Outsourcing strategy for Travel Magazine's business processes

¶ … Procurement and Contracting Process

Assessment of procurement contracting process

Travel Magazine is a newly established new magazine, specializes in printing out the news, articles, reports, guides, special offers and many more. Established on the first quarter of 2009, the company targets its marketing campaign towards the middle-income population to achieve market advantages. Over the past six months, the founding partners have spent great deal of time developing the Business Plan and Marketing Plan, setting up a corporation, and conducting research on the operating requirements of the magazine. Despite the efforts of the partners to enhance the company growth, the company has been affected by the recession because all the investing partners have not been able to contribute the additional capital and this has threatened company growth. Since all the partners have decided not to bring in other partners at this point, they both agree to scale back the company expenses and outsource some of the business processes to restructure the cost requirements. To continue the business operations, Travel Magazine will need to outsource minimum of five business processes and will need to be in operation within nine months to hold this venture successfully.

This paper formulates research objective to enhance greater understanding on the procedures Travel Magazine will implement the outsourcing process.

Objectives

To reveal the entire outsourcing/contracting process of Travel Magazine

B: Business Process to run a Magazine Business

In a magazine business, there is business processes required to run the business successfully. Travel Magazine key business processes are accounting, photography, editorial, publishing, distribution, layout, printing, advertising, editing, and articles.

Accounting is one of the core competences in a magazine business. The accounting unit provides the overall costs that the company incurs to run business in a fiscal year. The accounting unit also calculates all the revenues that the businesses have accumulated within a year. By preparing the company balance sheet, the management is able to understand whether the company is making profits or loss. The accounting unit also has the capacity to advice the company the method to cut costs in order to boost the revenues.

Photography unit is an important business process in a magazine business. This unit provides the overall photographs that will be displayed in the magazine to attract the readers. Articles are a part of the business process. The articles may be stories, news contents or may contain subjects ranging from business to politics.

Editing unit is to edit the contents of the articles before they are published. The editors proofread the articles to reduce the grammatical errors. Editor edits the captions, photos, and ads placement to enhance marketability of the magazine.

Layout unit is to ensure that all text, articles, and photos are arranged to attract the attention of the readers. Publishing is one of the important business processes of the magazine business. The publishing deals with printing of the whole magazine. The publishing produces the magazine for the public.

Advertising is a part of the magazine business tasked to enhance the publicity of the magazine. The advertising unit could use internet, television, magazines, newspapers and radio to publicize the magazine.

The next stage is to distribute magazine to the public. Company uses distribution business process to implement this task. A distribution unit ensures that all magazines reach the target markets at a stipulated time

In a magazine business, editorial is written by a senior editorial staff revealing his opinion piece. Editorial is often published on a special page which features the letter from the member of the public.

Despite that Travel Magazine employs all these business functions for the business operations, the compare is still incurring high costs in its business process. Thus, the partners have decided to outsource some of the business processes to restructure the costs requirements.

Analysis of the Business Process to Outsource

To lower costs, Travel Magazine has decided to outsource some of its business processes. However, the company needs to identify and analyze some of the business processes to outsource. Careful analysis is very important to identify the business processes to outsource and stay in-house.

Business Process to Outsource

There are businesses areas that Travel Magazine needs to outsource to cut costs. Some of these areas are articles, editing photograph, advertising, and distribution. The business process to remain in-house is accounting, printing, publishing, editorial, and layout. The company should leave these business processes in-house because they are the core competence of the magazine business. Typically, Travel Magazine has already developed more skills in their core competence, and the company is able to deliver quality jobs on these functions than to outsource them. Moreover, the company could lower the costs by leaving these functions in-house. In addition, the core competence of the Travel Magazine is too confidential to be outsourced. Keeping this function in-house will enhance the company integrity.

The paper discusses the business process to be outsourced one by one.

Articles and Editing

Among the business processes the Travel Magazine needs to outsource are articles and editing. In the contemporary business environment, many organizations have started to take the advantages of outsourcing to lower costs, and restructuring the cost requirements using the Business Process Outsourcing (BPO).( Khalfan, 2003).

Business Process Outsourcing is a subset of outsourcing where business organizations contract some of their business functions and responsibilities to a third service provider. (Tas & Sunder 2004). Outsourcing is becoming more attractive because the competitions among the BPO vendors make the outsourcing to be more cost effective. With rapid development of Information Technology (IT), it is possible for organizations to outsource some of their businesses to the third parties at any part of the world. With IT advantages, a company could establish outsourcing contract with a third party at any part of the world, and the results are delivered electronically from the vendors from any part of the world. (Jacks, Palvia. Schilhavy. et al. 2011). In the United States, up to 90% of the companies adopt outsourcing as part of their business strategies, and many of them establish outsourcing contracts with vendors in India. (Corbett, 2004). Typically, some service providers specialize on one or more aspects of the business functions and are able to deliver these business functions at reduced costs.

