I recently had the opportunity to attend the Annual Conference of the Warehousing Education Research Council (WERC). This is one of my favorite industry events each year. The WERC Conference provides me with the opportunity to network with other Supply Chain professionals and participate in a wide variety of Sessions regarding our world of Warehousing and Supply Chain.
One of the most interesting sessions I attended this year was led by Kate Vitasek, Faculty at the University of Tennessee’s Center for Executive Education and Founder of Supply Chain Visions. Kate provided an overview of the concepts developed in conjunction with the University of Tennessee and covered in her new book “Vested Outsourcing; Five Rules That Will Transform Outsourcing”. I have followed Kate’s incredible work in metrics for years. She is a well-respected thought-leader in our industry and always a great speaker…
The ideas regarding outsourcing delivered in Kate’s book and summarized during her remarks at the conference are not necessarily new individually. However; the way Kate and her coauthors have compiled them and applied them to the world of Supply Chain are ground-breaking and had many of us at the conference buzzing about how this may change outsourcing agreements and relationships forever. I have to admit that although Kate sent me a copy of her book weeks ago, it wasn’t until after I heard her speak at the conference that I finally set aside the time to read it – the jacket summary alone inspired me to think differently.
The principles and techniques of Vested Outsourcing are tools to establish, manage, and measure often complex outsourcing relationships. The concepts and methodologies force partners to focus on the results rather than the activities performed and isn’t that what it should always be about – results and value?
The five key rules in a true vested performance partnership include:
Rule #1 – Focus on Outcomes, not Transactions
Kate suggests that the customer should be paying for the outcomes rather than the specific activities. In order to accomplish this, the desired outcomes of all parties must be clearly understood and defined entering in to an outsourcing relationship.
Rule #2 – Focus on the What, not the How
This rule encourages those outsourcing to leave the methods up to the provider – the selected experts – to determine how to get the job done focusing more on the results rather than the methodology. The value of the provider is not in the bricks and mortar and labor they provide, but in the expertise and ideas they bring.
Rule #3 – Agree on Clearly Defined, Measurable Outcomes
Kate’s book stresses the importance of working together to define the right metrics up front (ideally five key metrics) which will clearly demonstrate value in the relationship.
Rule #4 – Optimize Pricing Model Incentives
This rule refers to a properly structured pricing model which incorporates incentives for the service provider to optimize for cost and service tradeoffs. This may be the most challenging of the five rules to implement because it is so different than traditional transaction-based pricing models.
Rule #5 – Governance Structure Should Provide Insight, not Merely Oversight
To me this rule is more about culture than anything – Vested Outsourcing encourages an environment of productive, perceptive insight vs. layers of supervisory micromanagement.
The bottom line is that if the right outsourcing partner has been selected, they should be trusted and empowered to create solutions driven by innovation and ideas working toward clearly defined desired outcomes. A successful vested outsourced relationship should be a win-win-win achieving desired outcomes for those of us providing the services, those using the services and the customers at the receiving end of the supply chain.
It was another great WERC conference sending me home with new friends and new ideas challenging me to think differently about our company, our industry and our customer relationships…