Due to economic related challenges or opportunities and need to establish strategic competencies, companies often resort to outsourcing. This report considers the outsourcing options to be explored to ensure Travel Magazine is up and running despite budgetary constraints.
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Outsourcing involves subcontracting or giving third parties work that would otherwise be done within the organization (McIvor, 2005, p. 7). Many organizations especially in the developing world are tending towards outsourcing. Outsourcing is an easy option but it all depends on organizational characteristics.
Considerations in Outsourcing
There are many reasons why institutions choose to outsource their operations. However, at the core of the outsourcing decision is desire to develop a competitive advantage or edge. The competitive advantage is gained through being able to focus on core business, enjoying expertise that is not available in the organization, use of technology that would otherwise be expensive investing in, or benefiting from economies of scale enjoyed by the outsourcing partner.
Travel Magazine plans to outsource so as to cut start up costs due to limited capital. Outsourcing will enable the company to share assets or use the assets of other companies thus it does not have to invest in the assets. Secondly, outsourcing will enable the company to produce high quality magazines by relying on already established expertise in another company.
The company will seek out only vendors with prerequisite experience and expertise for each given outsourced service or activity. The outsourcing process will enable the company to invest the available capital in the core of the business.
Outsourcing comes with a number of benefits but there are also numerous challenges or demerits that the company has to consider in making the outsourcing decisions (McIvor, 2005, p. 23). One key concern is the capability of the company to which Travel Magazine processes are outsourced to deliver quality. Unless considerable care is taken, outsourcing could compromise the final product i.e. quality of the magazine.
Secondly, control of business of processes should be designed into the outsourcing contracts. This measure is taken into consideration because Travel Magazine as a company could easily loose control over the Magazine if all the core functions are outsourced. The outsourcing contract has to be designed in a way that it secures the company’s independence in the future. A magazine publishing company has to control its information sources.
Business Processes to Outsource
The outsourcing process starts with analyzing organizational processes to determine which ones are worthy outsourcing. Travel Magazine as a company has a number of functions that it can outsource.
The functions include accounting, editorial, photography, publishing, distribution, printing, layout, advertising, editing, articles, etc. due to budget constraints; the company has to outsource at least five functions. The guiding principle for outsourcing any of the processes or functions is its relative contribution to quality for customers, cost reduction and competitiveness of the magazine.
The processes that should be outsourced include photography, advertising, printing, distribution and publishing. Printing a magazine requires heavy investment in printing machines. Fortunately, there are many organizations that specialize in printing; printing is their core business. By outsourcing the printing process, the organization will save money i.e. no need to invest in expensive printing machines. The money saved can be invested in core business of the organization.
Photography is also worthy outsourcing because it allows the organization to focus its efforts on core business. Although photography is an integral part of the magazine quality, there are a number of organizations that specialize in such services. Outsourcing to such institutions will mean that the organization gets best shots from wherever at relatively low costs.
Secondly, taking good photographs, especially for a magazine, is dependent on many years of experience. Outsourcing such a function would ensure the company accesses experts in the field at lower costs when compared to hiring staff and developing own photography studios.
Advertising is a tricky affair because marketing determines whether a brand resonance for the magazine is built in the long run or not. Given the organization is young and has a budgetary constraint, developing a marketing branch that is fully empowered to do effective advertising may not be cost effective.
There are many marketing and advertising agencies in the market that can be used. These agencies have built the structures and mechanisms or ensuring correct and effective execution when it comes to market communication. They have the personnel with long experience of delivering on brand building and retail activations. Engaging them would mean riding on their long experience and thus following a proven track.
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Distribution is best outsourced so as to benefit from already established trade channels. If the company is to set up its own distribution channel or develop its own selling points; that would be an expensive venture. Secondly, that would mean creating competitors out of the established distributors.
There are established distributors in the market who specialize in the distribution of various magazines. All the company needs to do is sign a contract with any of them and the distribution needs are catered for. The distributors would deliver the magazine to all corners through their channels. All the company has to do is identify the niche market and thus contract a distributor with wide penetration in the niche areas.
Finally, publishing is also better off outsourced. Publishing is not a core function or process despite its importance. Once again, relying on established publishers would mean the company does not have to develop its publishing function. Developing such is an expensive venture that is capital intensive.
In the information age we live in, much magazine sales sell online. Finding a reputable publisher to publish the magazine online will be a welcome move. This will mean that the company does not have to invest in IT requirements that would facilitate online publications.
The company will maintain in-house business processes such as accounting, editorial, layout and article sourcing or development. Given the organization is going to outsource many processes; accounting has to be done in-house for proper monitoring of the different concerns.
If accounting is outsourced, the organization looses total control over processes in the way. It would have to wait or rely on accounting reports from elsewhere to maker pertinent decisions. If the process is left in-house, a financial manager can closely monitor all processes and facilitate towards better decision making by management.
Sales from a magazine and by extension profits are largely dependent on its perceived quality. Quality of a magazine is dependent on kind of information it contains, the magazine layout, language use (general look and feel matters a lot). Therefore, strategic positioning of a magazine largely depends on perceived value and import of articles contained in the machine.
The perception is build basing on article content, positioning in the magazine and general structure. It is content, then look and feel that make customers irking for the next copy of a magazine. Therefore, keeping editorial, layout and article sourcing or development in-house is of great importance.
Keeping those functions in-house helps maintain the company’s independence. As illustrated, the magazine sells based on articles and general look and feel. Therefore, if that comes from in-house, it means that the organization is actually in charge, it is the primary source of the magazine.
