Category Archives: Outsourcing

When in Manufacturing, Do As The Japanese Do

By Tom Taetsch

If you’re like me, you have a natural skepticism towards trying the latest greatest products or adopting a new way of doing things.  In the business world, I think there is even greater resistance to change.  Perhaps it’s based on negative experiences or the fear of failure.  Regardless of the reason, resistance to change is the number one obstacle I encounter as I meet with Operational and Human Resource professionals.

You see, I represent one of the leading labor and process outsourcing companies in the United States – nGROUP Performance Partners.  Our cost-per-unit (CPU) labor management model and the resulting success stories are simply amazing.

Perhaps the most effective way to convey the effectiveness of our approach is to point out that Japanese manufacturing companies are overwhelmingly more receptive to implementing a CPU based labor model.  So if the Japanese are considered global leaders in manufacturing, what makes the CPU labor model so compelling to Japanese manufacturers?

To understand “why”  lets take a brief look at the history of Japanese manufacturing AND understand that the principles that influence modern day Japanese manufacturing are the same principles that define our approach to labor management.

After World War II, Japan’s economy was devastated.  Along came American statistician Dr. W. Edwards Deming.

Through his post-war work at the USDA, Demings would visit Japan and became fond of the culture and people.  Eventually he influenced a group of top Japanese managers who were eager for new ideas to help them improve quality.  His approach was based on statistical analysis and techniques.  At the heart of his approach, were his 14 points for management.

Demings is also credited with devising and implementing some of the most influential concepts in today’s manufacturing industry, such as:

Beyond Deming’s body of work, other manufacturing concepts originated through Japanese industry.

Simply put, the Japanese have written the book on sustainable production practices.  It is through consistent and automated implementation of these same practices that we at nGROUP are able to deliver our guarantees.   The reason Japanese based companies are so receptive to our labor model is they recognize that we are sustainable facilitators of the proven principles that they revere as their own.

For more information on the proven production practices of nGROUP visit www.ngroup.biz, or contact Tom Taetsch at ttaetsch@ngroup.biz.

Tom Taetsch is Vice President of nGROUP West Coast.  Taetsch has 25 years of supply chain experience, including 11 years of recreational vehicle manufacturing experience with Yamaha Motor Manufacturing Corp of America.  His logistical and engineering workload has embodied the 3PL industry, working for companies such as Exel, Saddle Creek, and Weber Logistics.

Using Temps is So 2012: Things to Consider When Looking for Workforce Management

By David Hair

If temporary labor is a key component of your operational strategy, it may be time to reexamine your objectives AND understand how temporary labor has evolved from being a convenient, simple solution to a regulatory driven problem.

My first exposure to temporary labor was 1974.  Three buddies and I headed to Florida for Spring Break and we ran out of cash on the return trip somewhere near Jacksonville.  There were no cell phones to call home to have money electronically transferred to your debit card back then so we did the next best thing; We found work.

We located a staffing office in downtown Jacksonville.  They found us work that very day, sweeping and cleaning at a local factory.  The company gave us a “chit” at the end of the shift which we turned in for cash back at the Manpower office.  No application to fill out and no ID necessary.  This was the nature of temporary labor in the early days.

Companies like Kelly Girl and Girl Friday further developed the concept with clerical workers who would fill in for daily and short term needs as well as project work.  The “temp” industry was changing and companies were upgrading the image and quality of the temporary employee.  Workers no longer were paid in cash and the agencies started performing test and background checks to ensure a higher quality placement.

Also, companies started to use “temps” for longer periods of times and for more critical functions.  The industry even changed their branding from “temporary labor” to “staffing solutions”.  By the mid 90’s companies were utilizing temporary workers in large numbers as part of their overall workforce strategy.  It gave them the flexibility needed and access to low cost labor.

Employers must be concerned with the changing legislative and political landscape. Thirty-five states now have some form of legislation aimed at curbing or ending the use of “perma-temps.” “Perma-temp” is an ongoing position at a company being filled by a temporary workforce.  In 2011 the State of Oregon filed action against a fresh food producer.  The end result was the replacement of hundreds of temporary positions with fulltime workers.

Beyond “perma-temp” issues, there are other concerns on the political horizon.  Perhaps the biggest concern of all is what is happening in Southern California.  A law suit against 3PLs of major retailers and the staffing companies for wage infractions is causing unwanted public scrutiny into the industry use of contingent workers. Labor Union Warehouse Workers United and Change to Win, pro labor advocacy groups, are using the suits to prop up public and political support for their cause.  Warehouse Workers United is focusing much of their efforts to get some traction into unionizing warehouses located in the Inland Empire region of Southern California.  Their strategy includes getting new laws onto the books that curtail companies’ ability to use temporary labor.

