Why your supply chain may be costing more than you think

 

If you’re like many IT vendors and systems integrators and outsource most or all of your field services supply chain, you’ll know that the margins added by each contractor at each stage rapidly stack up. Yet it’s easy to be misled by thinking that because contractors are working at minimal margins, the supply chain is efficiently costed. Don’t be fooled. Low cost doesn’t mean good value. The truth is, you’re almost certainly leaving money on the table.

Companies outsource their field services and the associated supply chain, or parts of it, to shift the burden from their own businesses on the assumption that in the hands of outsourced providers, the field services supply chain will flow smoothly and effortlessly at a lower price than they could manage themselves.

This relies on a high level of trust between IT vendors and systems integrators and their outsourced field services providers. If you’re confident that your contractors are delivering the outcomes you’re paying them for, then its money well spent. But if the margins your contractors are adding are not being offset by the value of their service – that is, certainty, responsiveness, accurate reporting, timely delivery, efficient management of projects and services – there’s wastage in your supply chain.

Purely adding margin onto margin at each stage of the supply chain adds no value; it simply escalates costs and eats away at profit. And therein lies the quandary: do you sacrifice profit to meet customers’ price expectations, or do you charge more and risk losing customers? Either option is a poor result.

It’s usually when IT vendors and systems integrators find themselves having to intervene in the supply chain that they’ve outsourced, whether due to contractor error, poor manual processes, or just because there are too many contractors in the chain, for example, that they realise the least costly outsourced solution is not the most cost or time efficient.

The greater the effort you expend on keeping your field services supply chain going, the more waste there is in the chain. If you have to unexpectedly take ten days to oversee a project that you’d outsourced, the cost savings made from outsourcing are well and truly blown out by your project management time.

To avoid such waste, balance is needed: understanding the true cost of outsourcing and weighing this against the cost of internal project management.

For many IT vendors and systems integrators, achieving balance does not mean bringing field services in-house, especially as this transfers all the risk to their business. Those that achieve balance do so by selecting a single field services partner to manage the end-to-end supply chain for them.

Choosing one field services provider to look after the complete supply chain has significant upsides. Firstly, unlike supply chains that involve different contractors and moving parts at every stage, there’s only one provider to deal with. This relieves IT vendors and systems integrators from much of the project management needed to keep everything on track. This is especially so if the field services provider has an efficient platform that gives visibility over what’s happening in the field in real time.

Secondly, the partner carries all the risk – if anything goes wrong, it’s up to them to fix it. And thirdly, there’s one fee for the whole process, wiping out those stacked-up margins.

Perhaps most importantly of all, working with a single partner cuts out waste in the supply chain. By adding real value – transparency, accuracy, accountability and reliability – a single partner prevents your supply chain from costing you more than you get in return.

BEST Technology Services welcomes your thoughts and comments. To discuss any of the commentary in this article, contact John McVicker. For more on how Best Technology Services’ field services capability can support your outsourcing, go to www.best-ts.com.au.

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