Obstacles to adopting outsourcing strategy

By Staff -- Purchasing, 10/19/2000

As most Purchasing study participants see it, outsourcing offers major advantages for purchasing/sourcing/supply operation.

Many of these advantages are tactical. Many are strategic. Still, respondents are nearly unanimous in pointing out there are many obstacles to the adoption of outsourcing as a long-term strategy. Here are eight of the most mentioned areas of potential problems:

Labor- Where longstanding labor agreements are in place, companies can run into much opposition. "It's a fact of life," says Rick Riestel, purchasing manager at Able Cable, Barrington, Ill. Mistrust, he suggests, still exists and organized labor is often tempted to charge that outsourcing was used in the past to improve the bottom line-not necessarily productivity. Many study participants point out that much labor opposition can be avoided by careful attention to employee concerns about downsizing. Others counsel judicious selection of which items to outsource (e.g. new items vs. those already covered by a union contract).

Executive management- It often needs to be sold on making the operational changes needed to make outsourcing a viable strategy. In fact, says Douglas Fairchild, purchasing agent at Ballymore Co., West Chester, Pa., the case for outsourcing often has to be meticulously documented and forcefully presented to top management.

Cross-functional thinking- The silo approach to information in many companies becomes an automatic roadblock to outsourcing. Many participants feel it's just a matter of time before pressure from above will force the functional silos to open up. As Gerald Leach, purchasing manager at David Clark Co. in Worcester, Mass., sees it, "This can be overcome with proper IS involvement."

Metrics- Traditional accounting and financial metrics often make it difficult to understand the true costs involved in outsourcing. Participants suggest that this is especially true in large companies where costs often are not well segregated and tend to be absorbed across a wide range of jobs and processes. The problem, says the purchasing manager for a Kansas electronics company, is "hidden costs...they're not truly new costs, but often they become well hidden in current accounting."

Core competencies- Many companies simply do not have a good understanding of their core competencies and what an outside supplier could do better. The problem is deeper than it looks, says the commodity manager for a systems equipment maker. "In many cases top management does not have an understanding that goes deep enough into the company to understand the significance of outsourcing," she notes. According to Brad Cassiday, purchasing manager at Genie Industries, Redmond, Wash., arriving at an understanding of core competency may be the "single most important reason to get into outsourcing relationships."

Organization- Many companies do not have sufficiently well-developed programs for selecting, training and monitoring suppliers and potential suppliers. Explains the sourcing manager for a Santa Clara electronics firm: "Business in some companies is often awarded by an engineer or a bench person. There is no real training or professionalism involved. Purchasing signs papers, period. Under such procedures outsourcing can be meaningless-or even dangerous."

Suppliers- A common knock on outsourcing is that there are not enough top-quality suppliers in the field. Study participants tend to feel that the real problem is less a matter of available suppliers than the fact that supplier-evaluation methods are not very well advanced.

Intellectual property- Many com-panies are uneasy with the potential risk of loss of or erosion of intellectual property. For most study participants security concerns are not well founded. Most tend to follow the thinking of F. Michael McCreedy, purchasing manager at Kustom Signals Inc. of Chanute, Kan. As he sees it, most of the concerns about risk to security of intellectual property can be addressed by careful attention to framing good non-disclosure agreements.