, business growth, business valuation and more.
- IT Infrastructure – Building and maintaining wired and wireless internal networks, internet access, deployment and maintenance of desktop, portable and mobile hardware, data security, backup and disaster recovery, email, desktop productivity software, collaboration software, integration with third-party software providers (CRM, ERP, SCM)
- Big Data/Analytics – Using data from transactional systems (CRM, Accounting, ERP, etc) and sometimes supplementing with data from external sources, performing analysis and providing actionable insights on trends, patterns and associations previously undetected.
- Outbound Logistics – Managing all facets of storage and distribution after goods are produced. The provider often picks up items directly from the end of the assembly process and, with information from the client’s order entry system, either warehouses, forwards to another location for additional processing or ships the item leveraging a larger and often times more sophisticated distribution system.
- Marketing – Help with branding, identifying target markets, messaging and choice of mediums. Some firms provide advertising design and procurement, website design and development, SEO, paid search, social media management and advertising, print collateral, email marketing and CRM systems.
- Lead Generation – Identification of prospective clients, initial contact, lead development and appointment setting. Firms employ a range of methodologies including email marketing, telemarketing and LinkedIn prospecting.
- Consultants – With a broad range of disciplines available, consultants provide short-term, mid-term or long-term engagements in areas like strategic planning, execution, operations, customer experience, process improvement, leadership, management development, technology, marketing or project management. Utilizing a consultant allows an organization to “rent” expertise not present in the company or to extend the reach of expertise already present in the company by adding additional resources.
Evaluating Existing Vendors
For vendors already in the fold, use these criteria –
- Do they communicate regularly, clearly and completely about the status of new initiatives, ongoing projects and problems?
- Do they provide clear, concise and easy to consume information about their performance?
Are problems resolved quickly and completely?
- Do you have easy access to key personnel in the vendor organization so that you can get questions answered and quickly ramp up new initiatives as needed?
- Does the vendor organization regularly contribute new ideas or suggest new services that will increase revenue, improve customer experience, streamline operations, strengthen technical expertise, improve marketing reach or develop employees in the client organization?
- Does the vendor provide special product or service knowledge that stops the client organization from deploying their product incorrectly or enables the client organization to use their product in new or different ways to better service the client’s customers?
- Does the vendor suggest better or alternate products or methodologies that solve a problem more effectively for the client’s customers and feel free to intervene in suggesting the alternate products?
- Does the vendor willingly forego business (i.e. not sell a product) if it’s in the best interest of the client or the client’s customers?
Evaluating New Vendors
Technical Competency – I’d suggest developing a list of questions by vendor type that you submit to every prospective vendor so that you can compare apples to apples when you get the written responses back. There’s not time here to do a list for every type of vendor but let me illustrate with the beginning of a list for an IT services vendor.
- What levels of services are available and what are the response times for each level?
- What percentage of time do you meet the required response times?
- Tell me about the technical qualifications of the staff at each support level – certifications, experience?
- Do you have preferred vendors for each product type? What type of compensation do you get from that vendor for using their products? How can I be assured that I’m getting in best-in-class solutions if you use only products from vendors who commission you to use their product?
Company Fit – Not all of these fit in every circumstance, but these are some of the questions I use when evaluating a new outsource vendor regardless of the service I’m seeking.
- How long has your company been around?
- What is the staff size?
- What is the experience of the staff? (in years, professional background)
- What is the turnover rate for employees? (I want to know if employees are happy working there)
- How much time do employees spend in training every year? (I want to know if the company has a learning orientation)
- Is any part of your operation outsourced? (I want to know what level of control they have over the people who will be servicing my account)
- What is the financial condition of the company? (I want to know if they’ll be around next year)
- Where is your company located? (time zones can be a challenge)
- Who runs your company and what are their credentials and experience?
- Have you worked in this industry before? (I never let this disqualify someone. It just tells me if there are certain industry-specific things I’ll need to educate them on)
- How much have you spent on R&D in the last 12 months? (I want to know if the company is growing and innovating)
- Are you insured?
- How do you deal with ongoing regulatory compliance issues?
- Can I get a list of references? (Call them)
- How soon can we get started?
- Can I see an onboarding packet or something equivalent?
- Do you have other clients our size?
- Who is your toughest competitor?
Run through these lists to identify new outsourcing opportunities, evaluate existing outsource relationships and be better prepared for entering into new relationships.
Vendors and outsource partners can be powerful allies in building value. Choosing and managing them can quickly improve customer experience, operations and profitability.