Companies that have relied on temporary labor as a major part of their workforce strategy must now rethink their approach.  We are in a radically different business environment than we were just a couple of years ago and companies need to proactively prepare for it.

One of the more effective approaches is to use onsite outsourcing for much of the warehouse labor.  Companies can contract the sourcing and management of the labor to a third party while maintaining operational control of the business, critical data, and client relationships.  The right arrangement typically provides higher productivity and guaranteed service levels while reducing cost and removing the risk associated with temporary employees.  This arrangement is being successfully deployed in DCs and manufacturers around the country.

Instead of looking for a temporary staffing company, check out a dedicated workforce management company staffing full-time employees.  Things to consider in looking for a workforce management include:

  1. Use of fulltime staff vs. temps only
  2. Engineering and technical support
  3. Experience with other clients and their statement of work.

Increasingly more important is to make sure your legal department scrutinizes language that protects you from co-employment issues.  Specifically, make sure that the agreement spells out who is responsible for the management of the workforce.  A clear delineation of responsibility is important here.

Avoid the liability and compliance issues that temporary labor brings to the table.  To find true solutions, start with a smart strategy that helps your company achieve more AND risk less in today’s economy.

Before & After : 3.5 Million Dollars

Provided By Diron Raines, nGroup Executive Vice President

The chart below indicates the actual results that nGROUP produced for a leading electronics manufacturer.  To read the details of these breakthrough results, click here.

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Diron Raines is an Executive Vice President with nGROUP perfromance partners.  Diron’s focused is implementing, maintaining, and growing nGROUP operational installations on the West coast and outlying markets.

10 Common Outsourcing Ailments

As an outsourcing service provider, it is imperative for us to understand what  “ailments” can cause a performance partnership to fail or not meet the expectations of one or both parties as outlined in the original agreement.  What mind-set or mistakes can prevent this win-win approach?  Again, the researchers at the University of Tennessee came up with some answers.1

“10 Common Outsourcing Ailments”

1. Penny Wise and Pound Foolish

When outsourcing, you need to think beyond the short-term bottom line. The danger in focusing on the cheapest offer is that it inevitably leads to tradeoffs in quality and/or service. Unfortunately, many executives view outsourcing as a quick-fix solution to resolving balance sheet problems. Often companies suffering from a “Penny Wise and Pound Foolish” mentality, fall into a loop of frequently bidding out their work, picking the lowest price provider, and then transitioning to that supplier. This can lead to a vicious cycle of bid and transition, bid and transition, bid and transition.

2. The Outsourcing Paradox

This ailment typically begins with the “experts” at the outsourcing company developing the “perfect” set of tasks, frequencies and measures for the engagement. The result is an impressive document containing all the possible details on how the work is to be done. At last, the perfect system! However, this “perfect system” can actually sow the seeds of failure of the outsourcing effort. The reason: it’s the company’s perfect system, not one designed by the provider of the services, who’s supposed to be the experts at getting the job done.

3. The Activity Trap

Traditionally, companies purchasing outsourced services have used a transaction-based model where the service provider is paid for every transaction—regardless of whether or not it is needed. Businesses are in business to make money; providers of outsourcing services are no different. The more transactions they perform, the more money they make. There is simply no incentive for them to reduce the number of non-value-added transactions because it would result in a reduction of revenue. Make sure your outsourcing agreement is not based on pushing the cash register button every time a specified activity is performed, especially when that activity is not value added.

4.The Junkyard Dog Factor

When the decision to outsource comes down, it usually means that jobs will be lost as the work and jobs transition to the service provider. This often results in employees hunkering down and staking their territorial claim to certain processes that simply must stay in house. Even if the majority of the jobs are outsourced, many companies choose to keep their “best” employees on board to manage the new outsource provider. These employees are often the same ones who were asked to help write the statement of work (SOW). Is it any wonder then, that SOWs become rigid documents that dictate conventional and less-than-optimal ways of performing the tasks being outsourced?