If those processes are outsourced and a problem or misunderstanding happens, the other institution can easily paralyze the companies operations. However, if these core functions are maintained in-house, any breach of contract or misunderstanding by providers of the outsourced services can easily be dealt with. If it is a problem to do with distributors, the organization can easily engage some other distributor or a number of distributors.
Preliminary Performance Targets/ Level of Service Expected from Vendors
Once an organization is clear about what processes are worthy outsourcing, the next step is to be clear about performance expectations (Brown & Scott, 2005, p. 25). Performance targets should guide the decision on what vendor is best suited to handle an organization’s processes. The performance levels in each outsourced process will be determined by the characteristic performance indicators in each process.
When it comes to printing, the printing vendor would have to guarantee production of timely clean copies. The vendor must have capacity to do custom printing and be timely about deliveries. A vendor that is dealing with many clients and does not have enough capacity could easily end up affecting Travel Magazine’s operations. Therefore, the vendor must have capacity that will be specifically assigned to the magazine’s printing as per schedule.
Performance in distribution is determined by level of penetration into designated niche markets. The distributor must have capacity to transport the magazines and assure protection i.e. no theft and no defacing. Timely delivery of the magazines into markets will also be of critical concern. The distributor has to have capacity to deliver the magazine to all parts of the niche market in a timely way.
All people who know how to use a camera can take photographs. However, the photographer’s expertise and photo development technology determines final quality of a photograph. The photography vendor will need to have mechanisms of ensuring quality is guaranteed and photo shooting at all designate sites is facilitated.
Quality will be guaranteed by professionals who know camera positioning and other aspects of photo shooting like depth and distance calculations. For a travel magazine, the vendor will also need illustrate capacity to avail relevant photos from all interesting sites as may be required.
Performance on the advertising front is determined by the level of brand resonance achieved and sales volume increase over time. The advertising firm will have to demonstrate capacity to develop relevant market communication and design point of sale material that adhere the magazine to target population. Retail activations are also a critical aspect of trade development and thus the agency has to have capacity to instate awesome retail execution and brand performance measurement mechanisms.
The service level expected on the publishing front has to do with acute capacity to drive internet sales of the magazine. Preferably, the organization will engage a publisher with capacity to drive internet sales volumes. Publishing online and related sales is the in-thing in the publication industry of late.
Many people spend their time online and e-trade is the way to go. The publishing company has to have capacity to complement the efforts of our editorial team by ensuring the right content is carried in the magazine and it is well structured in the layout.
Type of Contract for Outsourced Processes
The contract between company and service providers will have to be flexible enough to cater for future changes in market structure (Brown & Scott, 2005, p. 27). For example, the company was forced to outsource over five processes due to economic down turn. However, the economic fortunes are likely to change.
When it comes to distribution and publishers, the company will seek a distributor and publisher that can accept a revenue sharing kind of contract. This means that the distributor will be getting a given percentage of total revenues they help generate for the company. This kind of contract is good because it means the distributor earns of own efforts. Such an arrangement, normally, motivates distributors to drive sales highly.
The contract with printers will be a fixed price contract. A fixed price will be set for every batch of printing work done. Somehow batch estimates are predetermined; therefore, fixed contracts will work just fine. The photography work is not like the printing work due to inability to reach exact estimates of involved costs. Therefore, the company will pursue a cost plus margin kind of contract with the photography service provider.
The advertising agency will have different actions or levels of activity to drive sales. Therefore, a hybrid system consisting of cost plus mark up and fixed pricing will be used. When it comes to retail execution, cost plus mark up will be used because different costs are involved depending on geographical dispersion. Fixed pricing will be used when it comes to above the line market communications.
Criteria for Selecting Preferred Vendor
Cost reduction is the major drive towards outsourcing of business processes. However, pricing will not be the only criterion for choosing a vendor. This is so because tender prices do not often reflect quality guarantee. For each of the processes, we shall be keen on service provider capacity and characteristics.
A concern for quality and competitive edge will drive the vendor selection. Some of the required characteristics have been described under expected service levels. Each vendor will have to meet stipulated service levels at a competitive price to be awarded the tender.
Number of Vendors per Process
Some processes are better handled by a multiple vendors while some are best handled by a single vendor. In advertising, at least two vendors will be welcome. One vendor will deal with market communication especially above the line communication. Another vendor will deal with retail execution e.g. sensitization and promotion awareness activities.
In printing and publishing, a single vendors will work just fine to benefit from economies of scale due to consolidated service sourcing. More than one distributor will be used for the distribution of the magazine. Using different distributors ensures wide coverage and diffuses distributor bargaining power. Finally, a single vendor will be sourced for the photography contract. This is important for consistency plus there is little service variation needed.
Time Line for Contracting Process
|1st and 2nd Month||Prepare the Service Level Requirement based on research|
|3rd and 4Th Month||Open Tendering (RFP)|
|5th Month||Outsourcing Contract Negotiations|
|6th Month||Refining Contracts as per negotiations|
|6th Month||Contract signing and Post tendering negotiations|
|7th and 8th Month||Implementation preparations|
|9th month||Magazine Roll out|
Brown, D. & Scott, W. (2005). The Black Book of Outsourcing: How to Manage the Changes, Challenges, and Opportunities. New York: John Wiley and Sons
McIvor, R. (2005). The Outsourcing Process: Strategies for Evaluation and Management. Cambridge: Cambridge University Press