Going global and going green are two new directions supply chain outsourcing is heading. Like other BPO processes, IT and services are converging. And our experts see two new areas for supplier growth.
Here’s what else the experts expect.
Going global: the move to right-shoring
Navanit Samaiyar, Senior Vice President, Procurement and Supply Chain services for Genpact, says there is a big push for “right-sizing, right-costing, and right-shoring.” Suppliers will send work to “the right location to get the best cost and performance,” he explains. To do this, suppliers will consolidate work in multiple operational zones across many time zones.
For example, a company that now has 400 warehouses across the globe could instead store goods in local warehouses. The integrated supply chain would allow suppliers to “triage with warehouses across the globe to move goods anywhere in the world depending on need. That would mean faster service and repairs,” the Genpact executive explains. This also supports green, another supply chain trend.
Companies are now adopting this global view to their supply chain. To run properly, the consolidated process needs 24/7 support. “Companies will be consolidating these processes, which are becoming complex. This will drive the need for outsourcing,” says Samaiyar. He adds that this increasing complexity will keep new suppliers from entering the space.
Moving to an integrated supply chain
Such cooperation requires greater process visibility, Samaiyar’s second prediction. That will be possible because on the IT side there’s a “huge trend toward end-to-end collaboration,” says Ravi Kapoor, Practice Manager, Supply Chain Management for Wipro. Andrew Pery, Chief Marketing Officer, Kofax, adds supply chain outsourcing will grow because organizations want end-to-end processes. “They will be much more open to outsourcing procure-to-pay and order-to-cash functions,” he says.
Kapoor explains an integrated supply chain will “minimize imbalances.” Adds Samaiyar, “An integrated global supply chain with consistent processes will be more effective and efficient, generating significant cost savings for buyers.” Consolidated processes make roll-out, change management, and buyer acceptance of the new processes easier, he continues.
The complex, consolidated processes will force outsourcing relationships “to become deeper,” Samaiyar predicts. He says this will result in “increased stickiness” because buyers will send an increasing amount of work to the same supplier. “They will move up the value chain as confidence levels go up,” he says.
“It will be an obligation to make supply chain processes and their IT footprint certifiably green. It’s not a ‘nice to have’,” says Kapoor.
Outsourcing buyers, he says, “have to insure they do the right thing.” That includes tracking the green levels of their outsourcing processes and the supporting IT. “Buyers have to be aware of the greenness of everything they do,” he says. He believes corporations will eventually “only look at suppliers that have a road map to green.”
Another way for buyers to comply with green is to check their vendors’ green scores. For example, he mentions a French electric company that has prepared a 140-page handbook for its suppliers listing every vendor’s green score.
Kapoor, however, warns buyers “to be careful as you proceed.” Monitoring will be “an ongoing obligation” because some suppliers may share spurious data about their greenness.
Suppliers, for their part, have to share their green scores with their buyers. “Suppliers have to have a green quotient as well as ethical and ecological practices,” Kapoor says. Many suppliers will publish their social policies and their data “to show how much they are progressing.” The Wipro executive also predicts green will be a source of investment for them.
Regulatory bodies all over the world are putting pressure on companies to comply with their green initiatives, Kapoor adds. Importers in Europe, for example, have to register their products in a database. The goal is to inform buyers and encourage them to purchase from companies in the database.
Kapoor says the emphasis on green will force changes in logistics. In the past, speed was a primary driver when determining modes of transport. In the next five years, Kapoor predicts shippers will prefer mixed modes of transport to cut down the creation of greenhouse gases. “Shippers will select slower modes of transport,” he predicts. And manufacturers are opting for storing their goods as kits in local warehouses until they get a confirmed order — another green initiative.
Green will predicate “more collaborative” relationships between buyers and suppliers, in Kapoor’s view. “Buyers must commit to long-term relationships so together they can undertake these green initiatives.” That also means owning processes jointly. In the end, he predicts buyers and suppliers will create “stronger partnerships.”
A future opportunity: after-market service operations outsourcing
Samaiyar says manufacturers need to include service operations also beyond their source-to-pay discussions. “I hope to see a smarter way to manage after-market service operations because it reduces their cost and time and provides a smarter handle on warranty management,” he explains.
When this happens, the Genpact executive believes manufacturers will “realize some parts of this process are outsourcable, creating efficiencies and business impact.” He says outsourcing this segment of the supply chain “provides a much larger cost arbitrage than just labor arbitrage. It has business impact, so I see fairly high cost savings coming out of service operations outsourcing in the days to come.”
However, Samaiyar notes that this will require a fundamental change in buyer thinking since after-market services support “is not intuitively outsourcable. It will take some doing.” But he posits the change will be worth it. He estimates a company with $5 billion in annual sales spends about $150 million servicing warranties. Currently most companies approve warranties at different entities “so they can’t consolidate recovery.” Aggregating the activity “provides clear business impact.”
Similarly within the after market services space, a field engineer who is supposed to repair a machine only spends half his time doing repairs, the Genpact executive explains. He spends the remaining time on administrative jobs, parts of which the manufacturer can outsource. “Outsourcing creates two times the capacity of field engineers without adding more head count. Companies will also have more visibility into the process. Service will be faster, which generates greater customer satisfaction. And the outsourcing environment is cheaper. That’s a significant advantage,” Samaiyar says.
He reports this trend is still in “its early days. But he sees “some strength picking up” in 2010 and beyond.
Another new line of business for suppliers is consulting. “We are investing heavily in supply chain solution consulting,” says Kapoor. In addition, Wipro also is offering green consulting. The supplier completes a company-wide assessment, then presents an enterprise-wide plan to attain green IT, Kapoor says. This is something buyers find difficult to do on their own.
Finally, Pery predicts buyers will “increase their focus on vertically-oriented suppliers.” Supply chain outsourcers will have to specialize.
Lessons from the Outsourcing Journal:
- Procurement and supply chain outsourcing will have a more global focus in the next five years.
- Green will become an imperative initiative.
- End-to-end will become the new standard.
- As buyer mindsets change, after-market services outsourcing will grow.