Some of the aspects of the business processes of the Travel Magazine that could be outsourced at reduced costs are articles and editing. Many of the service providers specialize in articles and editing. Typically, many service providers are able to deliver high quality articles and editing tailored to the needs of Travel Magazine at reduced costs.

Photography

Photography is another area of the business functions of Travel Magazine that needs to be outsourced to lower costs. Apart from hiring a service provider to deliver high quality photograph tailored to the company needs, Travel Magazine could also seek for the service of the freelance photographers to assist the company in delivering high quality photograph. Outsourcing this function to a service provider or freelance photographers will assist the company to lower costs because a service provider or freelance photographer will only charge the company per order.

Inability to develop skilled employee for this function

From all the business processes of Travel Magazine, there are five business functions the company should outsource. They are Advertising, Distribution, Article, Editing, and Photograph. The company should outsource these functions to lower costs and concentrate on the core functions of the companies. Moreover, the company should outsource these functions to have time to develop the competence of in-house employees. The business processes that the company should keep in-house are Accounting, Printing, Publishing; Layout, and Editorial.

Table 2: Business Processes that should be Outsourced vs. In-House

Outsource Business Process

In-house Business Process

Advertising

Accounting

Distribution

Printing

Article

Publishing

Editing

Layout

Photography

Editorial

Careful selection of vendor is very critical before Travel Magazine could enjoy overall benefits of outsourcing. The paper discusses the vendor selection for the outsourced business processes.

C: VENDOR CONSIDERATION

Vendor selection may be very complicated. However, with careful selection of vendors, Travel Magazine will enjoy the benefits of outsourcing. Since the company will need to outsource different business processes, one vendor may not have all the competent to carry out all these functions. Thus, Travel Magazine will need to seek for the service of number of vendors to carry out outsourcing. Based on the business processes to be outsourced, there is a need to describe the vendor selection procedures.

Vendor Selection Procedures

There are several criteria that could assist Travel Magazine in the selection of vendors. Travel Magazine will need to form the vendor evaluation team to search and select the appropriate vendors for each of the business process. There are steps that the evaluation team should employ to select the appropriate number of vendors for the company.

1. Vendor Search

The first step is to conduct a search for vendors. By searching for vendors, the evaluation team will be able to identify the number of vendors that will meet their requirements. The requirements to identify the competent vendors are operational, technical, commercial, and legal criteria.

Operational criteria involve experience, ability to execute, management strength etc. The technical criteria involve certifications, technical qualifications, profile of employees, development capabilities and development maturity. Commercial and legal criteria for vendor selection are financial stability years in operation, Terms and Conditions, pricing mechanisms, and contract terms. (Cheung, & Hidders. 2011).

Next selection procedure is to write a Request for Information (RFI) and distribute it to the selected vendors. The evaluation team will evaluate the responses and shortlist the small number of vendors for the next round.

2. Request for Proposal (RFP)

After selecting certain number of vendors, the next stage is to Request for Proposal (RFP) as well as Request for Quotation (RFQ) to evaluate each vendor. From the content of the proposals, the company should be able to identify the list of vendors that will serve the company interest.

3. Proposal Evaluation and Vendor Selection

The next stage is to evaluate the proposal submitted and examine whether the proposals meet the business requirements. Based on the proposal, the evaluation team will calculate a Total Performance Score and select the winning vendors.

4. Contract Negotiation

The final stage is contract negotiations with the number of vendors that will deliver the business processes. Travel Magazine should negotiation the best possible deal with the selected vendors. The interest of the stakeholders should be put into consideration in the negotiation deal.

After the company has established the contracts with the selected vendors, the next stage is to track the performances of the vendors to ensure that they deliver the required performances.

Performances Target

The most effective method to track the performance of each vendor is to create a balanced scorecard. The balance scorecard provides the most effective method for measuring the performance of a vendor. The methodology to monitor the key performance areas include:

Productivity

Service quality (effectiveness of application delivery)

Achievement of financial targets

Client satisfaction

Future value

Timeliness of delivery

The scale 1, 2, 3, 4 and 5 could be used to rate the vendor performances where 1 is rated very good, 2 rated good, 3 rated average, 4 rated poor, and 5 rated very poor.

(Business Objects 2010).

Moreover, the company could also track vendor's performance-based whether the company has been able to lower costs. The operational costs before and after the contract deal will be compared. From the difference, the company will be able track the performances of the vendors.

Procurement Plan

Project Name

Business Process Outsourcing

Procurement Statement

To procure BPO of Advertising, Distribution, Article, Editing and Photograph

Estimated Costs

$2,500 for each BPO

Start Time for each BPO

05 January 2012

End Date for each BPO

05 July 2012

Contingency Planning

Contingency planning in case of unsatisfactory vendor's performances include:

Creating test period to evaluate the vendor performances

Create agreement with a vendor to refund after 30 days in case its service is not satisfactory

Start the vendor with small contract to evaluate the performances before outsourcing the entire BPO

Agree to pay the vendor on instalment

Create a back up for all IT software

Last resort. Change the vendor

(Office of Information Technology Services 2006).