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Outsourcing: A Case Study – Dream Team

» Understand the rationale behind broadcasters outsourcing their technology requirements.

» Study and analyze the problems that the company could face while outsourcing.

» Understand the selection procedure that companies adopt to choose the technology service providers.

» Study the role of Chief Technology Officer in an organization in devising and implementing IT outsourcing contracts.

» Critically examine the strategic impact of outsourcing IT requirements in the organization.

Editors Note : This document presents a compelling case forlooking at outsourcing your customer contact process. You might want to compare it withthe views expressed in my article . I have personally had the opportunity to study the cases presentedon site and can vouch for their authenticity. Note that in each case the outsourceactivity was established inside the Clients organisation. Niels Kjellerup editor.

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It is introduced by Wal-Mart during the 1990 s and is considered as the latest strategy in the evolution of supply chain collaboration. Where VMI only considers inventory replenishment activities, is CPFR a comprehensive collaboration strategy that provides opportunities to involve both supplier and customer in the demand forecasting and inventory replenishment planning activities. The whole supply chain works together to decrease costs and increase revenues and customer satisfaction (Larsen, Thernøe, & Andresen, 2003). Both the supplier and customer make a sales forecast. Based on a comparison of these two forecast one general forecast will be made. This forecast will be compared to the real sales afterwards to check on differences and find out the causes of these differences. This is done to learn and improve future forecasts (Katz & Hannah, 2000). Based on the sales forecast a planning will be made. Again both the supplier and customer make an individual planning that will be compared and adapted to one general order planning. If the real sales are comparable to the planning, an automatic order will be created as agreed upon in the ordering planning. In case of significant changes in the sales and forecasted planning the automatic order will not be placed and the order planning can be changed for once (Schachtman, 2000). Thus at CPFR the supply chain works together in making one general planning, sales forecasts, and order planning that will be used by everybody. The collaborative planning within CPFR is based on a strategic level. A business plan is made to record the goal and time of the collaboration. The collaborative forecasting is on a tactical level. Partners bundle their knowledge to make one prediction of the sales and orders on short till medium term. Collaborative supplying is on operational level, here the actual deliveries are done with the order plan as starting point (Involvation, 2002) Comparison of VMI and CPFR By aligning the decisions of the different supply chain partners to each other the supply chain can be improved by among other things eliminating double and superfluous processes. An important aspect here is the balance of powers in the chain. Determining the decision making responsibilities of each partner is one of the first steps. The division of these decision making responsibilities depends on the degree of (in)dependency between partners (Involvation, 2002). - Information sharing - this can lead to cost savings and an improvement of the reliability and reactivity of the supply chain. - Redistribution of decision responsibilities - one of the parties becomes responsible for determining the order quantities. This task might include the carrying risk for shortages and surpluses. The other company provides information to execute this task. VMI is part of this category. - Central optimization - one decision-making body is responsible for the supply chain decisions. This mostly happens during vertical integration or a concentrated position of power. Next to the collective responsibilities, decentralized decisions can be made (within preconditioned context). CPFR can be applied as a solution to prevent that one party does not get all the power. When comparing VMI and CPFR based on responsiveness to replenishment some differences can be found. As explained, within CPFR a general order plan is made, which is leading for the order placements. The joint consultations leads to better forecasts, but also to less flexibility. The order plan must be adjusted in case of significant changes with the real sales, which is time consuming and leads to low responsiveness. On forehand a plan can be made for how to react in certain situations to increase the responsiveness to the market. VMI is more flexible. The supplier places the order for the customer. Decisions for changes can be made by one party since no consultation is needed, which leads to faster responses (Involvation, 2002). 17