5. The Honeymoon Effect

At the beginning of any relationship, both parties go through a honeymoon stage. Outsource providers will jump through hoops as they ramp up for their new client, who’s happy just to have someone else doing the job. But while the provider remains conscientious about meeting the company’s expectations and service levels outlined in the contract, it never progresses beyond this point. The Honeymoon Effect lingers on, even while performance levels for the services provided may be improving industry wide. The problem: while the honeymoon lasts, there’s no inherent incentive to raise service levels (or decrease the price) beyond what’s contained in the Service Level Agreements.

6. Sandbagging

Let’s look at a typical outsourcing example of sandbagging. Many times during contract negotiation, someone on the company side, often a senior manager, will ask, “Just how much can I save?” Rather than establish the highest level of savings achievable as early as possible (which would be most beneficial to the company outsourcing), the provider will sandbag and offer up the savings in smaller increments over time. Why deliver everything up front when you know that your hardnosed customer is just going to hammer you for more next quarter or next year? The providers know that total savings are made of up “low hanging fruit” and long term savings. They often hold back some improvements in an effort to manufacture future savings opportunities in case they don’t perform well in a given quarter or year.

7. The Zero-Sum Game

Companies that play this game believe, mistakenly, that if something is good for the outsource provider, then it’s automatically bad for them. Providers feel the same way from the other perspective. Many organizations fail to understand that the sum of the parts, when combined effectively, can actually exceed the whole. This was proven by John Nash’s Nobel Prize winning research, commonly referred to as game theory. The theory’s basic premise is that when individuals or organizations play a game together (or work together to solve a problem) the results are always better than if they had played against each other (i.e., worked separately).

8. Driving Blind Disease

The Driving Blind Disease afflicts companies that have not done their homework in preparing for the outsourcing engagement. Specifically, it relates to the lack of a formal governance process to monitor the performance of the relationship. Research from the Aberdeen Group shows that one of the biggest challenges organizations face today is assuring that negotiated savings are actually realized on the bottom line.

9. Measurement Minutiae

When companies try to measure everything, they usually succumb to the malady of Measurement Minutiae. What’s remarkable is the scale of the minutiae that some organizations are able to create. We have found spreadsheets with 50 to 100 metrics on them. Measurement minutiae is often associated with companies that are suffering from the junkyard dog factor and with agreements that have fallen into the activity trap. If you find yourself micromanaging your service provider, you’re either bored or you don’t trust them.

10. The Power of Not Doing

The saddest of all ailments is the one we call the Power of Not Doing. This happens when a company falls into the trap of establishing measures for the sake of measures, without thinking through how those measures will be used to manage the business. We’ve all heard the old adage that “You can’t manage what you don’t measure.” But if you don’t use your measures to make improvements, you should not expect results.

1 Vested Outsourcing: Five Rules That Will Transform Outsourcing, By Kate Vitasek. To learn more about the University of Tennessee research or Kate Vitasek’s upcoming book visit: www.vestedbook.com .

5 Principles A Sound Outsourcing Arrangement

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In our last blog, “The Future of Outsourcing,”  we introduced research conducted by The University of Tennessee. This research program studied companies that were employing performance based approaches to outsourcing. This same body of research identified five principles for developing a sound outsourcing arrangement: 1

1. Adopt an Outcome-Based vs. Transaction-Based Business Model
Most often this transaction-based model is coupled with a cost-plus or a competitively bid fixed price per transaction pricing model to ensure the buyer is getting the lowest cost per transaction.  In essence, Vested Outsourcing buys outcomes, not individual transactions.

2. Focus on WHAT not the HOW
Under Vested Outsourcing, the buyer specifies “What” they want; the provider is responsible for determining “how” it gets done.

3. Clearly Define and Measure the Desired Outcomes
Both parties must be explicit in defining the desired outcomes.  Once the desired outcomes are agreed upon and explicitly expressed, the service provider can propose a solution that will deliver the required level of performance at a pre-determined price.

4. Optimize Pricing Model Incentives for Cost/Service Tradeoffs
The fourth rule centers on a properly structured pricing model that incentivizes the optimal cost/service tradeoff – or put another way, avoids “Penny Wise and Pound Foolish” trap. The model must balance risk and reward for both parties.

5. Governance Structure Must Emphasize Insight vs. Oversight
Insight. Power of acute observation and deduction; penetration, discernment, perception. Oversight. Watchful care; superintendence; general supervision. A sound governance structure should establish good insight – not provide layers of oversight.

1 Vested Outsourcing: Five  Rules That Will Transform Outsourcing, By Kate Vitasek. To learn more about the University of Tennessee research or Kate Vitasek’s upcoming book visit:www.vestedbook.com .

