The Pro Business website has been published an article with some advice about the right way to choose an oursourcing company. Some advice has been given by the founder of SMAR Outsourcing Solutions, co-author of the book Outsourcing in the Strategy of Modern Business, Maria Lemeza.
Choosing an oursourcing company: what's worth special attention?
The outsourcing market has changed for the last five years a lot. More offers have been appeared, inquiries have been increased, internal copmetition is quite high. The level of service delivery has got positive dynamics. But before you outsource proper allowance must be made.
1. Define the business process you would like to outsource and write down your expectations. Please note that these expectations have to be objective, approachable and can be evaluated easily without time-consuming and complicated calculations. For instance, transfering of work in progress you expect 1% reduction in indirect costs and a significant reduction in risks due to the insurance policy of the outsourcing company. Or you expect an increase in customer satisfaction and a reduction in cash gaps due to well-coordinated and well-timed work of an outsourcing company when invoicing costomers for payments and acts for completion.
2. Define the requirements for the service supplier. I would like to write a list of top demands that will help you to make sure you have chosen a responsible outsourcer:
- Having Certificate of Insurance or transacting insurance whereby an insurance beneficiary is a customer
- Using licensed software for providing services (sometimes it is pointed which one), antivirus software, backup, network engineer who is in charge of IT-infrastructure
- English speaking staff or employees speaking the language of the current project
- ISO Certification
- Having experiance and specialists in the specialised area
- Customer feedback
- Closing ahead of schedule (it means that you can get financial result of company's business not later than the 5th day of the month following the accounting month) and other additoinal requirements for the provision of services
- Any other requirements for the specific needs of the customer.
3. Transfer your requirements to the market of potential providers. There are several approaches that companies could use to communicate outsourcing requirements:
- RFI(Request for information) - a request for information where all customer demands are written and in addition it is specified an information the way provider works. As a rule, these inquiries are directed to a large number of potential suppliers.
- RFQ (Request for Quote) - a request for quotations (prices) contains basic requirements of the customer to a potential provider (e.g. working experience, specialization.)
- RFP (Request for Proposal) - is a basic document that is the main document and contains a detailed description of any business needs of the customer. RFP is usually sent to a narrow circle of suppliers that have already been chosen based on the information getting from RFI and RFQ queries or through other means.
Special attention should be paid to the request. It has to be focused on clearly marked goals and results (e.g. improving quality, reducing costs). Detailed written current and future scope of work and main fundamential terms of the agreement (using which software, whether rights are transferred to it, activity insurance).
4. Evaluate information from service providers. There are some ways to evaluate information from suppliers:
- Applicants conference. After RFP mailout to the all potential providers, it is advisable to hold a conference in order to answer some questions and clarify some points. It is done in order to pay attention one more time to the key points and estimate what questions appeared from suppliers after getting requests.
- Service introduction. In adittion to the conference, it is possible to conduct face-to-face presentation with some potential providers. I would recommend to hold such presentations to projects demanding narrow specialisation. During holding a presentation you might evaluate the way provider knows this specialisation in details and what projects have been implemented.
- Checking links. This is a request for recommendations from customers of a potential provider.
- Security Check. You can request financial statement from the provider company. Reporting does not always reflect the true picture, but nonetheless will give you a general idea of the company. Request staffing or a list of employees to ensure that the supplier has the right resources. If additional resources are required to implement your project (which is quite normal), then you should request a plan for scalability.
- Visiting sites. Pay attention to updates, reviews, articles - that is, to the dynamics in the company.
5. Conduct final polls. After you have checked the potential supplier, you may have specific questions or some information will need to be clarified. Ask these questions to a specific supplier. For example, if you did not find information on a service on a site that you intend to “buy” from a provider, then you should clarify why the service is not presented on the site.
6. Make balanced scorecards and make your choice. How to implement this - I will explain it with an example. Suppose you, as a customer, have presented the following requirements to a provider of accounting and tax services:
- The conclusion of the insurance policy, according to which the beneficiary is the client (the applicant declares in the text of the proposal)
- The project manager speaks English (CV is attached, if it is necessary to attract a specialist, it is declared that the employee will be involved)
- Experience in the provision of services in construction (experience is described or sometimes, for large projects, copies of contracts are requested)
- Employees are located on the territory of the customer to provide services (the applicant declares in the text of the proposal).
For these requirements, you received 2 offers (applications). The cost of the services of company A is $1000, and company B - $1300. The number of completed projects of company A - 2, and company B - 5. All other conditions are met by both companies. Based on this, we determine the criteria and their significance.
Please note that everything is quite individual and the importance of the selection criteria must be correlated with the goals of the company. This can be clearly seen in the table:
The value of the significance of the criterion (weight of the criterion in %)
What is specifically evaluated
Ci — 60
Participant Experience (4 described requirements)
Ei — 40
Proof of compliance
A proposal rating is an assessment in points obtained from the results of the evaluation of the criteria, taking into account their significance. And the formula in this case will be like this:
Ri (rating) = B (points) Ci (evaluation by the criterion of “contract price”, which is defined as the ratio of the minimum of all proposals to the proposal for the price of the contract of the participant) * W (weight of the criterion) Ci + B (points) Ei (assessment by the criterion of Experience, which is defined as the number of contracts executed in the proposal to the maximum number of contracts of all represented participants) *WEi
Accordingly, the rating of the company A = 1000/1000 * 60 + 2/5 * 40 = 60 + 16 = 76. Company rating B = 1000/1300 * 60 + 5/5 * 40 = 46 + 40 = 86.
Company B in this case has more points.
You need to understand that the choice of a supplier is only the beginning of cooperation, which can and should be effective and interesting. And in order for everything to turn out just like that, you will need to work out the contract in detail, appoint responsible people and manage the project throughout the entire duration of the contract - if necessary, make changes and improve relationships.
If you don’t know how to start transferring tasks to outsourcing, you are thinking about how to properly formulate requirements for an outsourcing service provider, you are looking for a reliable partner who can correctly answer all your questions, you can always contact us at SMAR Outsourcing Solutions.
Photo: Darya Buryakina, probusiness.io