Also in the (collaborative) planning there are different outcomes. VMI does not work with a joint planning, but only considers the sharing of information. In theory CPFR is a step ahead of VMI, both parties process all information to come up with one joint business plan (De Vos, 2002). However, in practice VMI also can apply a joint planning, but this is not common (Involvation, 2002). When considering forecasting CPFR is performing better, especially in joint forecasts. By making a forecast based on the medium term, improvements in the logistics can be made. Within VMI every party makes their own forecast that will not be shared with others (Involvation, 2002) Application of VMI and CPFR within hospitals Applications of collaboration strategies like VMI and CPFR in the healthcare sector are not one-to-one comparable with other sectors like manufacturing and retail. Healthcare supply chains are much more complex compared to other industries, which is the main reason for difficulties in implementing effective supply chain management practices (Scheller & Smeltzer, 2006) (Shah, 2004). The healthcare sector faces different inventory related problems because the responsibility of replenishment is far more critical in this sector. A stock-out in pharmaceutical products or instruments has far more consequences and is not comparable to a stock-out in for example a retail store. In addition, other general difficulties in the application might be unwillingness among other things due to privacy issues or incapability of sharing information. Also a lack of trust and the conservative culture is an additional constraint factor for the implementation of collaboration (Danese, 2006). This adds extra complexity in the implementation and make the realization of the benefits a demanding and difficult task (Matopoulos & Michailidou, 2013). Outsourcing the supply of materials can have advantages for hospitals, but it is important to have a limited number of suppliers. Outsourcing can lead to costs- and time efficiency for the internal hospital organization. Also the hospital saves storage room since fewer goods needed to be stored within the hospital. A risk of outsourcing (a part of) the logistics is the higher influence of externalities, which can lead to delayed deliveries (Ministerie van Verkeer en Waterstaat and Rijkswaterstaat, 2004). To reduce this risk it is it is important to find a service provider that is closely located to the hospital. Agreements must be made between the hospital and service provider to reduce the risks and maintain the service levels. Claasen et al. (2008) shows that in general better results will be achieved when purchasing managers invest in the relationship with the supplier and have a good IT infrastructure. Most managers expect benefits like major cost reductions when implementing a collaboration strategy like VMI, but these expectations are often wrong. Benefits can be expected from improved service levels, improved supply chain control, and some cost reductions (Claassen, van Weele, & van Raaij, 2008). Matopoulos and Michailidou (2013) show in their case study to hospital vendor collaborative practices that for the hospital specific and measurable cost reductions are achieved next to other improvements such as better inventory control. According to them limited research is available of the implementation of VMI in the healthcare sector, particularly for its adoptions (Matopoulos & Michailidou, 2013). This is confirmed by Bhakoo, Singh and Sohal (2012), they state that the application of VMI systems within the healthcare sector is largely ignored in literature. Oliveira and Nightingale (2007) investigated the relationship of two hospitals in the US with a vendor. This research showed significant improvements in areas such as product availability, visibility of data, and reduction of inventory management labour. Collaborative arrangements within the supply chain partners and their respective perceived benefits can vary significantly due to several conditional factors like product characteristics, spatial complexity, regulations, conformity of goals, and the level of trust between organization and physical attributes (e.g. size of hospital, storage capacity, level of IT 18

This is an analytical approach case study

(de Bruin, Rosemann, Freeze, & Kulkarni, 2005). For the case of RdGG and it is desired to get a visualization of the current situation and the desired future situation based on the design and to come up with the required actions that must be done for the implementation of the designed process flow. Therefore there is chosen for a prescriptive model. Since no model was found that fit this case, a Supply Chain Collaboration Maturity Model will be introduced to define the changes needed to achieve the desired future state. This model is based on several models found in literature that are combined and adjusted for this specific case of RdGG and. A clear implementation strategy helps planners and decision makers to gain a clear picture of the requirements for implementation and helps them to develop action plans that will raise stakeholder interests (Bryson, 2004). During the analysis and design phases the users were already involved. However, during the implementation phase it is still important to also focus directly on the stakeholders as they still can influence the project (Goggin, Bowman, Lester, & O'Toole, 1990) (Nutt, 2002). This will be done by means of a stakeholder engagement plan. During the analysis and design phase most stakeholders were already introduced and involved in the research. However, when implementing the design it must be clear how each stakeholder must be involved and informed during this phase. Stakeholder analysis is a crucial aspect for problem solving, as some stakeholders can have high power on a project (Bryson, 2004). Analyzing the priority and level of attention of the stakeholders will help to select the proper communication approach for each stakeholder. Different literature based models exists for mapping stakeholders. Among the commonest models of stakeholder mapping are the Power-Dynamism matrix, the Power-Interest Grid and the power, legitimacy and urgency model (Adeyanju, 2013). The power-dynamism model categorizes stakeholders based on the power they exact and the vitality of their attitude. However, the model is mostly used during the development of new strategies. The power, legitimacy and urgency model, also known as the salience model, maps stakeholders behavior into 7 types, depending on the combination of three characteristics. The stakeholders power to influence the organization. Legitimacy of the relationship and actions of the stakeholder in terms of desirability or appropriateness. The urgency of the stakeholders expectations in terms of criticality and time-sensitive (Mitchell, Agle, & Wood, 1997). However, the urgency of the implementation of the project is for all stakeholders the same, as the rehousing to the new building is set on the end of August 2015 and thus does not add a contribution. The power-interest grid determines which stakeholders should be taken into account for a certain (changed) situation (van Ham, 2012). This framework gives a clear visualization of which stakeholders are the key players, context setters, subjects and crowd. This model can be used to point out what type of engagement the organization should have with each of the groups. Therefore the power-interest grid is the chosen model to map the stakeholders. With use of this power-interest grid the engagement style is identified based on the five levels as proposed by IAP2 (IAP2, 2015). Based on the actions that needs to be done a preliminary planning will be proposed. For project implementations different planning tools can be used like the Critical Path Analysis or Gantt Chart. Since this research will propose a preliminary planning including a planning on a high level and will not include specific tasks, making it hard to find the critical path. Besides, when projects become more complex and larger with more activities it becomes more complicated to find the critical path since all aspects of the project and their time frames and interdependences needed to be identified (Choreotools, 2012). Therefore there is chosen for a Gantt Chart. A Gantt Chart makes it possible to make a clear planning for a project, based on identifying actions and indicating the reserved time and responsible person(s). PD is an ongoing process, this leads to that after the implementation plan in Chapter 7 changes can still be made in the design. This is also the case in this research since during the implementation phase 11

