FMCG Sales Outsourcing – A New Era

 

Outsourcing key business processes to replace or augment in-house ones is becoming an attractive proposition.

With cost pressures increasing and traditional cost-cutting initiatives exhausted, suppliers need to explore new models for how they service the New Zealand market. A viable alternative is outsourcing. Currently this is still in its infancy and many factors need to be considered in evaluating and selecting the right partner.

Suppliers with traditional in-house operating structures are approaching a tipping point with increasing pressure forcing them to re-think how they go to market. Key to this is the recognition that despite its relatively small size, New Zealand is a unique and complex market. It has a complicated retail environment and unique cost-to-serve considerations from store-level servicing to warehousing and distribution.

New Zealand is not immune to increasing globalisation and retail consolidation and over the last decade suppliers have seen a contraction in margins through increased retailer margins and lower consumer prices. Compounding this, economists are projecting that the current exchange rate climate will worsen against the USD over the medium term while the cost of servicing the market continues to increase from a labour and infrastructure perspective.

Research into the relative profitability of multi-nationals indicates that New Zealand generally underperforms larger markets on EBIT/Sales measures. This financial pressure is only expected to worsen. Typical supplier responses to address these cost challenges have been stop-gap rather than strategic measures.

These have included reducing marketing spend which in the longer term diminishes brand equity – the primary differentiating factor to private label; and down-sizing of sales teams reducing sales effectiveness. Centralizing back office functions to Australia has its own complications with time zone differences and the lack of knowledge of the local retail and geographic environment – both of which hinder retailer relationships and administrative efficiency.

As retaining a complete in-house operation becomes less feasible, outsourcing key business processes to replace or augment in-house ones is becoming an attractive proposition. Typically outsourcing is viewed as an inferior substitute rather than having the potential to deliver enhanced performance. The reality is that with suppliers downsizing sales teams and reducing investment in infrastructure – specialized outsourcing providers can be a superior option.

Today, the processes being outsourced are various components of the sales function however the adoption and sophistication of the services being provided lag outsourcing in other industry sectors.

The immaturity of outsourcing likely stems from the lack of professional services acumen, supplier understanding of outsourcing, intense focus on price as opposed to value delivery and inadequate evaluation processes.

As such, outsourcing providers generally are not investing in the critical areas of process and technology, regulatory compliance, health and safety, internet & data security and auditability.

Currently outsourcing providers are viewed as a homogenous group all providing the same services. Similarly, selection decisions are generally based on anecdotal trade references, reputation, people and price – rather than through rigorous evaluation processes.

Unfortunately the most critical and overlooked factor to the successful evaluation and selection of an outsourcing partner is the deep investigation into how they plan, execute, measure, report – and ultimately achieve results. The Sales Dept. has recognized the changing needs of the market and is leading the way in the provision of outsourced services delivery.

Contact them at www.thesalesdept.co.nz to discuss your individual requirements and potential strategies for servicing the New Zealand market.