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Outsourceing
The 379th Project Management Committee meeting was held on May 14, 2005 at 1100 hrs in the Conference Room. All members except the GM of Spinning were present. The agenda included the Spinning Performance Report for May 2005 and maintenance updates. Issues with motor tripping in Section IV were discussed. The document also covered strategies to reduce costs associated with IT outsourcing such as contracting costs, transition costs, vendor management costs, and costs of switching vendors. Key recommendations included being aware of all potential costs, including transition and management costs, and including flexibility and reversibility clauses in contracts.
Outsourceing
- 1. 379th PROJECT MANAGEMENTCOMMITTEE MEETING Held on: May 14, 2005 At: 1100 hrs Venue: Conference Room Attendance: Except GM Spinning, all members present, MD in chair.
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- 3. KTML SPINNING Spinning Performance Report Month : May 2005 Period ----> Unit of May 06 to May 12 May 01 to May 12 Remarks Measurm ent Desired Actual Particulars Desired Actual % Qty % Utilization Installed Capacity - Spindle No 79,520 79,520 Shifts worked No 21 21 36 36 Utilization % 99.00 98.72 99.00 97.90 Working Efficiency Average Count No 52.55 51.67 Average OPS 2.82 2.78 2.86 2.78 Working Efficiency % 94.09 92.59 94.07 91.63 Raw Material Issue Pak Ctn Kgs / % 59,231 38.30 106,484 38.38 Impt Ctn Kgs / % 69,656 45.04 126,379 45.55 PSF Kgs / % 25,763 16.66 44,584 16.07 Kgs / % 154,650 100.00 277,447 100.00 Yarn Production Kgs / % 130,946 84.67 224,520 80.92 Hard Waste Kgs / % 906 0.69 1,501 0.66 Yarn - B. Grade Kgs / % 634 0.48 1,089 0.48
- 4. Period: 06.05.2005 to 12.05.2005 Maintenance Spinning: Following intimated: Except one Orion – M all Auto Winder spindles are serviceable. M/s ACMA TEX dispatched Switcher Box which would be received by Monday. Motor Tripping in Section IV; discussed. 30 KW Motor to replace 22 KW motor being used for 18000 RPM on 22 Count frames.
- 5. IT-OUTSOURCING How to reducesearching cost Select a trust worthy vendor. Vendor should be very cooperative. Interviewing the vendor’s previous & current clients.
- 6. IT-OUTSOURCING How to reducecontracting cost Vague ideas from the contract should be eliminated. Contract should be flexible.
- 7. IT-OUTSOURCING Necessary clauses inIT outsourcing contract Evolution clauses apply both to the price and the technological flexibility as bench mark clauses. Reversibility clauses are about either material reversibility or human reversibility.One gives the company the options to buy premises from the vendor and the other allows the company to hire employees from the vendors.
- 8. IT-OUTSOURCING Hidden Cost #2 Transitioningto the Vendor Elusive cost Transition time is(1 year) 70% was no longer than 10 months
- 9. IT-OUTSOURCING Determining Transition Cost Transition cost are elusive A company incurs as long as the vendor has not completely taken over the internal IT department. The time that internal employee spent helping the vendor transition cost.
- 10. IT-OUTSOURCING Cost that stemfrom disruption and from vendor's inability to react as quickly and appropriately as the internal department the beginning of the contract are transition costs. Reducing transition Cost The first step in decreasing transition cost's to be aware of it. Companies would be well advised to avoid outsourcing activities that a idiosyncratic an to keep IT employees in house the company should know what it wants from the out source activity.Having experience with IT outsourcing
- 11. IT-OUTSOURCING Cost#3 Managingthe effort This the largest category of the hidden cost It covers three areas: Monitoring that IT vendors con fulfill there contractual obligations
- 12. IT-OUTSOURCING Bargaining withIT vendors. Negotiating any needed contract changes. Determining the cost of managing Vendor Unlike out sourcing fees vendor management costs for IT outsourcing are not readily apparent.
- 13. IT-OUTSOURCING Management costs purely internalcompanies don’t take management cost into account until they become visible so it create problem.
- 14. IT-OUTSOURCING 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 Less than $10 million Greater $10 million to 100 than $100 million million
- 15. IT-OUTSOURCING Reducing the costof managing vendor IT outsourcing experiences reduce the cost of managing the relationship the more the company the more a company deals with the IT vendor the faster it can judge the vendors performance. Trust should be cultivated in the vendor relationship this will narrow the gaps between the both parties.
- 16. IT-OUTSOURCING The fourth hiddencost comes from switching vendors or reintegrating IT activities internally: Determine the cost of transition after outsourcing. This involves finding the vendor, drafting a new contract and transitioning resources.
- 17. IT-OUTSOURCING Reintegrated costinvolves building a new internal activity from scratch. Reducing the cost of transitioning after outsourcing Awareness of outsourcing transition cost.
- 18. IT-OUTSOURCING Presence of reversibility clausesin the contract. Sufficient level of IT expertise inside the company.
- 19. Vendor search and contracting Initial cost transition cost Post IT out sourcing Cost of managing the IT- transition cost outsourcing effort Time Original idea to Outsource Beginning of the IT Change of IT vendor or outsourcing relationship reintegration of IT
- 20. IT-OUTSOURCING Steps to reducethe hidden costs The activities should not be critical or surrounded by uncertainty. Companies should spend time in researching vendors. The contracts should have clauses that specify technology evolution and reversibility The relationship with the vendors should be the best in order to get desired performance.