I had the opportunity at a recent trade conference to catch up with a friend who manages the trade and customs operations of a Fortune 500 company. The conversation quickly turned to a dilemma she faced involving the recent departures of two key staff members within a three-week period. Given that this represented half of her Import Department’s staff and that one of the positions was her supervisor of classification, it placed her in a real bind.
To top it off, her boss — an operations vice president — apparently saw this as an opportunity to score points by reducing his department’s overhead and wasn’t allowing her to back-fill the vacancies. Instead, he suggested she give the classification work to one of the Export Department’s staff, seemingly oblivious to the fact the export employee not only had a full-time job of his own, but more importantly, lacked formal training in the classification of goods within the Harmonized Tariff Schedule.
I asked my friend if she felt it might be possible to outsource the functions under a “managed services” option, as this could potentially provide the exact win-win solution to her problems.
Defined as “the practice of outsourcing day-to-day management responsibilities and functions as a strategic method for improving operations and cutting expenses,” managed services can be an effective alternative to internal staffing under the right conditions, with two of the most critical being the ability of the managed services provider to meet the customer’s service needs at a price point lower than it would cost to hire a person. The latter can often be achieved as long as the customer’s needs are fairly generic, because a managed services provider’s operating model typically spreads fixed internal resources across multiple accounts.
In determining the price point, be sure to use the position’s “fully burdened” rate, which includes those indirect costs over and above gross compensation or payroll costs, such as payroll taxes, workers’ compensation, health insurance, vacation, sick leave, and equipment and office costs. A safe estimate would be to add 40 percent of the position’s salary, although it could be higher based on your company’s benefits.
I checked back with my friend after a few weeks, and she excitedly provided me with an update. She had learned that her customs broker also provided managed services under a separate division, so she approached it as her first choice. Not only was the broker able to replicate all of the duties of the two departed employees, but its ability to provide 24-7 coverage combined with some automation tools and other services actually enhanced her department’s previous capabilities.
And, because they were her existing brokerage account, she was able to negotiate a “bundled” rate that resulted in net savings of $25,000 a year.
She went on to say that the cost of these new services were then divided by the company’s annual entry volume in order to arrive at a transaction-based “service adder” that was simply tacked on to each brokerage invoice, making it easy to pay for.
Before I could get my first “congratulations” in, however, she proceeded with the rest of the story. Although she had received praise from her boss for showing “creative initiative,” that sentiment would not be shared by the corporate Transportation Department whose budget included customs brokerage and related costs. The transportation manager apparently was furious that “his” budget would now be taking the hit for the new service fees. Instead of simply explaining the rationale for the increase to his boss — which would have included the fact that the company overall had just saved $25,000 — he elected to fight the entire proposal, which ultimately delayed its implementation for two months.
Fortunately, her story had a happy ending as the managed services option was fully implemented and has since produced even further value-added benefits.
If a managed services option sounds like it could be a solution for you, it’s also important to remember that, although the provider of such services will be “accountable” for the work, you remain fully “responsible” for managing the provider and dispensing adequate oversight, controls and performance metrics.
If you’ve already transitioned to outsourcing, give me a call. I’d like to hear your story, too.
Jerry Peck is a licensed customs broker and global trade management expert with more than 30 years experience in regulatory compliance and GTM optimization solutions. Contact him at 469-235-5229, or at firstname.lastname@example.org.