Outsourcing work to other companies can have a positive impact on your business’ bottom line in addition to improving efficiencies. However, it’s not enough to simply outsource the work and leave it on auto-pilot. You must continuously evaluate performance to gain the most value and to know if you should pull the plug on the venture.
Why Outsourcer Measurement Benefits Your Business
Cost: Oftentimes the primary motivation to outsource is to reduce costs of creating a specific product or performing a service. Before outsourcing, you should know exactly what it costs your business to make the product or perform the service. Comparing these costs to actual costs incurred by outsourcing will allow you to track savings. It will also let you know if the outsourcing arrangement is costing you more than anticipated.
Performance: You should think of an outsourcing partner as an extension of your business. All performance controls applied internally must also be applied to outsourcers. By setting clear standards and a way to measure against them, you’ll be able to quickly identify inferior outsourced products and services.
Consumer Impact: In the mind of consumer, there should be no difference in dealing with your internal associates or with outsourced service providers. If you are disappointing consumers because of an outsourcing arrangement, that could have a long-term negative impact on your profitability. Set up a means of measuring specific consumer impact to keep the outsourcer focused on your quality standards.
Why Outsourcer Measurement Benefits the Provider
Roadmap to Success: Not measuring an outsourcer is like never providing performance feedback to a student. How do they know if they’re doing well? Avoid that mistake by defining what it is exactly that you’re asking the outsourcer to do. Having a thorough understanding of expectations increases the likelihood the outsourcer will meet those expectations.
Continuous Improvement: Because the outsourcer is doing the work for you, they are in an excellent position to suggest improvements to the process. Creating a clear method of measurement helps the outsourcer make internal changes that not only improve quality for you but also helps them control their own costs.
How to Measure Outsourcing Effectiveness
Clearly Defined Expectations: Determine and document exactly what it is that you expect from the outsourcer. It’s not enough to simply ask a company to make plastic computer monitor screens for you. You must specify exact dimensions and the quantity you need each week, among other things. Measuring performance then becomes a simple test of whether or not you received the expected quantity and then spot checking a sample for accurate dimensions. Be sure to measure against each expectation.
Quality Standards: In almost all cases, you’ll want to ensure that the outsourced product or service meets your company's quality standards. When defining and then communicating these standards to the outsourcer, use language that is not subject to interpretation.
For example, you wouldn’t want to state, “All parts must be of high quality.” The outsourcer’s definition of quality may differ significantly from your own. A better quality standard would read, “The diameter on all parts must be within a tolerance of 1.25 to 1.26 inches.” This gives you the right to reject any part that falls outside that range.
Site Visit: Sometimes, a good indicator of performance can be attained by visiting the outsourcer’s site. In addition to learning how they do the work, it sends a strong message to the outsourcer that you’re serious about the arrangement.