A Look at the Real Costs of Off-Shoring

Note: It is going to be hard to write this post without straying into the area of politics, but we'll do our best.

Over the years we have been aware of several situations where outsourcing was being used as a "solution" to perceived high costs, but in practice achieved nothing of the sort. All of you who read this can probably recount at least one such story. But of course these cost-cutting measures aren't limited to the programming world. This week we thought we'd share such a story. One that we were recently told that involves a large US corporation. This particular situation is just so ludicrous and so wasteful of time, money, goodwill, patience, etc., that we were left open-mouthed at the insanity. Probably on paper it all sounded good to the bean counters who came up with this hair-brained scheme but in practice it's another story.

In essence the idea was simple. Clerical help in the US was (relatively) expensive so, in this day of high-speed electronic communications, why not hire/contract off-shore staff to handle the processing of tasks such as orders, expense claims, etc. Sounds good in theory. What could possibly go wrong?

Well let's start with the fact that the system used by the off-shore staff requires printed copies of all documents in order to process them. Yes, seriously. Apparently nobody noted that before the contract was signed, or if they did chose to ignore it. OK, that can be fixed. Just get the person who first receives the electronic copy of the order/claim to simply print it and away we go right? Problem is that the individuals handling the requests do not have print capability. They do however have a fax machine, so the problem can be "solved" by having the US office just send them a fax copy of the paperwork. But the majority of the original documents in the US are electronic, so somebody needs to a) Print them and then b) Fax them with additional paperwork to identify what this particular document is all about.

That's an inconvenience but probably one person can do the printing/faxing for everybody. In fact they might even be able to use a fax "printer" on their PC to make the process more efficient. Probably still slightly cheaper than having enough clerical help in the US to handle everything. But wait--the bureaucrats who started this whole debacle haven't finished with us yet. The processing is being done against paper copies of documents, your management can't possibly approve the order/expense unless they can see that the paper copy is a true representation of the electronic version. What to do? Yes, you guessed it, the latest "solution" is to force the originator of the document to provide a paper copy which then has to be physically passed around for approval before finally being faxed to the processing center!

Net result? The claim/order originator, who has done everything electronically to this point, has to now stop and produce a printed copy of everything. That takes time. It has to be processed through the mail system as it passes through the approval process. That takes time. Of course that causes further delays because how many major corporations these days have all of their management chain in one location? Eventually it all winds up back in the office of the US-based coordinator, who then _manually_ faxes the paperwork and also sends the electronic versions off to the processing center. More time. Some of the documents don't fax properly and are unreadable, but of course nobody is checking them as they come in, so some days later things are further delayed while the processing center has to wait for the originator to fax another copy. More time. And we haven't even mentioned the time-consuming problems caused by different time zones, different languages, different public holidays, and on and on.

On paper it might look as if it is still cheaper than a US-based process, because 50 staff offshore plus a couple of US-based coordinators are on paper cheaper than a comparable US staff. But the bean counters never ever seem to consider the real costs. In reality, as you can no doubt imagine, it's costing far, far more. Not just in cash terms but in terms of staff, supplier and customer satisfaction.

Cash, because the originator has to spend (probably) 25-percent more time ensuring that all documents are printed, gathered and mailed--a task that's even more difficult and time consuming for a representative who spends much of their time on the road. Plus all of those highly paid managers in the approval chain also have to spend more time on each document because they have to handle both the paper and electronic versions. Then there's the manual gathering and faxing process.

Satisfaction? Let's put it this way--do you feel satisfied about a job well done when forced to perform tasks that are patently idiotic, time-consuming and error prone? Of course not. Neither do your suppliers when an order processed in such an idiotic fashion "disappears" or is so badly slowed down by your system that they are forced to confront the equally unattractive choices of: a) Annoying their real customer (your manufacturing folks) or b)Having to ship goods for which they do not have a confirmed order.

Just to add insult to injury, many companies have award schemes that pay bonuses to the folks who come up with these ideas in the first place. So here's the challenge (indeed opportunity!) to those of you working for companies who employ such practices. Put in a suggestion documenting the real costs. Point out how much money could be saved, and the huge PR benefits of providing new jobs for Americans, by bringing such jobs back in house. We may not be willing to pay the higher prices for clothes and electronics that would be required to bring manufacturing back to North America, but we can all do our bit to point out the fallacies of trying to off-shore everything!