Hire in-house professionals or engage a third-party company? FMCG/CPG companies often face this issue. Two years ago, almost 90% of all CPG companies outsourced part of their processes to a third-party company and, in general, were satisfied with its results. But is outsourcing really that good?
This article examines the pros and cons of hiring in-house specialists, outsourcing and outstaffing, including how to supervise their performance.
In-house, Outstaffing and Outsourcing: what's the difference?
For the purposes of business process engineering, three possible methods are considered: in-house staff, outstaffing and outsourcing.
It’s all clear about in-house. This is a full-time employee of the company. The company pays salaries and taxes, provides benefits package, training, etc.
Confusion arises when it comes to outsourcing and outstaffing.
Outsourcing is the transfer of functions to a third-party company, while outstaffing is the hiring of personnel from a third-party company to establish a team.
Take one example. An FMCG manufacturer supplies its goods to retail chains. It needs to monitor the layout, shelf share, stock balances, etc. So, now the company lacks its own staff. The company has three options:
⦁ Recruit a full-time employee. This will be an in-house model.
⦁ Engage a third-party company that specializes in merchandising services. In this case, the contractor’s manager is responsible for process structuring and merchandising results. This is an outsourcing model.
⦁ Hire merchandisers from a third-party company that specializes in merchandising services. Third-party merchandisers join the customer’s team and work under its direction. Here, the employer is responsible for structuring the merchandising process and its results. This option is called outstaffing.
Pros and cons of in-house, outstaffing and outsourcing approaches
We will consider the main strengths and limitations of each method in terms of responsibility and scalability, since these two criteria affect the cost and time.
Responsibility — advantage. The staff member is the most responsible employee. He or she knows the product as well as possible and understands the goals of the company. In the case of “downfall” in performance, the manager can figure out what is wrong and find a way to motivate a person to improve KPIs. In addition, it is easier to supervise the activities of your employee.
Scalability — disadvantage. When expanding business (partnership with a new distribution network, entering new regions or markets), the company needs more merchandisers. Finding a team in new markets is quite a challenge. Additionally, there is a hierarchy in the management of merchandisers. Regional teams and managers are added to the organizational structure. Such a network of merchandisers becomes difficult to manage remotely.
The flip side to the coin is business downsizing. For example, a company stops cooperation with a retail chain. This means that some employees will have to be laid off. In addition to reputational risks, the company loses money previously spent on hiring and training merchandisers.
Scalability — advantage. An FMCG company hires a contractor who takes responsibility for the customer’s merchandising. This helps the FMCG business to focus on other tasks such as product development, marketing campaigns, analytics, etc. Thanks to outsourcing, the company is ready to quickly reduce or increase the number of merchandisers depending on market fluctuations or changes in business environment, without being distracted from primary targets of the business.
Responsibility — disadvantage. Still keep in mind that third-party employees are not so familiar with the goods, they have no direct motivation to give 100%, and they are not loyal to the company. You also need to take into account that supervision over the performance of merchandisers will be ensured by the contractor, so the FMCG company needs to carefully choose one.
Scalability — advantage. Similar to outsourcing, if such a need arises, the company can quickly hire the right number of merchandisers who will complement its own team of employees.
Responsibility — both advantage and disadvantage. Third-party employees do not have motivation and loyalty of an in-house merchandiser. But they work together with the customer’s merchandisers. And this means that their work is built according to the processes established by the customer, and it is the customer who supervises them.
For this purposes, IT solutions are often used, such as Goods Checker, which automatically checks the display and does not allow a previously taken photo to be uploaded into the application. This ensures that merchandiser reports are accurate and relevant.
Analyze your business to get the right approach
Each approach has its own strengths and weaknesses. For example, according to a study, in-house merchandisers can increase average monthly turnover by 25%. At the same time, another study shows that third-party companies help reduce costs by 23% compared to hiring in-house.
There is no right or wrong approach. You need to consider the goals and peculiarities of the business; evaluate business scaling opportunities, etc.
For instance, are new merchandisers needed? How soon? For how long? How much does it cost and how long does it take to hire an employee? Which is cheaper: in-house staff or a third-party company? What is the probability of reduction of business and staff? How can we supervise the outsourcing agency? What are the risks of outsourcing?
Answer these and other questions in order to understand which approach to the management of merchandising to choose.