Amelia Grant

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Author: AmeliaGrant

Common Myths About Outsourcing

When it comes to transferring a number of functions or an entire production unit to another organization, stereotypes often haunt the company. It is generally accepted that it is better to act on its own, because it will be difficult for a third-party team to understand business processes, and if it succeeds, it will be long and expensive.

On the other hand, “on the other side” there are often professionals who are versed in a highly specialized field and can build processes in the right way.

Fear of strangers
When it comes to outsourcing, mistrust occurs almost every time. Staff do not place their hopes on “outsiders,” even if the involvement of an external team is justified.

Do not be afraid of transferring a number of works "outside": objectively it will be useful. After all, a company that is faced with the task of automating pricing will gain experience and a methodological basis for building an effective business process or architecture that allows working with high-quality data. This is what outsourcing, outstaffing and business consulting contribute to.

The most common and effective pricing function for outsourcing is the formation of a new regular pricing policy. The process consists of several stages: before starting a large-scale project, a pilot is launched. Based on its results, a pricing architecture is formed, taking into account restrictions and other parameters.

Restrictions mean an assortment that is not subject to external management but must remain in the company's area of ​​responsibility. These can be specific price baskets or brands where there is a fixed price/markup.

The automation of this process is a pricing platform - a software product that provides price management and control. And there are different formats for organizing the work of external specialists.

Outsourcing is the engagement of a third-party organization to perform a number of functions or services on the basis of a contract. As a rule, it is concluded for a long period and obliges the contractor to bear responsibility for the poor-quality performance of his work area.

Its main advantage is the reduction of the company's expenses for the management of the transferred option. The outsourcing company is interested in extending the contract for the provision of services, therefore it works for the result.

Personnel outsourcing is most common in finance departments. You won't surprise anyone by outsourcing accounting or logistics. As far as pricing is concerned, the practice of outsourcing is not so popular here. However, it is there.

These can be consultations on changing the company's pricing architecture, segmenting stores for further assignment to a price cluster, applying special pricing principles for it, and much more.

Unlike outsourcing, consulting is of an episodic nature, where the contract determines the start and end dates of work. Outsourcing is transferred to a separate line of business or functionality for a long period.

In the case of outstaffing,an employee is hired from a third-party organization who deals with the area allocated for him and receives a salary on a regular basis until the end of the contract. For example, when a commercial department - category managers - deals with pricing in a retail network, then they can be unloaded by passing a number of questions to a specialized specialist.

Large-scale analytics related to the impact of pricing on a company's gross income, further restructuring of the architecture, and justification of the significance and necessity of such changes takes a long time. Often, an internal specialist simply has no time to deal with such a large block of work. Or this task is so sluggish that they return to it only with the advent of free time.

In such a situation, the best solution would be to turn to a third-party organization and distribute responsibility between the main manufacturing sector and the outsourced specialists. Outstaffing is a solution if a company specialist does not have a lot of experience behind him or is not ready to take on a larger volume of work.

Let's look at an example. Let's say a chain of perfumery and cosmetics stores wants to increase income from luxury products and at the expense of the mass market sector to increase sales of goods in pieces.

You can set suitable pricing strategies (by an AC system we mean a product that ensures regular price changes based on specified conditions and parameters), or you can develop new rules and analyze their effect. But even this will not be enough. This requires a full-fledged analytical work, including analysis:
- Mergers of stores on a common basis (this may be location, the presence of a leading competitor, a single format, etc.)
- Pricing baskets and their impact on in-store sales, cross-elasticity, defining their pricing architecture policy
- Buyers' dependence on promo sales
- Key financial indicators and the impact of pricing on them

With the help of such a full-fledged scope of work, the trading network will be able to increase profits and revenue by adjusting the cost of goods and observing a built pricing policy. AC specialists and managers will understand the logic and algorithm of the system, and only approve the prices in it.

In such cases, it is not enough to respond to competitors' prices; it is important to make the process as profitable as possible and accompanied by minimal labor costs. To do this, you need to experiment by introducing differentiated pricing and changing the rules.

This will allow you to quickly come to the growth of business indicators. With the help of a DH optimization specialist and software product, this process is faster.

Cons and pros of outsourcing
In transferring the pricing function to third parties, advantages and disadvantages can be highlighted. The main pros include:
- A fresh look at the current pricing architecture of the web. As a consequence, the revision and rebuilding of outdated processes.
- Validation of the current AC rules (i.e. search for items sold with a reduced and increased markup within a category).
- Targeted building of the product hierarchy. In other words, correct transformation of the nomenclature reference book and maintain it on a regular basis, marking additional characteristics.
- Transfer of operational tasks and focus on other key company processes.
- Price. In the long term, the payment of third-party personnel is cheaper than having an employee in the company's staffing table.

However, there are a number of cons of this approach:
- Price control is lost, and a large number of adjustments are not allowed.
- The time for approval increases, since a larger volume of rules and restrictions requires more detailed attention at the initial stage. In the future, this time is reduced due to the clarity of the logic of the application of certain rules.
- The need to revise the directory of goods, update and correct information for the purity of the analysis. Working with historical data and adding new ones according to a built-in algorithm will require additional allocation of time on the part of IT specialists.

A medium-sized business can get the maximum effect from outsourcing the tasks of the pricing unit because the processes will be correctly built with the help of highly qualified specialists. Enriching the company with knowledge and automating current tasks will increase profitability and speed of response to market changes.

As for chains with a wide range of goods and large retailers, the conclusion of an outsourcing pricing agreement pays off in less than 2 years (the average payback rate, the period depends on the scale of the business and the amount of work). This will require a large and long-term study, since the company already has its own processes that have been built over the years, but the benefits exceed the resources expended.

The introduction of pricing optimization according to predetermined rules and business goals eliminates the need for detailed price analysis for goods on regular sales. Customer service methodologically also has a positive impact on the business, as a structured pricing architecture emerges.

It should be noted the steady trend of retail chains towards automation and attracting additional resources to improve processes. This not only allows you to optimize the work of the operating personnel but also to increase the business performance of the network.


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