Case Study | Outsourcing | Business Process

The user-friendliness is of high importance since these have lots of consequences for the processes. How these changes will be received by the employees is not thoroughly investigated. As a supply chain collaboration maturity model (SCCMM) is proposed in Chapter 6, one should know that this model has not been been evaluated extensively. As explained the evaluation is done by myself (type 1 evaluation) and by Annetje Guédon and Vivian Hoeijmans that were seen as experts of the process where the SCCMM was applied on (type 2 evaluation). However, during these meetings it was not clearly communicated that their insights would be used as evaluation of the model. When considering the application of the SCCMM and the usage of the outcome I think that the types of evaluations were enough, as the model was used as support and not as a central part of this research. The SCCMM is mainly used to see where the biggest improvements must be made within RdGG and. Together with the implementation requirements set in the design chapter (Chapter 5) tasks were formed to be able to reach these maturity levels during a certain time period. When asking the question if externally storing sterile trays outside the OR-complex and implementing a pull delivery system is a good decision there is no direct answer. However, implementing such a process takes a lot of attention and actions. The total score of high classified risks decreased with almost 20% for the case of RdGG and, but if this is identical for any other hospital cannot be said. In this case a decrease in process time for loan trays can be seen. However, based on data of and RdGG can be concluded that loan trays are only used in 3% of all surgeries. There are thus no huge time saving by introducing a pull based delivery system. Cost savings will mostly occur based on the time shift from the OR department to since employees of are cheaper compared to the OR employees. An estimation of these costs is difficult to make based on the outcomes of this research, because the indicated times are not always per tray or surgery. For example the ortho meeting, which is a 15 minute weekly meeting the surgeries and needed trays for the coming two weeks are discussed. Dividing these 15 minutes per tray is not possible as the number of trays discussed per meeting varies. In the process time of the analysed and divided process flow this step is set on 15 minutes as dividing and assigning these 15 minutes to each tray is thus not possible. Besides, cleaning the trays in the washing machine and sterilization in the autoclave is performed with multiple trays at once. However, the indicated times for the current and designed process are consistent with each other. For the sterilization department clear improvements can be seen as they will be able to distribute the workload by the introduction of tray priority, leading to better and more considered choices of which tray should be first processed. Trays that must be processed to replenish the storage do not have to be processed directly, and can be processed on times when the workload is less high. It is advisable when considering a pull delivery system for the trays to first research the costs and benefits and have a clear plan before really applying. Making clear (service level) agreements on forehand, preferably on paper is an important task. 78

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Case Study | Outsourcing Center

