The biggest outsourcing mistake SMEs can make

While outsourcing continues to be a viable alternative for SMEs, business owners need to be wary about who they choose to outsource to, explains Walter Scremin.

While outsourcing continues to be a viable alternative for SMEs, business owners need to be wary about who they choose to outsource to, explains Walter Scremin.

Outsourcing non-core business functions takes liabilities off your balance sheet and can boost performance and business growth. But business owners need to choose wisely when deciding who to outsource to. Success in outsourcing is comparable to hiring the right staff, and we all know what a difference good people make.

Too many businesses overlook the people factor – they don’t factor in the company culture or the future working relationship. They thereby fall for the biggest mistake one can make in outsourcing: choosing on price rather than on service.

Understandably, business needs to budget wisely. And like anything there’s no guarantee the most expensive will be the best. But choosing a supplier just because they are cheap is often more trouble than it’s worth.

This was revealed in a recent transport and warehousing survey by Lexian in conjunction with MHD Supply Chain Solutionsmagazine. Feedback from the survey - Transport and Warehousing Outsourcing Whitepaper, September 2014 – included the following:

  • “A national retailer of appliances, furniture and electronics found that it was losing retail business, which was attributed to poor service levels at the delivery stage. They had originally engaged a transport provider based mainly on price. They have now engaged an alternative provider based on service levels.”
  • “A food manufacturer commented that they now have an issue with transport service levels as their accountants drove the transport vendor selection entirely on price as ‘to make the deal look shiny!’”
  • “Another transport provider related that initially customers ‘go on price’ but further down the track, service becomes more of an issue for them.”

The big take-out is that price does not denote value: a cheap supplier with poor service levels may ultimately cost you more.

When outsourcing to a would-be supplier, take the time to get to know the people you will be working with. Find out more about them, their company culture, and what makes them tick. This may involve several meetings before making a decision. There are many ways to measure outsourcing success – price is merely one aspect.

Walter Scremin is General Manager of Ontime Group.

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