Outsourcing Rigor

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Outsourcing Rigor MICHAEL KOPER AND JUAN LUEVANO FIVE STEPS FOR IMPLEMENTING OUTSOURCING ENGAGEMENTS IN HIGHLY REGULATED ENVIRONMENTS

Transcript of Outsourcing Rigor

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Outsourcing RigorMICHAEL KOPER AND JUAN LUEVANO

FIVE STEPS FOR IMPLEMENTING OUTSOURCING ENGAGEMENTS IN HIGHLY REGULATED ENVIRONMENTS

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Regulation can present major obstacles for businesses that outsource functions such as manufacturing. As with any challenge, it’s possible to manage the risks by doing your homework and making sure your provider applies the right knowledge to your outsourced engagements.

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It’s no secret that outsourcing has changed the way many organizations work. Over the next two years, 72 percent of companies worldwide plan to increase their reliance on outsourcing to some degree. Already, 96 percent are outsourcing some element of their back-office and other basic operations.1

However, in rigorously regulated environments the benefits of outsourcing becomes

less clear. In highly regulated industries such as pharmaceuticals, medical devices

and food production, failure to comply with strict procedural standards can result in

substantial penalties.

Such pressures encourage organizations to maintain careful control over their

compliance, building regulatory considerations into business processes, staff training

and documentation procedures, so everything is as it should be in case of audit. These

measures are often intricate, so it’s understandable for these businesses to be reluctant

in entrusting them to a third party.

Despite compliance risk, growing competition and constantly evolving markets

mean outsourcing still holds substantial appeal for businesses that operate in highly

regulated industries.

INTRODUCTION /03

Constantly evolving markets mean outsourcing still holds substantial appeal for businesses that operate in highly regulated industries.

1 David Brown, Phil Fersht, “Executive report: The State of Services & Outsourcing in 2014,” KPMG, www.kpmg-institutes.com/content/dam/kpmg/sharedservicesoutsourcinginstitute/pdf/2014/state-of-outsourcing-2014-exec-findings-hfs.pdf.

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This presents companies with a difficult decision: keep core processes in-house and risk

being outpaced by more resourceful competitors, or trust third party outsourcers to

take ownership over regulatory compliance.

Regulation adds complexity to the outsourcing process. But businesses can mitigate

any uncertainty by ensuring their providers build compliance into the processes and

workforces that support outsourced projects. In this paper, we present five factors

you can put in place to help you make sure your outsourced business functions meet

regulatory expectations in the long term.

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Businesses can mitigate any uncertainty by ensuring their providers build compliance into the processes and workforces that support outsourced projects.

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Can you afford to outsource highly regulated processes?

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In highly controlled environments, the cost associated with regulatory audits, fines, lost customers and even temporary closure can negate the benefits of outsourcing in the first place.

Most industries must comply with some kind of regulation. In the finance industry,

accountability and transparency are increasingly regulated to protect consumers.

Construction businesses face requirements relating to building standards, competing

land usage and occupational health and safety. According to the CDRH, the U.S. is the

world’s leader in regulatory science, medical device innovation and manufacturing, and

radiation-emitting product safety.

Some industries are more rigorously regulated than others. For example, the US

Food and Drug Administration (FDA) and the US Department of Agriculture (USDA),

respectively require pharmaceutical and food production companies to follow strict

anti–cross-contamination protocols when cleaning machinery used to process different

products. In addition to similar cleanliness standards, the FDA and DEA require

businesses in the pharmaceuticals industry to assign a serial number to every bottle, case

and pallet of certain products, to enable tracking of counterfeit or controlled substances.

Furthermore, the pharmaceuticals industry is also subject to Free Trade Zone (FTZ)

requirements as it relates to logistics and supply chain components.

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Some industries are more rigorously regulated than others.

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Fear of regulatory fall out

Failure to comply with these and other regulations exposes businesses to a range of

complicating factors. Regulatory scrutiny can result in fines and restrictions on what a

business is legally permitted to produce. Regulators can even force a business to halt

non-compliant departments or cease producing certain products until the company can

pass an audit.

These interruptions can affect product supply chains, leading to unhappy customers

and lasting brand damage. In worst-case scenarios, lack of compliance can cause cash

flow problems. Outsourcing becomes less attractive for businesses trying to use their

talent budgets in highly regulated environments.

Despite the potential dangers, outsourcing does hold inherent value for businesses

operating in highly regulated industries. Successfully outsourcing key processes

also gives businesses a competitive edge, while still providing appropriate

compliance oversight.