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comes with possible failures. Providing the right environment and making clear work agreements can help to minimize these failures. The analysed risks in this research are all related to a specific process step. There are also some residual risks that did not come out nor were investigated during this research as they were out of scope, but should not be neglected. Five of those risks are described below. 1. The focus of this research was on the instrument trays, however also the procedure trays must be demand driven delivered after the rehousing. These procedure trays are manufacturer prepacked packages containing disposable products like sutures, gauzes, covering materials for the patient, syringes and needles. How to include these in the demand driven delivery must still be investigated. A possible solution can be to see these procedure trays as instrument trays and order them just as normal trays via ChipSoft. However, when digitalizing the inventories of these procedure trays the system must keep into account that these procedure trays are for single use and thus do not return to the inventory, but must be ordered at the manufacturer again. 2. A second residual risks is the bottleneck in the number of trays. It was already recommended to start an investigation to bottleneck trays. It can be that these trays are going to need a lot of attention and guidance from the users to prevent delays or even cancellations of surgeries as trays that can stand in for the missing instruments are less accessible. This may lead to inefficiencies in the process. This risk already partly became clear from the HFMEA on de designed process flow, but was not further taken into account. 3. Thirdly, there is no designed emergency procedure for when the IT-system(s) is/are down. There must be thought of an emergency process flow that must be started when support from the IT-systems is not possible. An important aspect is that both RdGG and are clearly up-to-date about when and how to start and perform this procedure. 4. Fourth, it is not clear yet for lower level disturbances in the process how to systematically tackle these, e.g. when a tray is not delivered (or the wrong tray is delivered). When implementing the proposed design these procedures must be investigated. This can be done with help of the identified risks. A step-by-step approach must be designed for these cases. This must be created besides the already recommended clear (service level) agreements between RdGG and. 5. The final residual risk is that over time extra checks might be implemented in the designed process flow as users find it difficult to relinquish responsibilities. These extra checks will cost time and make the process less efficient. Though it sounds contradictory, extra checks can also introduce more risks as tasks are done with less attention since the thought is that work will be checked later on. The slip-in of these extra checks must be closely watched to prevent this to become a standard step. Attention must be given by RdGG and to these residual risks when implementing the designed process flow. During this research a parallel project of RdGG and was ongoing for the preparations of accommodating the sterile trays at by means of pilots and meetings. This made the research more difficult because decisions were made during this research, for example the choice for the IT-systems. The question if a connection between the two systems was going to be implemented or if would to switch to ChipSoft and thus one system would be used was answered after the design was made. Next to this it is not totally clear if the suggested IT solution will be as proposed. 77

Outsourcing and Offshoring | Case Study | Content …

8 Conclusions and recommendations 8.1 Conclusions This report proposed a design for the process flow of surgical instrument trays for the future situation of RdGG and, where is going to facilitate the storage of the sterile instrument trays. This means that the delivery process will change from push to pull. The context of this study is taken into the fields of efficiency and safety, which are connected to the process flow of surgical instrument trays. Therefore, the following objective was formulated: To design a process flow for the surgical instrument trays of Reinier de Graaf Gasthuis and with the focus on safety and efficiency and to advice on its implementation, in order to handle the future situation. The chosen method is Participatory Design (PD), which provides a guideline for a structured design process. PD leads to a designed product that meets the users specific needs by actively supporting participation and involvement of a multidisciplinary team into the design and decision-making process (Pilemalm & Timpka, 2008) (Namioka & Rao, 1996). The involved users during this research were from the OR, IT and planning departments of RdGG, and the manager and team leaders of. PD is an ongoing process and thus must continue even after this research is ended. This research focused on orthopaedics, a specialism that uses a large amount of instruments during surgery and frequently use loan instrument trays. The most important changes of the designed process flow compared to the analysed current process flow are that trays will be tracked and traced during the whole process (based on scanning at fixed moments), information is more digitalized in one central system and more systematically entered/retrieved, and an interaction exists between the systems of RdGG and. During various process steps support is given by IT systems, for instance when planning surgeries based on the availability of trays and priority at. Literature states that by applying a pull based delivery system the efficiency and safety should increase. Concluded can be that this is also the case when applying a pull based delivery for the sterile instrument trays. However, no decrease in the overall inventory levels will occur as we are dealing with a closed loop system and most of the inventory will only shift from RdGG to. The number of deliveries stays the same, as these are also used to deliver and retrieve goods to and from the policlinics. An increase in the availability of the trays is expected since can process the trays based on priority, leading to an improvement of the customer service. The most important findings when comparing the current with the designed future process flow are: - The overall process time for normal trays stayed the same at around 450 minutes, whereof the process time of the OR staff decreased with 25% and the process time of increased with 23%. For loan trays the total process time decreased with almost one hour to 660 minutes. There is a decrease of 85 minutes for the OR staff which is equal to 31% and an increase in process time for of 30 minutes, which is equal to a 9% increase. - The total number of risks of the designed process of normal trays increased with 9% (6 risks), and the high classified risks increased with 10% (3 risks). For loan trays the total number of all risks has decreased with 17% (26 risks) whereof 11 (23%) of high classified risks. - The sum of the scores of the high risks is greatly reduced with almost 20% from 510 to 414, indicating that the designed future process is safer. The total number of high scoring risks is decreased with 14% (7 risks). 70

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