Outsourced Procurement Strategy Cost Saving by Gemma

6 Tips to Ensure Strategic Outsourcing isn't just Risky Cost Cutting

In 2016 British Airways (BA) signed a contract with a company in India, for them to be the supplier of some activities within the airline's vast IT department. This affected approximately 200 members of UK personnel but BA stated at the time that "British Airways employs around 35,000 people in the UK, providing high-skilled and well-paid jobs. It hires 1,000 people a year and has a strong apprenticeship programme."

A BA spokesman also explained, "We would never compromise the integrity and security of our IT systems. IT services are now provided globally by a range of suppliers and this is very common practice across all industries and the UK Government." Indeed it is.

However, British Airways GMB union has blamed the airline's 2016 decision of outsourcing IT jobs to India as the reason behind the major IT failure which caused severe disruption to its global operations and resulted in BA cancelling all of the Late May Bank Holiday Saturday flights from London's Heathrow and Gatwick.

The GMB union said the airline's decision to outsource hundreds of IT jobs to India last year was behind the problems and that making hundreds of IT staff redundant approximately 12 months ago, was to blame for the travel chaos.

That's quite a bold statement and it may be that in the coming days and weeks, it transpires that there's more to the IT related issues that meets the eye but for now, the outsourcing and cost cutting of business critical spend is being blamed.

After all, the airline itself blamed the computer blackout on a "power supply issue" and said there was no evidence of it resulting from a cyber-attack. BA was specifically referencing the WannaCry ransomware attack which affected 150 countries and some large organisations, including the NHS, which came to a head just a few days earlier.

"BA has made substantial profits for a number of years, and many viewed the company's actions as just plain greedy."

However, Mick Rix, national officer for aviation at the union, said: "This could have all been avoided. In 2016 BA made hundreds of dedicated and loyal IT staff redundant and outsourced the work to India."

According to the GMB website the union had, on February 29 2016, warned against BA outsourcing IT jobs.

We're going to try and remain impartial here, as hard facts are difficult to come by regarding this story. But we feel it's highly likely that current CEO, Alex Cruz, (who previously ran the Spanish budget airline Vueling) may have been brought into BA to undertake cost reduction exercises. The airline has recently removed "free" food from short-haul flights amongst other measures.

Whatever the cause, it does highlight the difference between reducing costs and maintaining quality and value. For example, in the case of British Airways' IT problems, whether outsourcing, offshoring or simply not spending enough on security and resilience measures, there will undoubtedly have been a reduction in cost to this service provision following their re-alignment to a new strategy. But that initial cost saving/ cost-cutting will now pale into insignificance compared to the £100 million plus that this could cost the airline in compensation. Oh, and the knock-on effect regarding bad PR etc.

As a business, you can always cut costs by finding something cheaper. But that's not necessarily the ethos behind cost reduction. Saving money on business critical expenditure can have serious consequences and should always be undertaken with caution. At this point, I can hear some of you inquisitively ask, "but isn't this what you lot do!?" Yes, but there's way more to what we do than simply, "finding something cheaper" for clients.

6 Tips to Ensure Strategic Outsourcing isn't just Risky Cost Cutting

To help you on the way to building a strategic outsourcing strategy for your organisation, we've compiled the following tips;

  • Rationalise expenditure - there's a fine line here so be cautious. And ask for advice if need be. There's often a way to both reduce spend and rationalise expenditure, without compromising on quality and value. But take things too far and you could end up with a scenario like British Airways did.
  • Consolidate spending and reduce supplier numbers - merging and uniting your supply chain can be a great tactic and this is where partnering with a supplier that has a range of services under one roof can save both time and money.
  • Manage supplier relationships - treat your suppliers like partners. They should always be working hard for you and should always be doing what's right by you. They should be transparent and have the ability to uncover hidden opportunities.
  • Ensure legal and regulatory compliance - there's little point realigning your business with new suppliers and partners if they neglect this. As well as some standard, supply regulation, you may have some industry specific areas of compliance which should never be overlooked.
  • Mitigate risk - no matter what your necessary outcome to your procurement strategy, you should always be looking to alleviate and lessen any risk. Especially if that part of your purchasing is business critical. Again, aligning yourselves with the right partner will ease this.
  • Improve business efficiency - another great example of how to achieve cost reduction, without sacrificing quality and value. Making your processes more efficient can be a great way to achieving your overall procurement strategy. Professionals should always be able to advise on this too.

  • The computer crash which affected British Airways in May 2017 involved their booking system, baggage handling, mobile phone apps and check-in desks, leaving passengers facing long queues and confusion in airports or delays while planes were held on runways. More than 1,000 flights were affected. This was a business critical problem. And for a company that has the resources (both financially and in personnel) to allocate to a true analysis of spend versus risk, it should never have happened.

    "As a business, you can always cut costs by finding something cheaper. But that's not necessarily the ethos behind cost reduction. Saving money on business critical expenditure can have serious consequences and should always be undertaken with caution. At this point, I can hear some of you inquisitively ask, "but isn't this what you lot do!?" Yes, but there's way more to what we do than simply, "finding something cheaper" for clients."