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Successfully outsourcing key processes also gives businesses a competitive edge.

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Ensuring compliance in outsourcing

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Applying a strong understanding of regulatory requirements to each part of an outsourced practice – including business processes, staff training and performance metrics – is essential for companies intent on outsourcing in highly-regulated industries.

Outsourcing is more than a tactical exercise in achieving cost reductions by passing

operations to third-party providers – it’s a strategic way for organizations to be more

competitive and responsive to future needs.

Companies operating in highly regulated industries need to take the long-term

approach to outsourcing, by making sure that service providers can sustain compliance

by building each of the following elements into their outsourced functions.

A proactive compliance framework

Outsourcing doesn’t absolve a business of its responsibility to comply

with industry regulations. Businesses that want to successfully outsource in

highly regulated environments must take a proactive approach to meeting their

obligations.

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Outsourcing doesn’t absolve a business of its responsibility to comply with industry regulations.

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These new arrangements must be modelled on compliance information published by

regulators, minimizing the margin for error and lowering the risk of penalties.

Building regulatory requirements into outsourcing frameworks also allows businesses

to eliminate inefficiencies and double-handling in business processes, which helps to

improve productivity and bring down operating costs.

Capable talent

Having a comprehensive compliance framework is not enough to

ensure outsourced operations meet all regulatory requirements; businesses

also need to ensure their providers employ skilled managers and teams capable

of understanding and applying regulatory protocols. Proper management reduces

operational risk and decreases regulatory scrutiny.

Managers of outsourcing engagements need the knowledge and experience to

maintain audit-proof levels of compliance – and to take action when workers breach

protocol. This is why it is essential for managers and their team members to receive

comprehensive training that reinforces the regulatory reasoning behind their daily

processes. Similarly, it is important for managers to follow rigorous procedures to

ensure all tasks and business processes are compliant and clearly documented.

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Businesses need to ensure their providers employ skilled managers capable of understanding and applying regulatory protocols.2

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Knowledge retention

High levels of turnover have an adverse effect on workers’ regulatory

knowledge and capabilities. For this reason, it’s important to make sure

workforce providers can retain regulatory knowledge within outsourced business

functions, especially over the long term.

A few keys to keeping regulatory know-how in the business is to offer a career path

with developmental opportunities to keep the workforce engaged and motivated.

By creating clear paths for career progression and offering benefits packages,

outsourcing providers can offer their workers stronger job security and motivation

to perform. This reduces workers’ incentives to leave and helps to keep valuable

compliance knowledge within the outsourced business process.

Positive workplace culture

Workplace culture is another aspect that is important for maintaining the

morale and quality of work among the workforce. Engaged employees are

easier to retain, but also more likely to take care in their work, which helps the

outsourced business process complies with regulation.

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It is essential for managers to receive comprehensive training that reinforces the regulatory reasoning behind their daily processes.

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For this reason, it is important to make sure outsourcing providers take an interest in

establishing positive environments for employees so they have greater ownership over

each outsourced business function’s regulatory compliance.

Strong accountability

Maintaining a high level of accountability in the eyes of regulatory bodies

is a good way to reduce unwanted scrutiny. If a regulator’s audit reveals that

all business processes are comprehensively documented, and that the records

show improvements in compliance, the regulator is likely to audit less frequently.

For this reason, it is important to make sure that outsourcing providers document their

compliance efforts and track improvements over time.

Internal audits are a valuable way to track a company’s compliance. By using regulatory

requirements to create audit checklists, providers can present managers of outsourced

functions and their teams with protocols that allow them to gauge how effectively

various processes comply with specific regulations.

Giving managers analytic tools also allows them to detect and remediate

noncompliance patterns that might develop over the long term. The ability to

anticipate potential protocol breaches helps safeguard outsourced business processes

against failure in future audits.

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It is important to make sure that outsourcing providers document their compliance efforts and track improvements over time.

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Five steps for effective outsourcing in highly regulated environments

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Proactive regulatory management is essential for sustained compliance when outsourcing in highly regulated environments. The following five steps will help your outsourced projects meet and maintain regulatory compliance over the long term.

1. Establish regulatory frameworks: It’s important that providers understand what

regulators expect of the business process you are outsourcing. Make sure your

provider uses guidelines and citations published by regulators as the basis for audit

checklists, and that outsourced business processes account for their compliance

with regulatory requirements.

2. Develop a well-trained team: Managers need to understand their regulatory

responsibilities. Make sure outsourcing providers offer managers and their

teams rigorous training in understanding and complying with regulatory protocols

and procedures.

