08 SCS:VIEWPOINT NOVEMBER 2008 SUPPLY CHAIN STANDARD
www.supplychainstandard.com
OUTSOURCING
Chip and win
Why there are no losers
when outsourcing is
done intelligently and
collaboratively.
SAM SHARMA
Retailers, rather like the consumers that they service,
drive the hardest bargain. They want service providers to
deliver high value solutions at low cost rates. Chip and
pin is a classic example. When the terminals that take
hourly pounding from card-holding consumers break
down, so does the EPOS system and costly queues form.
It is crucial that repairs are conducted swiftly,
efficiently and with minimum downtime. Many IT
partners have now revised the logistics model to
deliver better value to their retail customers. Gone, are
the central distribution centres, replaced by strategic
hubs in key conurbations from where parts can be
shipped directly to more flexible field-working
engineers. Now courier drivers not only deliver vital
components to the stores, but have been trained to
undertake low level repairs on chip and pin terminals.
These new driver/engineers pose no threat to the IT
company’s highly trained and salaried engineers.
Indeed, these new services complement their offering.
They are now able to plan their time more efficiently by
concentrating on the high-end, more technical repairs
that warrant their superior skill and attention.
On top of the strategic hub the entrepreneurial and
intelligent outsourcers have also invested in hundreds
of Pick Up and Drop Off (PUDO) centres around the
country – all en route to the next job. These are counter
collect companies offering other merchant services but
partner up with‘outsmart’companies to use their quiet
times which conversely are the courier’s busy times.
This collaboration includes other strategic PUDOs – the
drop 'box' services that engineers can collect from or
drop off at en route.
All this works as a fixed payment, 'off-book'
investment rather than a cost to the business. This
streamlined offering is overlaid with a strategic IT
interface that keeps all stakeholders involved and
informed at every level. The engineers each have a
hand-held XDA that scans in the new parts to be fitted
and the old part to be repaired so the work is traceable,
as is the vehicle through GSM tracking ensuring that no
unnecessary miles are driven.
Outsmarting is replacing PAYE with POFC – pay one
fixed cost, so that chip and pin becomes chip and win
for everyone. This also shifts risk to the supplier and
removes a costly overhead for low-end plug and pay
repair work. Finally, it aligns with the dictionary
definition of outsourcing by allowing the IT companies
and the retailers to focus upon their core skills of highend,
high value customer relationship building.
SAM SHARMA IS CEO OF RICO LOGISTICS.
CUT COSTS, NOT CORNERS
It’s all very well cutting costs, but it’s important to think of the
implications too.
PETER BARTRAM
Sometimes the evidence of your own eyes is a lot
more revealing than a whole host of business
lectures on an MBA course. When I consider what
I’ve learnt about business over the years, I reckon a
good half of it must have come from keeping my
eyes open and thinking about what I see.
(Incidentally, I’m not alone in this. Back in the
eighties – or it may have been the seventies; those
far-off and unloved decades seem to merge into
one – there was a fad for“management by walking
about”. The theory was that you found out more
about your business by going and looking at it
than by sitting in an office and ringing people up.)
But I digress. The point is that the other day I
watched as a“white van man”parked in the middle
of a road blocking traffic both ways and spent ten
minutes making a leisurely delivery of a box or two
to some commercial premises. Now, we all know
about the reputation of white van men. But they
are the foot soldiers of many supply chains.
Sowhattheyhavetodo–andhowtheygo
about it – is important for those organisations that
employ them. And, I venture to suggest, especially
so in these troubled times. In economic terms, we
are sailing into uncharted waters. When that
happens, the business instinct is to cut costs to
conserve cash. And it’s the right instinct.
But there is a serious danger that cutting costs
might also result in cutting corners. No doubt
the reason why our white van man didn’t park
up properly to make his delivery was that he’s
now under pressure to make more deliveries
during his shift.
It is especially important that logistics and
supply chain operations are careful about cutting
costs for a number of reasons. The first is that the
kind of thoughtless behaviour exhibited by my
white van man is not good for a company that
wants to burnish its corporate reputation.
It’s all very well adopting high-falutin’mission
statements and corporate responsibility policies if
the people out on the road are cheerfully going to
stick two fingers up to Joe Public. The wiser
companies latched on to that fundamental point
several years ago, but there are still many where it’s
not sunk in.
How to change? It’s all about inculcating the
kind of attitudes in the workforce that change
behaviours. Part of this comes down to thoughtful
training that works. Part may be the result of
creating a link between performance and pay. So
complaints about drivers shouldn’t just be brushed
aside. They are an important piece of evidence
about how a logistics organisation is performing
on the ground.
But there is a more sinister aspect to cost cutting
that also chops off the corners. And that’s when
safety is concerned. The harsh reality is that much
logistics and supply chain work lives in a world
where risks are more tangible and more likely than
in other parts of the company.
No book-keeper or number cruncher ever
caused a motorway pile-up by putting figures in
the wrong column because overwork had tired
him. The consequences of accidents are
increasingly costly to sort out – and I don’t just
mean the fatal accidents that lead to police
enquiries, coroner’s inquests, large claims for
compensation and the like.
Cutting corners also piles up unnecessary small
but regular costs. More management by walking
about evidence: I recently conducted a small but
highly unscientific census on what proportion of
commercial vehicles bore signs of collision
damage. It was between a quarter and a third. I
accept that some of the damage was superficial,
like scrape marks down the side of a van.
It is especially important that
logistics and supply chain
operations are careful about
cutting costs.
But as anybody who’s had a bill from a garage
lately will know, even putting superficial damage
right can cost a princely sum. So the idea of
putting pressure on drivers to make more
deliveries against the clock might not seem such
cash-wise sense when these hidden costs are
taken into account.
And, finally, there’s the question of customer
service. I know of one large online seller, which
promises next-day delivery, that’s had a certain
amount of customer grief because it’s fallen down
on its pledge. Indeed, at one point it sent letters to
regular customers apologising for the problems.
How many of those customers moved their
custom elsewhere we shall never know. (And,
neither, possibly will the company because it’s
pretty nigh impossible to track sales your
competitors get.)
So the message is clear: cut costs – but think of
the implications. Our old friend, the law of
unintended consequences, might be lurking in the
economic shadows waiting to bite you on the bum.
PETER BARTRAM IS A BUSINESS WRITER,
JOURNALIST AND AUTHOR OF 20 BOOKS.
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