Grant Leach, managing director at Crossmark explains. Organisations in New Zealand are increasingly outsourcing business critical services, but why? And why now?

In a nutshell it’s because the benefits and value associated with an expert service provider delivering the service far exceed the benefits and costs of delivering it internally. And by cost I am talking about both the direct measurable financial costs, as well as the intangible indirect costs, such as staff morale.

In the FMCG environment particularly I am seeing a significant increase of outsourcing in areas that are critical to businesses profitability. Using my own company, Crossmark, as an example there has been a noticeable increase in partially or fully outsourcing in store sales and merchandising requirements.

I believe the reasons for this are multi-fold: 

• Increased pressure on manufacturers by retailers for improved representation in stores.
• Ongoing pressure on manufacturer margins. 
• For sales directors and CEOs to meet budget profit numbers it often involves reviewing cost structures. 
• Pressure on increasing efficiency and performance within the ‘last six feet of the sale’. 
• Removing the ongoing 'pain points' such as perpetual recruiting, training, and motivating a mix of full-time and part-time employees. Outsourcing allows the experts to handle these stumbling blocks.
• It allows organisations to rationalise the existing team and enable the internal resource to focus on driving growth rather than being caught up managing operations.
• Identification of new revenue growth opportunities that didn’t previously provide a positive ROI.
• It takes the pressure off a non-performing division (eg, the pharmacy division of a grocery focused company).
• Enabling a corporate to move a fixed cost base to a variable outsourced cost base.

Crossmark recently worked with one large blue chip grocery manufacturer that wanted to improve its infield performance, contain costs and enable the team to focus more of its time on areas that drive growth. Outsourcing part of its merchandising was the obvious choice, as an in-store improved compliance rate could be guaranteed, provide total cost benefits and free up management to focus on driving incremental gains with its sales team.

The overall result has increased productivity across the board in a very short period of time amounting to a significant dollar value on the bottom line. For example, if we could consistently improve the brand’s in-store compliance rate for ‘paid’ display builds across New Zealand then the savings become very significant year on year; a five percent improvement in compliance per year has the effect of reducing the number of sales that may have been lost due to the displays not being built. Five to ten percent is a saving of more than $1 million in this case.

Interestingly, there are several large organisations going through the same set of considerations and I predict that when they truly look at the value equation that outsourcing can provide, they will come to the same conclusion. The reason for this is that often it takes time for pressure to build to crunch point and companies need to see evidence that the service offered can actually deliver results, increased sales, savings, or a combination of all of these elements, as promised.

Check list

For any organisation considering making productivity gains by outsourcing in the retail environment, here is my five point check list for what you should be looking for:

1. Clearly understand your internal ‘pain points’ and what that is costing your organisation both tangibly and intangibly. You’ll be surprised.
2. Speak to a respected retail outsourcing organisation to fully understand its capability as it will often exceed an organisation’s preconceptions.
3. Clearly define the service you want to outsource – ie, sales, merchandising or an entire division.
4. Once committed to outsourcing, get your team on-board and co-develop a complete and thorough transition plan with your third-party partner.
5. Treat your new third-party service provider as a true partner and be as inclusive as possible. It is amazing what a difference it will make with respect to identifying opportunities to deliver excellent growth.