3. Deploy knowledge retention strategies: By offering skilled team members

training and similar benefits to those enjoyed by full-time employees, as

well as building pathways for career progression, outsourcing providers can

reduce turnover, which helps retain valuable regulatory capabilities within

outsourced processes.

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Make sure outsourcing providers offer managers rigorous training.

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4. Create a compliant workplace culture: Managers and employees who are not

engaged in their roles are less likely to be committed to meeting requirements for

regulatory compliance. For this reason, it’s important to make sure your outsourcing

provider builds and maintains a positive workplace culture.

5. Maintain accountable processes: Compliance is an ongoing process, not a set-

and-forget solution. Check that your provider identifies relevant metrics in each

outsourced function; monitors these at least quarterly to mitigate the risk of failed

audits; and documents processes in preparation for any future audits.

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It’s important to make sure your outsourcing provider builds and maintains a positive workplace culture.

FIVE STEPS FOR EFFECTIVE OUTSOURCING IN HIGHLY REGULATED ENVIRONMENTS

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Eye-care leader reduces turnover of highly skilled staff

CASE STUDY:

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A leading US eye-care

manufacturer was

employing college science

graduates as analysts in its

research and development

department. The workers

were responsible for testing

products such as contact

lenses to ensure they met

regulatory requirements for

quality and safety.

However, a lengthy training

process and dysfunctional

workforce model was causing

a high rate of turnover

– many graduates were

leaving voluntarily shortly

after training or were forced

out due to lack of career

progression in the role.

As a result, the company

was unable to retain the

knowledge of its highly skilled

staff despite the investment

in training.

The company asked

KellyOCG to review the

workforce model and

propose a solution that

would help retain skilled

workers, while improving

productivity in its core

quality and safety testing

processes.

Based on our

recommendations, the

company transferred

managerial responsibility

for its R&D employees

to KellyOCG. Using our

experience with business

process outsourcing, we

appointed an internal

manager to oversee the

laboratories and designed a

fresh approach to workforce

management that minimized

company restrictions.

We evaluated existing

contract and employment

arrangements and designed

a fresh approach to help

retain employees. The new

arrangements gave workers

greater job security, a full

benefits package, paid time

off and a degree of certainty

about the future of their

careers. This helped establish

a positive workplace culture

and reduced incentives for

workers to leave.

We also designed new

management processes

aimed at raising productivity.

Before we were engaged,

testing on clinical submissions

took teams around 14 days

to complete. Our rationalized

management approach

reduced this to seven days

within a year, and just four

days within two years.

The company’s quality and

safety control laboratories

now operate more effectively

and have higher retention

rates. Our involvement has

helped the company access

the long-term benefits of

developing and retaining

skilled workers, while

maintaining the flexibility and

cost-effectiveness of reduced

corporate headcount.

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MICHAEL KOPER is the Manufacturing Solutions Architect for Business Process Outsourcing

practice of KellyOCG. Mike has over 20 years working in and consulting to the manufacturing

industry and has authored over 15 articles in trade magazines. Mike holds certifications as a

Manufacturing Engineer, Professional Engineering Manager and Technologist. Additionally,

Mike earned his degree in Engineering from Oakland University and a Masters in Management,

Nazareth College. He is a senior member of Society of Manufacturing Engineers as well as the

Society of Maintenance and Reliability Professionals.

JUAN LUEVANO is Director and Supply Chain Solutions Architect for the for Business Process

Outsourcing practice of KellyOCG. He began his career at Kelly working as a Lean implementation

manager for customer Delphi Energy. He has been with KellyOCG since 1999 and has held various

positions in operations, global account management and implementation. Juan attended the

University of Texas where he earned a Bachelor of Science in Economics, a Bachelor in Business

Administration in Finance, and minored in Latin American studies.

EXIT

ABOUT KELLYOCG

KellyOCG® is the Outsourcing and Consulting Group of workforce solutions provider Kelly Services, Inc. KellyOCG is a

global leader in innovative talent management solutions in the areas of Recruitment Process Outsourcing (RPO), Business

Process Outsourcing (BPO), Contingent Workforce Outsourcing (CWO), including Independent Contractor Solutions,

Human Resources Consulting, Career Transition and Executive Coaching, and Executive Search.

KellyOCG was named in the International Association of Outsourcing Professionals® 2015 Global

Outsourcing 100® list, an annual ranking of the world’s best outsourcing service providers and advisors.

Further information about KellyOCG may be found at kellyocg.com.