Why do some companies outsource their EDI processes? The same question could be asked about HR, payroll, manufacturing, and any other process that’s been shipped elsewhere. The answer you’d probably expect to hear would be ‘cost savings’, but is that the whole story, or do other factors enter into the equation?
Cost is certainly one component that will always be in the mix. If your product or process costs you X, and you can outsource it for .75X, you’d always make the decision to ship it off, wouldn’t you? Not me, at least not before looking at several other variables. Outsourcing seems to be one of those concepts that can sound good in theory, but really requires careful analysis. Very often it’s a great idea, but it’s not a ‘one size fits all’ concept.
So, what are some other considerations besides cost? Here are some key filters in evaluating processes like EDI:
- Strategic nature of the process. This is a crucial point. If your process is inextricably woven into your company strategy, then outsourcing it would be a very difficult decision. In most cases, a strategic process is best supported by internal resources. If the reputation of your brand is at stake, chances are you’ll want to control the people who are supporting strategic processes.
- Is it a core competency? If the process is one that is absolutely necessary for the success of your organization, you’ll want to keep it in-house. For example, if technical support for a complex product line is a crucial part of your company’s marketing strategy, you will want your own people performing that activity.
- Nature of the value added during execution of the process. If a high level of customization takes place during the process, and/or very specific knowledge of internal company systems and procedures is required for its completion, then outsourcing may not be a good direction. On the flip side, if a process is standardized and easily operationalized, then it may be a good candidate for outsourcing.
Once you pass these filters, a number of other aspects of outsourcing will come into play and should be analyzed. They include:
- Quality. Your outsourcing partner must be able to provide quality up to your expectations, and you must make sure this is addressed very specifically in your contract.
- Support. What sort of reputation does your potential partner have for customer support? Are they able to provide the level your customers are used to receiving?
- Flexibility. If you’re in a typical EDI shop, change is a constant. If your back-end ERP changes or a major partner has a special request that needs to be addressed, you don’t want to have to negotiate changes to a contract to get the work done.
- Scalability. When the situation calls for it, your potential partner needs to be able to scale up to support additional volume.
- Service Level Agreement support. One of the most important parts of your contract should be the SLA. You must identify all of the key operational statistics that need to be tracked and clearly communicate in the contract how they’ll be monitored, what happens if they are not met, what your exit strategy is for unsatisfactory performance, etc.
I didn’t have a lot of direct outsourcing experience in my previous role, but other parts of the company did. As in most large organizations, we outsourced a number of non-core processes and over time we became pretty inured to the concept. Mostly, outsourcing succeeded and was generally transparent to us. Heck, outsourcing our cafeteria support was one of the best ideas ever- great service and menu improvements! Some offshore programming services we utilized a few years back didn’t pan out, but that was the exception to the rule.
In our eCommerce Operations shop, as with probably every IT group in the country, outsourcing was periodically discussed. We opted to outsource the testing of our supplier side EDI in response to a huge influx of suppliers we weren’t adequately staffed to support. That worked out so well we continued with the arrangement longer term. Our customer-side EDI and eCommerce connections, characterized by a huge amount of customization and customer-specific requirements, failed 2 of my 3 filters and I don’t feel could ever be outsourced. It’s a core competency that requires a high degree of company-specific business and system knowledge that could not be successfully outsourced.
If your team is under the microscope and is being evaluated for outsourcing, what should you do? Well, if your process isn’t strategic, not really a core competency, and is pretty straightforward and repeatable, then it should become a strictly financial decision. Of course, the quality, scalability, support, and other aspects outlined above must be taken into account when partners are being evaluated, and that’s where your experience and expertise can help fill in the blanks.
In my experience, the decision criteria become a little murkier and questions about risk tolerance are raised as you get closer to actually touching a paying customer. For example, you could have every specific detail and support scenario defined in an SLA with an outsourcing partner, but if something blows up and has a negative effect on a big customer, no SLA redress will help. If, however, your process is one you execute extremely well and is essential to your strategy, you should be able to argue convincingly to keep it in-house. It really goes to defining the value-add you and your team contribute to the process and how important it is to your organization. If it’s not much and you’re just doing handoffs or quick setup work, it’s one thing. But if you’re doing heavy lifting with respect to communication, requirements definition, ERP configuration, custom mapping and map extensions, and so forth, it’s quite another.
I’m neutral on the topic of outsourcing. It makes perfect sense in some cases, in others not so much. I’ve often seen it as a ‘buzzword’ that becomes a hot topic at certain times, especially when expense reduction is being pushed or if there are concerns over capacity. When you do a thoughtful analysis of the process that’s under review, consider the risks and potential gains involved, and put it all together, reasonable minds will usually prevail. So don’t fret- if you have a good understanding of how important EDI is to your company, what value you add with your work, and what your direct and indirect costs are, you’re in a great position to not only contribute to the analysis but to also perhaps educate the organization on the importance of your role.
As usual, if you have any comments or suggestions about this topic that you’d like to communicate directly with me about, please drop me a note at This email address is being protected from spambots. You need JavaScript enabled to view it.