The Future Of Outsourcing

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At nGROUP we offer cost savings and labor efficiency guarantees.  In meeting with potential clients, these guarantees are often greeted with skepticism and a questioning “what’s the catch” kind of look.  There is no catch.  Simply put, we enter into a performance partnership with our clients with a solid agreement that spells out our goals.

It’s important for our clients to understand how  our approach to outsourcing is based on fundamentally sound business practices.

Our outsourcing model, what we refer to as Workforce Process Outsourcing (WPO), is part of an emerging corporate trend world-wide.  The University of Tennessee, under the direction of faculty member, Kate Vitasek has led a research program to study companies that were employing performance based approaches to outsourcing.   They refer to this type of outsourcing as “Vested Outsourcing.” 1  Check it out:

  • In successful performance partnerships, companies and their service providers work together to develop performance based solutions.
  • All good [Vested Outsourcing partnerships] are based on optimizing for innovation and improved service, reduced cost to the company outsourcing , and improved profits to outsource provider.
  • Companies and their service providers work together to develop performance based solutions that are aligned to their respective interests and importantly, both parties receive tangible benefits from the relationship.
  • At the heart of a Vested Outsourcing contract is an agreement on desired outcomes that both companies will achieve.  The agreement clearly defines financial rewards for meeting or exceeding the agreed-upon outcomes and specifies the penalties for falling short.
  • Outsource provider takes on some risk; however, the provider should assume risk only for the decision within its control.
  • Companies that embark on a Vested Outsourcing agreement must put aside WIIFMe (What’s In It for Me) in favor of WIIFWe (What’s In It For We).
  • True win-win requires effort and commitment by both parties.
  • Vested Outsourcing uses the power of free market innovation to improve the outsourcing relationship and it changes the fundamental business constructs of the typical outsourcing approach.

1 Vested Outsourcing: Five Rules That Will Transform Outsourcing, By Kate Vitasek. To learn more about the University of Tennessee research or Kate Vitasek’s upcoming book visit: www.vestedbook.com .

What Is WPO?

The “New” Outsourcing  . . . Workforce Process

A new form of BPO which is becoming more popular is WPO (Workforce Process Outsourcing) or MPO (Manufacturing Process Outsourcing).  WPO involves the contracting of labor where the service provider is responsible to meet service levels at a transactional cost.  The WPO provides the labor, management, and some support functions for a cell, department, or entire facility.  The business or manufacturer is typically responsible for the facilities, inventory, equipment, quality assurance and logistics.  The specific responsibilities are worked out while negotiating the “Statement of Work.”

The WPO is a hybrid of contract staffing/temporary labor and third party logistics married to Scientific Workforce Management1. The WPO leans heavily on lean manufacturing principles and engages internal engineering support to improve productivity and control cost.  Since WPO firms bill on a transactional cost per unit basis while meeting stringent SLAs, the cost and quality are far superior to the temp labor model and the 3PL.

What Is Familiar Business Process Outsourcing (BPO)?

Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of  operations and responsibilities of specific business functions (or processes) to a third-party service provider.

Most people are familiar with the more common subsets of BPO such as RPO (recruitment), LPO (legal), KPO (knowledge), logistics (3pl) and of course ITO (information technology).  BPO is typically categorized into back office outsourcing – which includes internal business functions such as human resources or finance and accounting, and front office outsourcing – which includes customer-related services such as contact center services.

Temporary Labor On The Rise

Temporary staffing is on the rise.  The question is whether or not your temporary staffing arrangement provides you with cost effective staffing AND an increase in productivity.  Learn more about “pay for performance” and nGroup’s solutions by visiting www.nGroupWorkforce.com

The Federal Reserve Beige Book Report indicates the demand for temporary staffing  “remained on an upward trend” from mid-July through the end of August.  The report was released Wednesday.

Federal Reserve Districts in Boston, Philadelphia, Richmond VA and Minneapolis noted increases in temporary staffing. However, the Chicago district reported a slight softening in demand for the period.  Wage pressure remained modest, according to the report.

“Dallas reported that wage pressures were ‘generally nonexistent,’ with the exceptions of some airline and temporary workers,” according to the report. “Hiring of permanent employees was held down in part by employers’ reliance on temporary and contract workers, as reported by Philadelphia and Atlanta, although Boston noted that conversions from temporary to permanent staff picked up.”

Overall, the Beige Book reported growth in economic activity from mid-July through the end of August. However, there were widespread signs of economic deceleration.