Cost managers have one of the best vantage points in their organization to identify non-core functions that can be more cost effectively and profitably outsourced by aligning these decisions with their organization’s strategic objectives.
This is because cost managers should live in two worlds: The world of an internal function expert and the world of an outsourcing expert. As an internal function expert, you should know (or make it your business to know) how your organization’s business processes work. Because of your link to the outside world (through your sourcing activities), you should also be keeping abreast of what outsourcing services are available to your organization.
By strategically connecting these two functional responsibilities, cost managers can identify outsourcing opportunities so that your organization can reduce expenses, improve quality, preserve scarce resources, and focus on core activities.
We recently worked with a corporation that came into being 150 years ago, to “provide behavioral health wellness” to an underserved population nationwide, only to find that they also felt it was their core function to provide fleet management services. With over 350 vehicles in their fleet, which were costing them $2 million annually to maintain, we quickly identified this function as a prime candidate for outsourcing. After extensive research, bidding, and vendor negotiations, the final result was that it made good business sense to save $380,000 annually and free up scarce labor resources. With our client’s concurrence, we outsourced this non-core function to professional fleet management experts who had the infrastructure, capabilities, and personnel to manage this function more cost effectively than our client.
As I see it, a corporation’s primary function is to service customers, not perform the myriad of other non-core functions that have been considered functional imperatives for organizations over the last 100 years. Bearing in mind the scarce and limited resources (money, manpower, and materials) that companies are now experiencing, outsourcing should be a strategic imperative for all organizations today. With few exceptions, it makes GOOD BUSINESS SENSE to do so.
Outsourcing is no longer something you do when you are frustrated with the performance of your food service, housekeeping, or maintenance department. Outsourcing is now a decision that should be driven by your organization’s strategic objectives to improve your service quality, reduce your overall costs, improve operations, and get back to your primary function to service customers.
In the final analysis, strategic sourcing is, in my opinion, a much better designation for cost managers in the 21st century because it raises the bar and expectations on the buying function to new levels of performance and expectations. And that can’t be a bad thing.